Economics Notes on Indian Tax Structure

Notes on Indian Tax Structure

When country or a state legislature enacts a new tax, the debate usually includes some opinions about who should pay for running the government or for the particular program being supported by the tax. A means by which government finance their expenditure by imposing charges on citizens and corporate entitles.

Economists distinguish between those who bear the burden of a tax and those on whom a tax is imposed. Taxes in India are imposed by the Central Government and the state governments. Some minor taxes are also imposed by the local authorities such as Municipality.

According to Indian Constitution, Article 246 distributes legislative powers including taxation, between the Parliament of India and the State Legislature. The Central Board of Revenue or Department of Revenue is the apex body charged with the administration of taxes. It is a part of Ministry of Finance which came into existence as a result of the Central Board of Revenue Act, 1924.

Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, and central excise and service tax.

State Government levies taxes – Value Added Tax (VAT), Stamp Duty, State Excise, Land Revenue and Profession Tax.

Local bodies are empowered to levy tax on Properties, Octroi and for utilizations like water supply, drainage etc.

In Indian taxation system, system is divided into two taxes – Direct Taxation and Indirect Taxation.

Direct Taxes – In Direct Taxes the burden directly falls on the taxpayer.

• Income Tax – 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 prescribed in the Financial Act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year.
• Wealth Tax – Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value. Chargeability to tax also depends upon the residential status of the assessee same as the residential status for the purpose of the Income Tax Act.

Indirect Taxes

• Service Tax- It is a tax levied on services provided in India, except the State of Jammu and Kashmir. The responsibility of collecting the tax lies with the Central Board of Excise and Customs. From 2012, service tax is imposed on all services, except those which are specifically exempted under law.
• Excise Duty –Central Excise duty is an indirect tax levied on goods manufactured in India. Excisable goods have been defined as those defined as those, which have been specified in the Central Excise Tariff Act as being subjected to the duty of excise. There are three types of excise duties:
  1. Basic Excise Duty
  2. Additional Duty of Excise
  3. Special Excise Duty

• Custom Duty- Custom or import duties are levied by the Central Government of India on the goods imported in India. The rate at which customs duty is leviable on the goods depends on the classification of the goods determined under the customs traffic.
• Value Added Tax – VAT is a multi-stage tax on goods that is levied across various stages of production and supply with credit given for tax paid at each stage of value addition.