Tax Liability

Posted in Finance, Accounting and Economics Terms, Total Reads: 90
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Definition: Tax Liability

Tax Liability is a financial obligation on a taxable citizen or organization which he has to pay to the tax authority of that particular country in which they reside or operate.

It is a claim on some percentage of their income which they have to pay in the form of tax to the government for their administration and for the economic development of the country by doing expenditures in various areas such as infrastructure development, medical services, subsidies, pensions etc. The rate of taxation is different for both the citizens and the organization.

Usually corporate tax rates are higher than the rates for the individual taxable citizens. For citizens taxes are levied on their personal income. There may be different rates for them also depending on the amount of their earnings and the tax slabs they come under. This tax slabs are decided by the income tax department and can vary from year to year. There may be no tax liability for those whose earnings may be below the specified limit for coming under the tax bracket.

Corporations have to pay the taxes on their earnings from the business they carried out for the whole year. They have to present their financial statements to the income tax department on the basis of which taxes will be levied on them. Loss making companies are barred from paying taxes as they are not making any profits or earnings. Taxes are also levied on buy and sell off assets, consumable products, durable products, agricultural products, luxury items in the form of capital gains tax, sales tax, and value added tax. Failure in paying any of the taxes will be an offence and may lead to penalty in terms of monetary fine or imprisonment for a specified period to the responsible person.

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