Taxes in India are of two types, Direct Tax and Indirect Tax. Direct Tax, like income tax, wealth tax, etc. are those whose burden falls directly on the taxpayer.
The burden of indirect taxes, like service tax, VAT, etc. can be passed on to a third party.
Income Tax on all income other than agricultural income levied and collected by the central government and shared with the states.
According to Income Tax Act, 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the Finance Act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year.
The income tax basic scheme is explained in brief as:
Income tax is levied on the 'total income' of the assessable entity which is computed under the provisions of the Act. The incomes pertaining to the 'previous year' is taxed, during the 'assessment year. Income tax is charged at the rates being fixed by the annual Finance Act. But the liability to pay the tax is based on the principle 'pay as you earn.'