Before starting with two different types of income tax, you must know the general concept of income tax. Income tax is a particular type of government tax imposed on the income generated by a business or individual. This taxation comes under the jurisdiction norms of the income source, and it may be from individual employment or corporate revenue. Based on the generated income from various sources, you have to file an income tax return annually. You can calculate and determine your tax obligations with that tax return statement. These taxes are said to be the major source of government revenue. And this revenue will be distributed to the nation’s fund under various service schemes.
Types of income taxes
The progressive of income tax secured by the nations reflects in the annual budgeting that includes various funds for public funding services that include various government programs and services like social security, national security, schools, roads, hospital, etc. for these reasons, income tax has been regulated under mandatory citizen contribution as per law. There are various regulations and obligations farmed under income tax. To suppress the conflict, scam, and confusion government has classified income tax under two different categories based on the source of income. With both types of taxes, the government will allow certain benefits and eliminations. You have to frame separate income tax returns for both types of income, and that return has to be genuine and has to come with the guidance of a (CPA) certified professional auditor. Types of income tax are segregated as:
- Personal income
- Corporate income
Individual income tax
Individual income tax is popularly known as personal income tax, which has been levied on every person’s income. Such income mode of an individual can be wages, salaries, rent, policy returns, commissions, prizes, or any other form of income. And the regulations are framed as per (IRS) international revenue service. Under these regulations, every taxpayer will enjoy the benefits, deductions, credits, and trade authorization. Omission and fake tax return submission are considered a violation of the law.
Corporate income taxes
Corporate income taxes are also said to be business income taxes levied on all corporate entities’ profit sources. These tax payments include corporations, partnerships, self-employment contractors, and small businesses. The norms and deductions are framed as per the nature and structure of the company based on the capital incurred and revenue generated.
Difference between personal tax and income tax
The major difference between personal tax and business tax is the capital incurred. At personal tax, the individual will pay taxes levied to their income under various sources. At business income tax, the concept of tax payment depends on companies registration and annual return. The difference and variations start from the calculations and continue with the returns file. The government has segregated two different norms for the inclusions and exclusion of both income taxes. As per this, taxpayer involvement, violations, offense, etc., with corporate tax and personal tax.
- As per the regulation of IRS, corporate tax applies to the following entities:
Every corporation that holds its operating or non-operating origin of incorporation in the nation has to pay company tax to the particular government.
- Corporations holding a single or multi-branch running within the country have to file their corporate tax returns.
- Foreign enterprises must pay income tax in different countries, and they have to pay income tax at the country with the permanent establishment as per the incorporation certificate. And they must also pay tax with every place of running entity branches.
- Every resident corporation that generates revenue gains profit has to pay tax according to their profit flow.
Calculation of personal income taxes starts when they reach the standard of income generation that as per framed as per IRS. For example; if the norms say that if you earn RS. XXXX, you are supposed to pay income tax. If your income is below the standard, you don’t have to pay an income. But for corporate income tax is different. You have to pay tax for your incurred capital in addition to your profit value.
The legal aspects of tax rates and their leverages change frequently, so you have to commit with a CPA firm to maintain your tax returns.