A direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that restaurants, theatres and e-commerce websites charge you on for goods or a service. This tax is, in turn, passed down to the government. Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value added tax or VAT on goods such as clothes and electronics.
Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.
Let us discuss the entire process of income tax in India.
Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money.
For simpler classification, the Income Tax Department breaks down income into five heads:
| Head of Income |
Nature of Income covered |
| Income from Salary |
Income from salary and pension are covered under here |
| Income from Other Sources |
Income from savings bank account interest, fixed deposits, winning KBC |
| Income from House Property |
This is rental income mostly |
| Income from Capital Gains |
Income from sale of a capital asset such as mutual funds, shares, house property |
| Income from Business and Profession |
This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers |