Taxes in India are levied by the Central Government and the state governments.

Some minor taxes

are also levied by the local authorities such as the Municipality.
The authority to levy a tax is derived from the Constitution of India which allocates the power to levy
various taxes between the Centre and the State. An important restriction on this power is Article 265
of the Constitution which states that "No tax shall be levied or collected except by the authority of
law."
[1]
Therefore each tax levied or collected has to be backed by an accompanying law, passed
either by the Parliament or the State Legislature. In 2013-2014, the gross tax collection of the Centre
amounted to 13.64 Trillion.





Types of tax
Type of Taxes in India:-
Direct Taxes:-
These types of taxes are directly imposed & paid to Government of India. There has been a steady
rise in the net Direct Tax collections in India over the years, which is healthy signal. Direct taxes,
which are imposed by the Government of India, are:
(1) Income Tax:-
Income tax, this tax is mostly known to everyone. Every individual whose total income exceeds
taxable limit has to pay income tax based on prevailing rates applicable time to time.
By doing investment in certain scheme you can save Income Tax.
Also Read:- 14 Tax Saving Options 2014
For FY 2014-15 Income tax rates are:-

(2) Capital Gains Tax:-
Capital Gain tax as name suggests it is tax on gain in capital. If you sale property, shares, bonds &
precious material etc. and earn profit on it within predefined time frame you are supposed to pay
capital gain tax. The capital gain is the difference between the money received from selling the
asset and the price paid for it.
Capital gain tax is categorized into short-term gains and long-term gains. The Long-term Capital
Gains Tax is charged if the capital assets are kept for more than certain period 1 year in case of
share and 3 years in case of property. Short-term Capital Gains Tax is applicable if these assets
are held for less than the above-mentioned period.
Rate at which this tax is applied varies based on investment class.
Example:-
If you purchase share at say 1000 Rs/- (per share) and after two months this price increased to
1200 Rs/-(per share) you decide to sale this stock and earn profit of 200 Rs/- per share. If you do
so you have to pay Short term CGT (capital gain tax) @ 10% +Education cess on profit as it is short
term capital gain. If you hold same share for 1 year or above it is considered as long term capital
gain and you need not to pay capital gain tax.it is considered as tax free.
Similarly if you purchase property after two year if you find that property price in which you
invested has increased and you decide to sale it you need to pay short term capital gain tax.
For property it is considered as long term capital gain if you hold property for 3 years or above.
(3) Securities Transaction Tax:-
A lot of people do not declare their profit and avoid paying capital gain tax, as government can
only tax those profits, which have been declared by people. To fight with this situation
Government has introduced STT (Securities Transaction Tax ) which is applicable on every
transaction done at stock exchange. That means if you buy or sell equity shares, derivative
instruments, equity orientedMutual Funds this tax is applicable.
This tax is added to the price of security during the transaction itself, hence you cannot avoid
(save) it. As this tax amount is very low people do not notice it much.
Current STT Rates are:-

(4) Perquisite Tax:-
Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was abolished in 2009,
this tax is on benefit given by employer to employee. E.g If your company provides you non-
monetary benefits like car with driver, club membership, ESOP etc. All this benefit is taxable
under perquisite Tax.
In case of ESOP The employee will have to pay tax on the difference between the Fair Market
Value (FMV) of the shares on the date of exercise and the price paid by him/her.
Online Income Tax Calculator
(5) Corporate Tax:-
Corporate Taxes are annual taxes payable on the income of a corporate operating in India. For the
purpose of taxation companies in India are broadly classified into domestic companies and foreign
companies.

