When understanding any tax system, one needs to understand the language of taxation. The tax language mentioned here is about certain “terms”, which are often used in tax administration. These terms are words that represent specific concepts or legal definitions. Understanding these terms will help companies quickly understand the law, and compliance will become easy and appropriate.
In this article, we will discuss the most commonly used terms in the indirect tax system.
Term & explanation
Taxable person-A company, sole trader, professional or other person whose taxpayer engages in specific economic activities and is registered in accordance with the law or must be registered in accordance with the law is the taxable person. Only taxable persons can collect tax and remit it to the government.
Tax registration number- The tax registration number is a unique identification number assigned by the government to a taxable person. Taxpayers need to provide their registration number when paying taxes and all other contacts with the government
Output tax- The tax collected on the sale of goods or services is called output tax, for example, a trader A worth 1,00,000 plus 5% tax sells goods. The 5000 tax collected by A One Traders is an output tax, and the excess output after the input tax credit adjustment needs to be returned to the government.
Input tax-The tax paid when purchasing goods or services is called input tax. For example, if a trader buys goods worth 50,000 + 5% from a giant distributor, the tax paid by a trader is 2,500 That is the input tax.
Input tax credits- Input tax credits, usually called ITC. This is a concession that allows the tax paid from the purchased goods to reduce the output tax payable by the taxable person.
Input tax credit adjustment- This is a mechanism for adjusting input tax based on input tax. In the example used above, the output tax of A One Traders is 5,000 and the input tax is 2,500. Now, A One Traders adjusted the input value-added tax of 2,500 and imposed an output tax of 5,000, and paid the balance of 2,500 to the government.
Tax period- The tax period refers to the period during which the tax payable should be calculated, and statements and related details need to be prepared and submitted to the government. Usually, the tax period is monthly, quarterly or yearly.
Tax return- A tax return is a statement prepared and submitted by a taxable person during a tax period. The report usually contains detailed information on sales, purchases, input tax, output tax and tax payable.