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Advance Tax Payment and GST: Interplay Between Indirect and Direct Tax Obligations

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Advance tax and GST are obligatory expenses the state and central governments impose on all individuals and businesses. They are the government’s major revenue sources, which they use to build the country’s infrastructure and economy. Therefore, every responsible citizen should make advance tax payments online on time to contribute to their country’s growth. However, it is crucial to understand the interplay between indirect and direct tax obligations in India. Here’s an outlook.

Types of Taxes in India

India has a 3-tier tax structure: state government, central government, and local municipal bodies. Typically, these are classified into two broad categories: direct and indirect taxes. Let’s look at them in detail:

  1. Direct Tax: Direct tax applies to the income and profits of people. These include income tax, Fringe Benefit Tax, personal property tax, etc. The individual taxpayer bears the burden of taxation without passing it on to someone else. The Central Board of Direct Taxes (CBDT) governs and administers the direct taxation system.
  2. Indirect Tax: The government levies indirect taxes on goods and services. The taxpayer can shift the obligation to others. For instance, wholesalers can pass it on to retailers, who finally pass it on to customers. The Central Board of Indirect Taxes and Customs (CBIC) governs and administers the indirect taxation system.

Difference Between Direct and Indirect Taxes 

Let’s catch the difference between direct and indirect taxes:

Direct Tax Indirect Tax
Taxable on wealth and income Taxable on goods and services
It has a progressive nature It has a regressive nature
The taxpayer cannot shift the tax burden  The taxpayer may shift the tax burden to others

 

Types of Indirect Taxes in India

These are some common indirect taxes in India:

  • GST: Goods and Service Tax is an indirect tax applicable to the sale of various goods and services. The single, destination-based GST rates eliminate the cascading effects of taxation.
  • Excise Duty: This indirect tax applies to the sale, production, and licensing of various goods produced in the country.
  • Sales Tax: Sales tax is an indirect tax that sellers charge from buyers when selling a taxable product or service. These include manufacturer’s sales tax, use tax, VAT, wholesale sales tax, retail sales tax, etc.

Types of Direct Taxes in India

These are some common direct taxes in India:

  • Income Tax: This tax applies to any profit from investments, salaries, property purchases, business, etc. 
  • Corporate Tax: It is a direct tax applicable to a registered company’s profits in India. 
  • Capital Gains Tax (CGT): This tax applies to profits earned from asset sales, including real estate, bonds, stocks, and other investments. 

Pros and Cons of Direct Taxes

Pros:

  • Low-income individuals pay lower tax rates than those with higher incomes, encouraging a progressive and impartial nature.
  • Reduce inequality and curb inflation.

Cons:

  • Possibility of fraudulent practices that taxpayers may use to reduce or eliminate their tax liabilities. 
  • The documentation process is time-consuming and complex, creating inconvenience for taxpayers.

Pros and Cons of Indirect Taxes

Pros:

  • Ensures the contribution of every individual towards the country’s development
  • The payment process is quick and convenient as the product price already includes the tax rate 

Cons:

  • Increases the overall price of products and services
  • Lack of civic consciousness for taxpayers
  • Same tax and GST rates for the rich and the poor

What is Advance Tax, and Who Must Pay it?

Advance tax is the tax amount paid in advance through instalments in a financial year. It facilitates smooth tax collection for the government while preventing taxpayers from a lump sum tax burden at the year’s end. Any individual with tax liabilities can make an advance tax payment online. However, senior citizens without income from a profession or business are exempt. 

Stepwise Procedure for Advance Tax Payment Online

Follow these steps to make an advance tax payment online:

  • Visit the e-filing portal at www.incometax.gov.in.
  • Select e-Pay Tax under Quick Links.
  • Fill in the PAN details and verify by entering an OTP received on your registered mobile number.
  • Select the assessment year and payment type as ‘advance tax (200)’.
  • Fill in the tax payment details under relevant categories.
  • Select the payment mode from the available options.
  • Click ‘pay now’ to make the advance tax payment online. 
  • After completing the payment, download the challan form for records. 

Remembers to choose a secure and reliable payment gateway provided by leading financial institutions to make the payment. You can pay through net banking, UPI, credit card, or debit card.

Direct and indirect taxes are pivotal for the country’s income generation and financial management. Focusing on each individual’s profits and income, direct taxes ensure fairness. On the other hand, indirect taxes target the sale of products and services. Thus, they largely impact the overall economic growth and consumption patterns. The interplay between direct and indirect taxes is crucial for advance tax payment online, as they largely affect the GST rates and other tax obligations.


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