In addition to above other taxes are also applicable on corporates.
Indirect Taxes:-
(6) Sales Tax :-
Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is charged by Union
Government, while sales tax on intra-State sale (sale within State) (now termed as VAT) is charged
by State Government.
Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during
import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax
only on sale within the State.
CST is payable on inter-State sales is @ 2%, if C form is obtained. Even if CST is charged by Union
Government, the revenue goes to State Government. State from which movement of goods
commences gets revenue. CST Act is administered by State Government.
(7) Service Tax:-
Most of the paid services you take you have to pay service tax on those services. This tax is called
service tax. Over the past few years, service tax been expanded to cover new services.
Few of the major service which comes under vicinity of service tax are telephone, tour operator,
architect, interior decorator, advertising, beauty parlor, health center, banking and financial
service, event management, maintenance service, consultancy service
Current rate of interest on service tax is 10.3%. This tax is passed on to us by service provider.
(8) Value Added Tax:-
The Sales Tax is the most important source of revenue of the state governments; every state has
their respective Sales Tax Act. The tax rates are also different for respective states.
Tax imposed by Central government on sale of goods is called as Sales tax same is called as Value
added tax by state government.VAT is additional to the price of goods and passed on to us as
buyer (end user). Around 220+ Items are covered with VAT.VAT rates vary based on nature of item
and state.
Government is planning to merge service tax and sales tax in form of Goods service tax (GST).
Also Read:- Download new 15G/15H Forms
(9) Custom duty & Octroi (On Goods):-
Custom Duty is a type of indirect tax charged on goods imported into India. One has to pay this
duty , on goods that are imported from a foreign country into India. This duty is often payable at
the port of entry (like the airport). This duty rate varies based on nature of items.
Octroi is tax applicable on goods entering in to municipality or any other jurisdiction for use,
consumption or sale. In simple terms one can call it as Entry Tax.
(10) Excise Duty:-
An excise or excise duty is a type of tax charged on goods produced within the country. This is
opposite to custom duty which is charged on bringing goods from outside of country. Another
name of this tax is CENVAT (Central Value Added Tax).
If you are producer / manufacturer of goods or you hire labor to manufacture goods you are liable
to pay excise duty.
[nextpage title="Another 10 types of Taxes in India"]
(11) Anti Dumping Duty:-
Dumping is said to occur when the goods are exported by a country to another country at a price
lower than its normal value. This is an unfair trade practice which can have a distortive effect on
international trade. In order to rectify this situation Central Govt. imposes an anti dumping duty
not exceeding the margin of dumping in relation to such goods.
Other Taxes:-
(12) Professional Tax :-
If you are earning professional you need to pay professional tax. Professional tax is imposed by
respective Municipal Corporations. Most of the States in India charge this tax.
This tax is paid by every employee working in Private organizations. The tax is deducted by the
Employer every month and remitted to the Municipal Corporation and it is mandatory like income
tax.
The rate on which this tax is applicable is not same in all states.
(13) Dividend distribution Tax:-
Dividend distribution tax is the tax imposed by the Indian Government on companies according to
the dividend paid to a companys investors. Dividend amount to investor is tax free. At present
dividend distribution tax is 15%.
(14) Municipal Tax:-
Municipal Corporation in every city imposed tax in terms of property tax. Owner of every property
has to pay this tax. This tax rate varies in every city.
