Taxes are the backbone of any economy, funding public services, infrastructure, and social welfare programs. In India, the taxation system is multifaceted, divided primarily into direct and indirect taxes, with additional levies imposed by central, state, and local governments. As of 2025, the system has come a long way, particularly with the implementation of the Goods and Services Tax (GST) in 2017, which integrated most indirect taxes, and the recent Income Tax Bill 2025, which seeks to put direct tax legislation on par with the times by repealing the aging Income Tax Act of 1961. The bill presents simplified provisions, revised slabs, and improved rebates in order to ease compliance and foster a digital economy.
In this post, we will dissect the prominent types of taxes in India, their categories, examples, and chief attributes. You might be a salaried individual, businessperson, or investor, but knowing these can assist you in understanding your financial responsibilities better.
Direct Taxes: Paid Directly on Income and Wealth
Direct taxes are imposed on the income, gains, or riches of individuals and organizations. The burden lies directly with the payer and is not transferable to another person. Direct taxes are progressive as they are charged more from those with higher incomes, which can lead to the decrease in income disparities. They are regulated by the Central Board of Direct Taxes (CBDT) under the Finance Ministry.
Following are the most important direct taxes in India:
– Income Tax: This is the most prevalent direct tax, levied on the overall income generated by individuals, Hindu Undivided Families (HUFs), and other organizations in a financial year. Sources of income are salary, business earnings, house property, capital gains, and other sources. For the Assessment Year (AY) 2025-26, taxpayers have an option to opt for the old or the new tax regime. The new regime, revised in the Income Tax Bill 2025, includes new slabs: nothing up to ₹4 lakh, 5% between ₹4-8 lakh, 10% between ₹8-12 lakh, 15% between ₹12-16 lakh, 20% between ₹16-24 lakh, and 30% above ₹24 lakh. Rebate under Section 87A is offered up to ₹60,000 for income below specified levels, subject to exclusion of long-term capital gains on shares. Farmers are usually exempt from income tax on farm income, with it being taxed by the states instead.
– Corporate Tax : Applied to the earnings of domestic and international businesses in India. It has varying rates: base rate of 25-30% for domestic businesses with reduced rates (15%) for new manufacturing businesses. The Income Tax Bill 2025 restores deductions such as Section 80M on inter-corporate dividends and eliminates the Alternate Minimum Tax (AMT) for Limited Liability Partnerships (LLPs) to ease compliance.
– Capital Gains Tax : Levied on gains from sales of assets such as shares, real estate, or mutual funds. It’s treated as Short-Term Capital Gains (STCG) for holding assets below a certain time threshold (e.g., 12 months in equities) and Long-Term Capital Gains (LTCG) for holdings above that. LTCG on listed equities is taxed at 12.5% over ₹1.25 lakh exemption, while STCG is included in normal income.
Gift Tax : Gifts worth more than ₹50,000 are taxed as income in the slab rate of the recipient, although gifts from family members or on special occasions such as marriage are exempted.
Wealth Tax : This was a tax on the net wealth of individuals and HUFs above a certain level, but it was eliminated in 2016 to ease the tax system and promote investments.
Direct taxes received approximately ₹19 lakh crore in 2023-24, thus showcasing their contribution to government income. Advantages are enhancing social fairness and controlling inflation, but disadvantages include complicated documentation and the possibility of evasion.
Indirect Taxes: Embedded in Goods and Services
Indirect taxes are imposed on the consumption of services and goods, and their burden can be transferred to the final consumer through price. Indirect taxes are regressive since everyone pays the same rate irrespective of income, but necessities tend to be charged at a lower rate. These taxes are managed by the Central Board of Indirect Taxes and Customs (CBIC) and have been integrated principally under GST since 2017.
Some major indirect taxes are:
Goods and Services Tax (GST) : A broad-based tax on the supply of services and goods, supplanting several earlier taxes such as VAT, service tax, and excise duty. It’s classified into Central GST (CGST), State GST (SGST) for intra-state supplies, and Integrated GST (IGST) for inter-state. It has rates varying from 0% (necessities such as food grains) to 28% (luxuries such as cars). Petroleum, alcohol, and electricity are exempted and taxed by states separately. GST has reduced cascading effects, and taxation has become more effective.
Customs Duty : Levied on imports and exports to control trade. It consists of base customs duty, protective duties, and anti-dumping duties. Luxury imports such as liquor have higher rates. The tax helps in safeguarding domestic industry and raising revenue from foreign trade.
Excise Duty : Imposed on the production of commodities in India. All products are now included under GST, but it still continues on fuel and tobacco. In the year 2015-16, it yielded ₹2.8 lakh crore.
Value Added Tax (VAT)/Sales Tax : Earlier on the sale of products, now included under GST for the majority of products. States continue to impose VAT on liquor and petrol.
Service Tax : Done away with and merged into GST since 2017, earlier at 15% including cesses.
Indirect taxes encourage wide-based participation in revenue collection but may add to prices and be non-transparent.
Other Taxes: State and Local Levies
Apart from direct and indirect, there are local and state taxes:
– **Property Tax**: Charged on the value of structures and land, paid to municipal corporations. It has constituents such as water and drainage charges.
– **Professional Tax**: A state tax on professions, trade, and employment, limited to ₹2,500 annually.
Stamp Duty : On legal documents and property transfers, differing from state to state.
Entertainment Tax, Octroi, and Local Body Tax : Several have been amalgamated or removed, such as Octroi in the majority of states.
Conclusion: Navigating Taxes in a Changing Landscape
India’s tax regime in 2025 is more efficient than ever before, thanks to GST and the new Income Tax Bill 2025, which makes direct taxes more simpler with better rules, easier refunds, and lighter loads for MSMEs. Then again, being in compliance calls for deadline awareness, exemptions, and facilities such as the Income Tax e-filing portal. In case of doubt, seek advice from a tax expert to minimize your liabilities and claim deductions.
Taxes might seem daunting, but they fuel India’s growth story. What are your thoughts on the new tax regime? Share in the comments below!
Note: Tax rates and rules can change; always refer to official sources for the latest updates.