In broad terms, tax is money that people have to pay to the government of their country. Taxes are used to pay for people who work for the government, such as the military and police, provide services such as education and health care, and to maintain or build things like roads, bridges and sewers. Tax payers have to adhere to statutory compliance norms, failing which, they are punished by legislative authorities.
What is Tax?
A tax is a compulsory financial charge or other levy imposed on a taxpayer by a government in order to have the funds for different sorts of public expenditures. When a person falling in the tax slab, fails to show any investments and still hasn’t paid tax comes in the eyes of the Income Tax Department, he or she is penalised by the law. The ability of the government to raise taxes is known as its fiscal capacity. When the tax revenue is less than the expenditure, the government goes into debt. To clear past debts, the portion of tax collected can be used.
What is tax compliance?
Tax compliance refers to taxpayers’ decision to comply with tax laws and regulations by paying their taxes accurately and on time. It involves being aware of and observing the state, federal, and international tax laws and requirements set forth by government officials.
What are the types of employment taxes?
There are two types of taxes in India: direct tax and indirect tax.
Direct taxes: Direct tax is a tax that you directly pay to the authority that imposes the tax. For instance, income tax is imposed by the government, and you pay it directly to the government. These taxes cannot be transferred to any other entity or person.
Some examples of direct tax include income tax, capital gains tax, securities transaction tax, perquisite tax, corporation tax, and wealth tax.
Indirect taxes: Unlike direct taxes which are imposed on taxable income and profits, indirect taxes are levied on goods and services. While direct tax is directly paid to the government, there is generally an intermediary for collecting indirect taxes from the end-consumer and passing on the received tax to the government.
Some examples of indirect tax include GST, sales tax, service tax, customs duty (on goods), excise duty and VAT.
How to ensure tax compliance?
As a responsible citizen of the country, every working professional must comply with the tax laws imposed by the government and other authorities. To keep a check on tax compliance, there are largely 6 ways:
- Monitoring requirements regularly
- Interpret and choose the best
- Update your systems and processes
- Check if the updates work
- Deploy to your production system
- Conduct auditing and assurance
Failing to ensure tax compliance can lead to legal actions. For example, while filing ITR, if a person has some taxable income but the ITR has not been filed, the Income Tax Department issues a legal notice to the defaulter.