(15) Entertainment Tax:-
Tax is also applicable on Entertainment; this tax is imposed by state government on every
financial transaction that is related to entertainment such as movie tickets, major commercial
shows exhibition, broadcasting service, DTH service and cable service.
(16) Stamp Duty, Registration Fees, Transfer Tax:-
If you decide to purchase property than in addition to cost paid to seller. You must consider
additional cost to transfer that property on your name.
That cost include registration fees, stamp duty and transfer tax. This is required for preparing
legal document of property.
In simple sense this tax is imposed on the handing over of the title of property ownership by one
person to another. It incorporates a legal transaction fee & stamp duty. This amount varies from
property to property based on cost.
(17) Education Cess , Surcharge:-
Education cess is deducted and used for Education of poor people in INDIA. All taxes in India are
subject to an education cess, which is 3% of the total tax payable. The education cess is mainly
applicable on Income tax, excise duty and service tax.
Surcharge is an extra tax or fees that added to your existing tax calculation. This tax is applied on
tax amount.
(18) Gift Tax:-
If you receive gift from someone it is clubbed with your income and you need to pay tax on it. This
tax is called as gift tax.
This tax is applicable if gift amount or value is more than 50000 Rs/- in a year.
(19) Wealth Tax:-
Wealth tax is a direct tax, which is charged on the net wealth of the assessee. Wealth tax is
chargeable in respect of Net wealth corresponding to Valuation date.Net wealth means all assets
less loans taken to acquire those assets. Wealth tax is 1% on net wealth exceeding 30 Lakhs (Rs
3,000,000). So if you have more money, assets you are liable to pay tax.
(20) Toll Tax:-
At some of places you need to pay tax in order to use infrastructure (road, bridge etc.) build from
your money given to government as Tax. This tax is called as toll tax. This tax amount is very
small amount but, to be paid for maintenance work and good up keeping.
So in total you pay 20 different taxes in direct or indirect way. At the end in order to make you
laugh i will tell you one small joke on tax.
What is Capital Asset ?
Capital Assets are the properties which can be held by a person . Some examples are Real Estate
, Shares , Mutual Funds , Gold and Debt Funds . FDs and other fixed returns Instruments are
not part of it .
Taxation
For taxation of Capital Assets , read this : How to use your looses to Reduce Tax
How to Calculate Capital Gains ?
Most of the people think that
Capital Gain = Sell Price Purchase Price
But , Actually the real formula is
Capital Gain = Sell Price Indexed Purchase Price
What is Indexation ?
Indexation is a technique to adjust income payments by means of a price Index , in order
to maintain the purchasing power of the public after inflation. We must understand that
prices in general also rises, so the actual prices should not be used while computing the
profits , rather It should be Indexed as per Inflation in the country ,so that people can get
the real value from sale of there assets . Indexation is used in Tax treatment for Debt , Gold
and other asset classes
What is Cost Inflation Index (CII) ?
Year CPI
1981-82 100
1982-83 109
1983-84 116
1984-85 125
1985-86 133
1986-87 140
1987-88 150
1988-89 161
1989-90 172
1990-91 182
1991-92 199
1992-93 223
1993-94 244
1994-95 259
1995-96 281
1996-97 305
1997-98 331
1998-99 351
1999-00 389
2000-01 406
2001-02 426
2002-03 447
2003-04 463
2004-05 480
2005-06 497
2006-07 519
2007-08 551
2008-09 582
2009-10 632
2010-11 711
2011-12 785
2012-13 852
How to Calculate Indexed Purchase Price ?
Indexed Purchase Price = Purchase Price * (CPI for current year / CPI for year of
purchase)
Once you have Indexed Purchase Price , you can subtract it from Sale Price and get your capital
gains .
In some products Long term Capital gains is around 20% with Indexation and 10% without
Indexation . In Equities Long term Capital Gains is exempt from Tax .
Let take an Example

