Do you know up to 40% of your income goes as Tax?

Tax, the three letter word is really a nightmare for common people. The Govt. simple theory of tax is wherever there is a income, you have to pay tax. Whether it is from salary, business, any investment or from any other sources. Now it is month of June, peoples are busy to file their income tax return. Knowingly or unknowingly we pay taxes to the Govt.in our daily life. In this article I will tell about what are the ways people pay taxes.

Let’s say Mr. Tarun from Mumbai, a professional working in a private co. His annual come is Rs.10 lacs per annum. He has bought a under construction 1 BHK flat of value 25 lacs. We will show how he will pay tax throughout the year. 

Income tax

The most common is income tax. Every year Finance Minister (FM) submit budget where people gets income tax guideline. This year income tax is structure given below.

For Men & Women
Up to Rs. 2,00,000	Nil
Rs. 2,00,001 to Rs. 5,00,000	10 per cent
Rs. 5,00,001 to Rs. 10,00,000	20 per cent
Above Rs. 10,00,000	30 per cent

Income tax to be paid by Mr. Tarun

Gross income (Rs.)	1000000
Total taxable  income after deducting 80C (Rs.)	850000
Tax on total income  (Rs.)	100000
Percentage tax on his total income	10

As you see on the table, his taxable income is 8.5 Lacs, it falls into 20% tax bracket. So total tax, from 2 to 5 lacs (10%) & then 5 to 8.5 lacs (20%), amounting Rs.1 lacs. So total tax 1 lacs on a income of 10 lacs, in percentage wise it is 10% of total income. Over & above there will be some tax will be deducted as education cess etc. So Mr. Tarun pays 10% of his total income as income tax. 

Tax on property

He has bought 1 BHK flat of area 600 sq.ft. When you are buying a property you will have to pay following taxes.

Stamp duty- It gives legal status of property purchase transaction. Stamp duty to be paid on sale agreement value. And in Maharashtra stamp duty rate is 5% of sale agreement value or stamp duty ready reckoner rate whichever is higher. 

Registration-When you buy property you have to pay Registration fees, it varies from state to state & in Maharashtra it is 1% of the agreement value but subject to maximum limit of Rs.30000/-.

VAT-Some states also levy VAT on under construction property. In Maharashtra it is 1% of the agreement value is payable at time of registration. However VAT is not payable for resale property or property which is ready & purchased from developer where Occupancy Certificate (OC) certificate is received.

Service Tax-The central government levied service tax on under construction property. The current ST rate is 12.36%. ST is applicable for on the construction component & not on the value of the land The Govt. has given some relief which says ST will be applicable only 25% of the property. Thus effective ST comes down to 3.09% of the flat value. Over & above ST is also applicable for any pre-ferred location, club house charges etc. And this case it is 12.36%. 

Detailed break-up of cost of buying a flat
Flat type	1 BHK
Agreement value	2500000
Club house charges	100000
Advance maintenance, electricity, gas connection, society charges etc	100000
Total cost of the flat excluding tax	2700000
Stamp duty	125000	5% of agreement value
Registration charges	25000	1% of agreement value subject to maximum of Rs.30000/-
VAT	25000	At 1% of agreement value
Service tax	77250	At 3.09% of basic cost
Total cost of the flat including tax	2952250
Total taxes	252250
Percent of taxes to the total cost	9
Percent of taxes on his total income	25

So you can see total taxes for buying that flat comes to Rs.252250/- & from where this money comes? Obviously he has to pay it from his own pocket. So he has to contribute 25% of his annual income towards buying that flat. 

Invisible Tax

In our daily life we pay tax unknowingly which we can’t see on the bill. I am terming them as Invisible Tax. 

Service Tax- Now what is service tax? As per income tax laws any service which you are getting directly or un directly are liable to payable as Service tax. As on date there are total 119 services are taxable in India. Generally the liability to pay service tax is on the service provider. But do you think that the service provider will pay tax from his own pocket, definitely not it will pass on to the consumer. Now how much ST to pay. As per income tax laws the ST is payable @ 10% of the ‘gross amount’ plus 2% Education Cess on ST plus 1% Secondary Higher Education Cess on ST. So total comes to 12.36%.

Example- Suppose the value of taxable service is Rs.100. Service tax @10% of the taxable service will be Rs.10 and Education Cess @2% of the Service Tax will be Rs.0.20 and Secondary & Higher Education Cess @1% of the service tax will be 0.10. So total ST comes to Rs.10.3 (10+0.2+0.1).

Now what are the services are falling under ST. I’m showing some common services where we usually pay ST.

Air travel agent- for air ticket booking.

Construction of Residential Complex-For buying property, as shown in above illustration.

Courier services

Life Insurance

General insurance

Photography

Rail Travel Agent

Real estate agent

Stock Broker

Technical Testing & Analysis

Technical Inspection & Certification Agency

Transport of goods by Air

Transport of goods by Road

Renting of immovable property

Services provided by Builder in relation to preferential location, internal/external development etc

Services of Air-conditioned restaurants having license to service alcoholic beverages in relation to service of food or beverages.

Services of providing of accommodation in hotels / inns/ cubs/ guest houses/ campsite for a continuous period of less than three months

You can get complete list at http://www.servicetax.gov.in

Petrol- What do you think the price we pay for petrol is the actual cost of the petrol? You certainly surprised that almost 40-45% of petrol price is going to state as well as central Govt. by different form of tax. Now you calculate how much petrol you refill in your vehicle in a month & how much you pay tax for that.

Other such invisible taxes are Excise duty, Octoroi, Toll tax, Custom duty, VAT, Sales tax etc which we the consumer are not paying directly but it is being redirected to the consumer by the manufacturer or the service provider which included in the final price of the product.

 So lets calculate how much percentage of Mr. Tarun income goes to as tax.

Income from Salary	10%
Tax on property	25%
Service tax & other Miscellaneous tax	4-6%
Total tax outgo compare to his income	40-42%

Conclusion

Now who is Mr. Tarun, just like a common man like us. Can you imaging 40% of his income goes just to pay tax!!!So you can see how tax is engulfing the common people. The prices of everything will raise day by day, so the tax. Here I’m giving example of Maharashtra, the range of taxes is almost similar to other state also, and some no can vary. Now there are few points which can be debated here like the no I have mentioned. My message is to educate people about the tax & how much tax you pay. 

About The Author

By profession Angan Chandra is a Textile Engineer. He loves to blog with all the hope that whatever he have learnt till  now in his career, can share with you people which can help you in your financial aspect of your life. His blog http://www.rupee2wealth.com  is full of financial knowledge. He believes in practical knowledge rather than theoretical knowledge.