India has four main kinds of tax, both direct and indirect. These are 1) Income Tax, 2) Wealth Tax, 3) Service Tax and 4) Value-Added Tax.

Income Tax
This tax is based on the personal income of the Indian resident and is paid to the central government. The amount paid depends on the total income of the individual, for which set rates are in the official Finance Act. In addition, Income Tax is due if the person owns or leases a motor vehicle, has a fixed and immovable address, spends money on themselves or someone else for foreign travel, subscribes to a telephone, has a credit card that has been issued by a bank or similarly authorised institution or is a member of a club that requires a membership / entrance fee. Each individual is responsible for the submission of his or her own Income Tax forms, and is liable to receive a huge fine for non-submission.

Wealth Tax
Wealth Tax is charged on the benefits that an individual gets from the property that they own. It is due on an annual basis and is calculated based on the market value of the property. This tax is charged according to the wealth held by the following during the course of one year: 1) a company, 2) a Hindu Undivided Family (all the people with one common ancestor who get their income from a joint family corpus), 3) an association or body of people, 4) non-corporative taxpayers who get their accounts audited on a statutory basis and 5) people who fall in the 1-by-6 category. Wealth tax does not apply to bank deposits, mutual fund investments, shares or debentures.

Service Tax
Service Tax is owed by service providers and based on the services rendered. This tax can then be recovered by the person or company that paid it from the person or company that received the service. This tax does not apply in the state of Jammu & Kashmir. These tax returns are self-assessed; i.e. they are assessed by the people submitting them. They can then be checked by the Jurisdictional Superintendent of Central Excise if he or she so wishes.

Value Added Tax
Value Added Tax, or VAT, is charged on the consumption of goods and based on the value of the goods. It relates to the difference added onto the price by the transferor of the goods, rather than merely being a profit. Goods and services (such as food, toiletries, and so on) form part of the global GDP (Gross Domestic Product). As such, their movement is integral to the world’s economy. VAT is paid and collected at each stage of the goods’ value adding (that is, on each transferral).

VAT is collected in two ways:

1. Charged separately on the tax paid on the purchase and the tax paid on the sale. So, the difference between those two would be the VAT amount.
2. Tax is charged and collected on an average value of sale and purchase.

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