Purchase Price 1000000
Year of Purchase 1995
Sale Price 2500000
Year of Sale 2008
No of Years 13
Purchase CII 281
Sale CII 582
Indexed Purchase Price 2071174
Capital Gain 428826
Tax with Indexation 85765
Tax without Indexation 150000


I hope the above example is clear . Below is the calculator I have created for you to calculate
Capital Gain tax for your self. Just play with different numbers . Just enter the year of Purchase
and Sale and It will figure out the CII (incase it does not, please put CII yourself)
Capital Gains Calculator
I have made a Calculator for you : http://public.sheet.zoho.com/publish/manish.pucsd/temp
Capital Gains Tax with Indexation and Without Indexation
There are some asset classes where you have the choice of using Indexation or not . This is true
for debt funds and FMPs. So the current rate is either 20% with Indexation or 10% without
Indexation for Long term Capital Gains .
For Tax without Indexation , you simply find out normal profit (sale price cost price) and then
calculate the tax .
So you can calculate tax using both ways and then choose the one which is lower .
How to save your Capital Gains Tax ?

For people who are miser and do not like to pay lot of taxes , govt has provided some relief to
them . Govt says that If you dont want to pay tax on your capital gains , you can do following
things to save your taxes .
Invest your Capital Gains in Real Estate :If you invest your Capital Gains in Real estate within
2 yrs , you will get the the exemption .
Invest in Capital Gain Bonds :There are some specific bonds issued under sec 54EC , some of
them are NHAI or REC bonds . You have to invest in these bonds within 6 months. Generally
the lock in period is around 3+ yrs . interest on NHAI or REC bonds is around 5-5.5% .
Tax on Capital Gains can be different for different People
Please note that Capital Gains tax can vary from one person to other person depending on which
tax bracket he/she belongs to . It will also depends whether Tax with Indexation or without
Indexation works out to be cheaper for him or not .

Note :For calculation purpose the Financial years are business year from April Mar , Not Jan Dec . If you
buy in June 2009 and sell in Jan 2010 , you are in the same year not 2 different years .

Conclusion

So , In this post we learned how you can calculate capital gains and also take advantage of tax
benefits for saving your taxes on capital gains , Your aim should be to understand the process
and learn about it, so that you can take informed decisions in your financial life . No one should
take advantage of your ignorance and also to take quick decisions and make rough calculations
when there is a need. If you know these rules , you can take better decisions
Questions for you
Suppose you are age 30 .
In June , 2000, You buy 20 lacs Home
In Aug , 2007, You buy stocks worth 10 Lacs
In April , 2008 , your sell your house at Rs 30 lacs
In June 2008 , your stocks have gone down in value are worth Rs 3 lacs now .
What should you do to avoid paying any tax on capital gains made from House ?

In previous post I have discussed What is NPS , New Pension Scheme by Govt of India . Read it




Capital gain
A capital gain is a profit that results from a disposition of a capital asset, such as stock, bond or real
estate, where the amount realized on the disposition exceeds the purchase price. The gain is the
difference between a higher selling price and a lower purchase price.
[1]
Conversely, a capital
loss arises if the proceeds from the sale of a capital asset are less than the purchase price.
Capital gains may refer to "investment income" that arises in relation to real assets, such
as property; financial assets, such as shares/stocks or bonds; and intangible assets.


Computation of Short Term & Long
Term Capital Gain Tax in India

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At the time of Sale of any Asset, Tax is liable to be paid on the Gains earned on the sale
of Asset. Such Gains could either be Short Term Capital Gains or Long Term Capital
Gains. The basis of such Classification in the Income Tax Return has been given
below:-
1. Short Term Capital Gain (STCG): If the Asset is held for less than 36 Months
2. Long Term Capital Gain (LTCG): If the Asset is held for more than 36 Months
The classification of short term & long term capital gains and their tax rates is different
in case of Shares and Mutual Funds. This article focusses on computation of capital
gains for all assets except Shares and Mutual Funds. For computation of capital gains
on sale of shares and mutual funds refer the following article.
Recommended Read: Capital Gains Tax on sale of Shares and Mutual Funds
Capital Gain Tax Rate for all Assets except Shares and Mutual Funds
Short Term Capital Gain Tax Rate: As per normal Income Tax Slabs
Long Term Capital Gain Tax Rate: 20%
Computation of Short Term Capital Gain
Gains arising at the time of sale of Short Term Capital Asset shall be computed in the
following manner:-

Full Value of Consideration xxx
(Less) Expenditure incurred wholly and exclusively in connection with such Transfer/Sale xxx
(Less) Cost of Acquisition xxx
(Less) Cost of Improvement xxx

Gross Short Term Capital Gain xxx
(Less) Exemption (if any) available u/s 54B/54D/54G/54GA xxx

Net Short Term Capital Gain xxx
Tax as per the Income Tax Slab Rates shall be payable on the Short Term Capital Gain
computed above
Computation of Long Term Capital Gain
Gains at the time of sale of Long Term Capital Asset shall be computed in the following
manner:-

Full Value of Consideration xxx
(Less) Expenditure incurred wholly and exclusively in connection with such Transfer/Sale xxx
(Less) Indexed Cost of Acquisition xxx
(Less) Indexed Cost of Improvement xxx

Gross LTCG xxx
(Less) Exemption (if any) available u/s 54/54B/54D/54EC/54ED/54F/54G xxx

