Direct Tax is the tax paid to the government directly by the

assessee like the Income Tax or the Capital Gains Tax. There
has been a steady rise in the net Direct Tax collections in India
over the years.
All the collections of the direct taxes in India like the Corporate
Tax, Personal Income Tax, Securities Transaction Tax, Banking
Cash Transaction Tax, and the Fringe Benefit Tax have been
going through a healthy ascent. For instance, in the current year
the personal income taxes collection have increased with the rate
of TDS being higher than the previous years. Overall, as per the
estimates of the Budget of the financial year 2006-07, the target
of Direct Tax growth rate was estimated to be 27.5%, but so far it
has exceeded this limit and reached 41.2%. At present, the net
Direct Tax collection of India is at Rs.610.30 billion, which is
estimated to rise to 42% over Rs.429.80 billion as it was in the
last financial year. This growth in the rate of Direct Tax reflects a
continued increase in the economy, high tax compliance, and
better tax administration.

One of the main forms of Direct Tax is the Taxes on Corporate

Income, under which the companies residing in this country pays
a tax on their global income arising from all sources. The payment
of the tax follows the provisions of the Income Tax Act. On the
other hand, the non-resident companies pay the Direct Tax on the
income obtained from an India-based business connection. The
resident companies pay a tax at the rate of 35% with a surcharge
of 2.5% while for the non-resident companies the basic tax rate
goes up to 40% along with the same 2.5% surcharge. Along with
these the corporate companies also pay an education tax at the
rate of 2% and a wealth tax at the rate of 1%. Moreover, a
Minimum Alternative Tax at 7.5% also requires to be paid by the
Domestic corporations.

The Capital Gains Tax is another important form of Direct Tax in

India which is payable on capital gains received upon the sale of
assets. If the capital assets are in possession for more than three
years and regarding the shares, stock exchange securities,
mutual fund units the time frame for possessing the asset is one
year. The basic tax rate of the long-term capital gains is fixed at
20% while for the short-term capital gains the rate is fixed at the
normal corporate income tax rate. A rate of 10% is fixed on the
transfer of equity shares from which the short-term capital gain
emerges.

Personal Income tax is another type of Direct Tax, which is under

the Central Government controlled by the Central Board of Direct
Taxes. The taxpayer is required to pay a tax if the income level
reaches above Rs. 100,000. If the income reaches Rs. 850,000
there is a surcharge of 10% imposed on the total tax.

Direct taxes in India

  
The following are Direct taxes in India administered by the Federal Government:-
  
  Tax Nature of Levy
Corporate tax Tax on income earned by a company during a financial year (April
1 to March 31). 
Scope of taxable income dependent upon residential status of the
company
Dividend Tax on dividends declared by a domestic company
Distribution Tax
(‘DDT’)
Minimum Tax payable on book profits where normal corporate tax payable is
Alternate Tax less than 10%
of book profits
Fringe Benefit Tax introduced from Financial Year 2005-06 to tax fringe benefits
Tax provided to employee and certain expenses incurred by entities.
Tax payable even by loss making companies
Transfer pricing Transfer pricing regulations applicable in respect of international
regulations transactions between associated enterprises

General Minimum Dividend

Tax payer Category of income tax rate Alternate Distribution
(Note1) Tax Tax (DDT)
Domestic Business profits 33.99 % 11.33 % (on 16.995 %
companies book profits)
  Long term capital gains 22.66 %    
(LTCG)(Note 2 & 4)
  Short term capital gains 33.99 %    
(STCG)(Note 3 & 4)
Foreign Business profits/ STCG (Note 42.23 % 10.56 % (on  
companies 3) book profits)
(Note 5)
  Long term capital gains 21.12 %    
(LTCG) (Note 2 & 4) (Note 2)
  Interest (Note 6) 21.12 %    
  Royalty & Fees for technical 10.56 %    
services for agreements
entered into on or after June
1, 2005 (Note 6)

1. Rates are inclusive of surcharge at the rate of 10% for domestic company (having
taxable income of more than 10 million) and 2.5% for foreign company and
Education Cess of 3%
2. Assets held for more than 3 years (I year in case of shares/ certain other securities).
3. Assets held 3 years or less (I year in case of shares/ certain other securities)
4. For transfer of equity shares on stock exchanges, LTCG is exempt from tax and
 STCG is taxable at 10% (subject to certain conditions)
5. Foreign companies can claim beneficial rates of tax under the relevant tax treaty;
business profits taxable only if permanent establishment (PE) in India 6 Income
taxable on gross basis subject to satisfaction of certain conditions. Taxable on a net
basis if effectively connected with a PE in India