Different Types of Taxes In India – Know Exemptions, Due Dates & Penalties

As responsible citizens of India, we all understand the importance of paying taxes to the government. Tax is nothing but a specified amount of money that is mandated by the Indian government on every citizen earning a certain income up to a defined limit. This money is utilized for the maintenance of public services offered to the citizens in return for the taxes they pay, such as education, public transportation, and other such public welfare utilities provided by the government. Here we talk about the different types of taxes in India, their exemptions, due dates, and penalties to give the Indian taxpayer a fair idea of the system.

Different Types of Taxes

As per the Indian taxation system, the tax payable by the Indian citizen to the government is of two different types of taxes:

1. Direct Tax

As the name evidently suggests, this tax refers to the one that is directly imposed on an individual by the government and is non-transferable. In other words, a direct tax simply means that it needs to be paid by the person directly to the government and cannot be payable by anybody else. Direct tax is hence directly levied on an individual’s income earned. This has to be borne by the person earning that amount of income and cannot be shifted to anyone else for payment. A few examples of direct taxes payable in our country include income tax, gift tax, corporate tax, wealth tax, and the like.

2. Indirect Tax

This is one of the other types of taxes in our country and is named indirect tax. This is because this particular tax is imposed by the government not on the income of the individual but on the goods and services availed. Also, indirect tax can be transferred from one person to another, meaning that the burden of tax payable can be shifted to another taxpayer. A few examples of indirect tax include customs duty, goods and services tax, and central excise duty.

Direct Tax 

We mentioned above a few examples of direct tax. Among these, income tax is the most popular form of direct tax payable. Let us look at it in detail.

Income Tax is definitely the most commonly known type of direct tax which is levied on an individual with regard to the specific income or revenue they earn. This income is therefore commonly referred to as taxable income.

Income tax is called direct tax because it is directly payable to the  Government of India by an individual taxpayer. This tax is levied directly on the income or revenue earned by the individual, becoming the most important revenue source for the Indian government towards the maintenance of the country’s economy.

Some of the other purposes for which the income tax is utilized include meeting the defense requirements of India, their development and maintenance, creating infrastructure for the general public, such as hospitals, schools, post offices, and the like, and building new employment opportunities for the people.

This tax is levied on the income earned either by an individual employee or even a group of individuals that form a company, trust, organization, or estate. These entities are required to pay tax on the revenue or profit earned from their income to the government.

Exemptions in Income Tax

Every financial year, the government of India defines certain exemption limits for the Indian taxpayer on their taxable income. An exemption is generally allowed to allow the taxpayer to seek some relief from the total amount of tax or charge to be paid on the income earned by reducing the tax payable.

Under tax exemption, certain income-earning individuals and even organizations are sometimes completely freed from the burden of paying tax. This is generally done in cases when the earned income of the individual/entity is below a certain specified limit.

As per the Union Budget announced by the Indian government for the FY 2025-26, a basic income tax exemption limit was declared for taxpayers who are less than 60 years old. This limit was defined as Rs. 2.5 lakh. This means that all those earning an annual income up to this defined amount are exempted or free from paying income tax to the government.

Senior citizens (individuals above the age of 60) are exempted from tax payment if their earned income is below Rs. 3 lakh. Similarly, super senior citizens or people aged over 80 years are allowed an income tax exemption limit up to Rs. 3.5 lakh.

Due Date for Paying Income Tax

Every year, every tax-paying individual/entity is expected to file an income tax return (ITR) to the government. The due date for filing the ITR is generally specified at July 31 for all tax-paying individuals and non-audit cases. To audit the cases, as required, the general due date is October 31 every year up to when all cases are audited for the specific assessment year.

Penalties for Not Paying Income Tax in India

Since payment of income tax is mandated by the Indian government, there is a certain penalty levied upon both late filing of ITR by an individual and also non-payment of income tax in a particular financial year. Here are some of the penalties laid out by the Indian government for defaulters:

• Non-compliance with the rules of ITR filing, meaning late filing or non-payment, would attract an interest rate of 1% for each month when the tax is delayed or not paid. If a certain amount from the total tax payable is paid, interest would be levied on a part of the month on the remaining amount of tax left to be paid.
• A penalty of up to Rs. 5,000 is levied to each individual taxpayer for not filing the ITR on the due date specified.
• Some amount of the tax paid is generally refunded to the taxpayer if it is in excess of what is required as per their income slab. If the ITR had not been filed within the exact due date, the refund to the taxpayer from the government is delayed.
• A maximum penalty of Rs. 1,000 is levied on small taxpayers, meaning individuals whose total annual income exceeds not more than Rs. 5 lakh.