Net LTCG xxx

Tax @ 20% shall be payable on the Long Term Capital Gain computed above and
Advance Tax shall also be liable to be paid on such Capital Gain.
Recommended Read: Due Dates for Payment of Advance Tax
In case a loss arises on the sale of an asset, the capital loss can be set-off against other Capital
Gains in that year. If the Loss cannot be set-off against capital gain in that year, it can be carried
forward for the next 8 years and set-off in the future years. However, loss can only be carried
forward if the return was filed before the due date.
Recommended Read: Treatment of Capital Loss for Income Tax purposes

The meaning of the terms mentioned above in the computation of Long Term Capital
Gains and Short Term Capital Gains have been explained below
FULL VALUE OF CONSIDERATION
Full Value of Consideration means what the transferor receives or is entitled to receive
as consideration for the Sale of Property /Asset. This Value may be in cash or in kind
i.e. in exchange for an Asset.
In case of exchange of an asset, the full value for the computation of Capital Gains shall
be the Fair Market Value of the Property (Asset) granted in exchange. Fair Market
Value in relation to Capital Gains means the price which the Property (Asset) would
normally fetch if sold in the open market on the Relevant Date.
In case, the full value of consideration is received in installments in different years, the
entire value of consideration shall be the Market Value of the Property/Asset granted in
exchange.
EXPENSES ON TRANSFER
Expenses on Transfer include any expenditure incurred, whether directly or indirectly,
for the purpose of transfer like Advertisement Expense, Brokerage Expense, Stamp
Duty, Registration Fees, and Legal Expenses etc. However, any expense which has
been claimed as a deduction under any other provision of the Income Tax Act cannot be
claimed as a deduction under this Clause.
COST OF ACQUISITION
Cost of Acquisition is the price which the assessee has paid, or the amount which the
assessee has incurred, for acquiring the Property /Asset. The Expenses incurred at the
time of completing the title are a part of the cost of acquisition.
In cases where the Capital Asset became the property of the assessee in any of the
manners mentioned below, the cost of acquisition shall be deemed to be the cost for
which the previous owner of the property acquired it:-
1. On the Distribution of Assets/ Total Partition of HUF
2. Under a Gift or Will
3. By Succession, Inheritance or Devolution
4. On Distribution of Assets on Liquidation of a Company
Where the cost for which the previous owner of the capital asset acquired the property
cannot be ascertained, the cost of acquisition to the previous owner shall be the fair
market value of the asset on the date on which the asset became the property of the
previous owner. The Interest on money borrowed for acquiring the capital asset will also
form a part of the cost of Asset [CIT v Mithlesh Kumari (1973) 92 ITR 9 (Del)]
COST OF IMPROVEMENT
All Capital Expenditures incurred in making any additions or alterations to the Capital
Asset by the Assessee after it became his property or alterations to the capital asset by
the assessee after it became his property shall be deductible as the Cost of
Improvement. If the Asset was transferred to the assessee under the cases specified
immediately above, the capital expenditure incurred by the previous owner shall also be
treated as cost of improvement.
However, the Cost of Improvement does not include any capital asset which is
deductible in computing the chargeable under head- Income from House Property,
Profits or Gains of Business or Profession, or Income from Other Sources. Only the
Capital Expenses are considered as a cost of Improvement and routine expenses on
Repairs and Maintenance do not form part of cost of improvement.
For the purpose of Computation of Long Term Capital Gain, Indexation using the Cost
Inflation Index shall be done to the Cost of Acquisition & Cost of Improvement and the
resultant figure shall be the Indexed Cost of Acquisition & Indexed Cost of Improvement
for the purpose of computation of LTCG
Indexed Cost = Actual Cost * Cost Inflation Index of the Year of Sale
Cost Inflation Index of the Year of Purchase
The Assessee also has the option of not opting for Indexation and the Long Term
Capital Gain Tax Rate in this case shall be 10%
Recommended Read: Computation of Capital Gains using Cost Inflation Index
The Tax on Long Term Capital Gains can also be saved by investing these Gains in
specified securities for a certain period of time. For more on how to save Capital Gains
Tax, refer the following article.
How to save Long Term Capital Gains under Section 54
All about Capital Gains Account sceheme