In India, taxation is divided between the central government and state governments, with each having its own areas of responsibility. Union taxes are those levied by the central government, while cesses and surcharges are additional levies used for specific purposes.
1. Union Taxes
Definition: Union taxes are taxes levied by the central government of India. These taxes contribute to the central government’s revenue and fund its various functions and services.
Key Types of Union Taxes:
- Income Tax: Tax on the income of individuals and entities.
- Corporate Tax: Tax on the profits of companies.
- Goods and Services Tax (GST): Central Goods and Services Tax (CGST) is part of the GST structure collected by the central government.
- Customs Duty: Tax on imports and exports of goods.
- Excise Duty: Tax on the production of certain goods within India (excise duty on products like alcohol, tobacco, etc.).
Example:
- Income Tax: Individuals with taxable income exceeding ₹10 lakhs are taxed at 30% (plus applicable cess and surcharge).
- Customs Duty: If a company imports goods worth ₹10 lakhs, the customs duty applicable (e.g., 10%) will be ₹1 lakh.
2. Cess
Definition: Cess is a special tax levied by the central government for specific purposes or projects. It is imposed in addition to regular taxes and is used for targeted spending.
Key Types of Cess:
- Education Cess: Imposed on income tax and corporate tax to fund primary and secondary education.
- Health and Education Cess: Replaced the Education Cess in 2018. It is levied at 4% on income tax and corporate tax to fund health and education services.
- Krishi Kalyan Cess: Levied on the services provided or received to fund agricultural development (replaced by the GST).
Example:
- Health and Education Cess: If an individual’s income tax liability is ₹1,00,000, a 4% cess (₹4,000) is added, making the total tax payable ₹1,04,000.
3. Surcharge
Definition: Surcharge is an additional tax levied on top of the basic tax liability. It is used to increase the tax burden on high-income individuals or corporations, and its revenue often supports specific government initiatives.
Key Types of Surcharge:
- Income Tax Surcharge: Levied on high-income earners. The rate varies based on income brackets.
- Corporate Tax Surcharge: Imposed on companies with high profits.
- Special Surcharges: Occasionally introduced for specific purposes or to address particular financial needs.
Example:
- Income Tax Surcharge:
- For individuals earning more than ₹50 lakhs but less than ₹1 crore, a 10% surcharge is applicable.
- For those earning above ₹1 crore, a 15% surcharge applies.
- If an individual’s income tax before surcharge is ₹2,00,000, and they fall into the ₹1 crore bracket, a 15% surcharge would be ₹30,000, making the total tax ₹2,30,000.
Summary
1. Union Taxes:
- Definition: Taxes levied by the central government.
- Types: Income tax, corporate tax, GST (CGST), customs duty, excise duty.
- Example: Corporate tax of 30% on company profits, customs duty of 10% on imports.
2. Cess:
- Definition: Special tax for specific purposes.
- Types: Health and Education Cess, Krishi Kalyan Cess.
- Example: Health and Education Cess of 4% on income tax.
3. Surcharge:
- Definition: Additional tax on top of basic tax liability.
- Types: Income tax surcharge, corporate tax surcharge.
- Example: 15% surcharge on income tax for earnings above ₹1 crore.
Union taxes, cesses, and surcharges play a critical role in the Indian tax system. They ensure the central government has the necessary resources for its functions and special projects, while also addressing specific needs such as health, education, and economic development.
