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.

12th Five Year Plan and History of Planning in India

History of Planning and Five Year Plan in India :

After Independence, Indian economy was in a poor condition. For a new nation, every sector was to be strengthened from the base thereby strengthening the economy. For all this to happen a consolidated planning was required. So, the government of India constituted an institution called PLANNING COMMISSION in 1950 (Planning commission was replaced by NITI AAYOG in 2014).

The duty of this planning commission is to formulate plans for the effective utilization of country’s resources and it started implementing five year plans from 1951. The planning commission from its inception in 1951 till its end in 2014 had formulated 12 five year plans.

FIVE YEAR PLANS OF INDIA:The five year plans were the set of programmes to be implemented in a five year term focussing on the problems (or) the sectors which needed attention at that time.

FIRST FIVE YEAR PLAN (1951-56):

In the first five year plan, Government emphasised mainly on agricultural sector.All the sectors were controlled by the government and private sectors had a very minimal role. The plan was successful yielding good results.

Target growth rate: 2.1% Achieved growth rate: 3.6%

SECOND FIVE YEAR PLAN (1956-61):

The second five year plan was based on MAHALANOBIS STRATEGY, which emphasised promotion of heavy industries under Government leader ship and generated revenue will be used for agriculture. Meagre results were attained here.

Target growth rate: 4.5% Achieved growth rate: 4.1%

THIRD FIVE YEAR PLAN (1961-66):

The third five year plan followed inward oriented policy with minimised imports, imposing high import tariffs. The plan failed here resulting drastic downfall of growth rate.

Target growth rate: 5.5% Achieved growth rate: 2.5%

FOURTH FIVE YEAR PLAN (1969-74):

The fourth five year plan emphasised on agriculture and food security was its primary goal. It also emphasised on social justice by providing education and employment to under privileged classes. Still the results are not satisfactory.

Target growth rate: 5.7% Achieved growth rate: 3.3%

FIFTH FIVE YEAR PLAN (1974-79):

In the fifth five year plan, the government recognized the failure of the previous plans and this time the main focus was on anti-poverty and minimum need programmes. This plan yielded good results.

Target growth rate: 4.4% Achieved growth rate: 5.2%

Also Read: Planning Commission of India

SIXTH FIVE YEAR PLAN (1980-85):

The sixth five year plan marked a shift in the industrialization pattern from heavy industries to infrastructure development. Anti- poverty programmes and rural employment programmes were also launched during this period.

Target growth rate: 5.2% Achieved growth rate: 5.3%

SEVENTH FIVE YEAR PLAN (1985-90):

In the seventh five year plan outward looking policy began with exports receiving priority. From this five year plan Liberalisation of Indian economy began.

Target growth rate: 5% Achieved growth rate: 5.8%

EIGHTH FIVE YEAR PLAN (1992-97):

The eighth five year plan completely changed the face of Indian economy. The role of the government is minimized and private sector was given priority. India became a market oriented economy from this period.

Target growth rate: 5.6% Achieved growth rate: 6.8%

NINTH FIVE YEAR PLAN (1997-2002):

Greater role to private sector was continued and new labour, land and legal reforms were introduced in this period.

Target growth rate: 6.7% achieved growth rate: 5.4%

TENTH FIVE YEAR PLAN (2002-07):

Tenth five year plan focussed more on services and IT sector and was able to achieve expected growth rate. But the growth rate in the agriculture sector dropped down.

Target growth rate: 8% Achieved growth rate: 7.8%

ELEVENTH FIVE YEAR PLAN (2007-12):

It emphasised more on agriculture and social sector and environmental sustainability and achieved agricultural growth rate of 4%.

12th five year plan

TWELFTH FIVE YEAR PLAN (2012-17):

It is the present five year plan with the target of achieving faster, more inclusive and sustainable growth with development of all sectors and also decided to achieve growth rate of 8%.

Inclusiveness is a multidimensional concept. Which includes following attributes:

Reduce Poverty
Improve regional equality across states and within states
Improve conditions of SCs, STs, OBCs, and minorities
Generate attractive employment opportunities for youths
Close gender gap
The twelfth five year plan has listed following 25 monitorable indicators :

Economic Growth

Real GDP growth at 8%.
Agriculture growth at 4%.
Manufacturing growth at 10%.
Every state must attain higher growth rate than the rate achieved during 11th plan.
Poverty and Employment

Poverty rate to be reduced by 10% than the rate at the end of 11th plan.
5 Crore new work opportunities and skill certifications in non-farm sector.
Education

Mean years of schooling to increase to 7 years.
20 lakh seats for each age bracket in higher education.
End gender gap and social gap in school enrollment.
Health

Reduce : IMR to 25; MMR to 1. Increase Child Sex Ratio to 950.
Reduce Total Fertility Rate to 2.1
Reduce under nutrition of children in age group 0-3 to half of NFHS-3 levels.
Infrastructure

Investment in Infrastructure at 9% of GDP
Gross Irrigated Area 103 million hectare (from 90 million hectare)
Electricity to all villages; Reduce AT&C losses by 20%.
Connect Villages with All Weather Roads
National and State high ways to a minimum of 2 lane standard.
Complete Eastern and Western Dedicated Freight Corridors.
Rural Tele-Density to 70%.
40 Litres Per Capita Per Day Drinking Water to 50% of rural population; Nirmal Gram Status to 50% of all Gram Panchayats.
Environment and Sustainability

Increase green cover by 1 million hectare every year.
30,000 MW renewable energy during Five Year Period.
Emission intensity of GDP to be reduced to 20-25% of 2005 levels by 2020.

Service Delivery

Banking Services to 90% of Indian Households.
Subsidies and Welfare related payment to be routed through Aadhar based Direct Cash Transfer Scheme.

Thus, the five year plans had been playing a major role in the consolidation of Indian economy since Independence. However there was a need of reform in the process of planning as it was more than half century old and hardly gone through a major upgradation. In a federal structure it is not easy to reform an institution which has been playing essential role in the centre-state financial relations. The erstwhile 50 years old Planning Commission of the socialist era was replaced by NITI Aayog earlier this year. Its role is to act as a think-thank to the government with noted economist Arvind Panagariya as its vice chairman. The government’s idea of NITI Aayog which is nothing but a much needed reformed Planning Commission as per the current economic necessities

ECONOMICS MCQ PART—1

1. Frequency density of a class is defined as—
(A) Frequency of the class/Interval of the class
(B) Frequency of the class/ Cumulative frequency for the class
(C) Cumulative frequency for the class/Frequency of the class
(D) Frequency of the class/ Frequency of the previous class

2. Which of the following is statistics?
(A) Profit of a firm has gone up
(B) The production of wheat has increased
(C) The temperature of Delhi is 5 degree more than the temperature of Mumbai
(D) The birth rate has declined in India

3. At end March 2009, India’s total foreign exchange reserves stood at?
(A) Approximately $ 150 billion
(B) Approximately $ 200 billion
(C) Approximately $ 250 billion
(D) Approximately $ 300 billion

4.A firm is called maximum efficient firm if it has?
(A) Minimum Total Cost
(B) Minimum Average Cost
(C) Minimum Variable Cost
(D) Minimum Marginal Cost

5. Implicit cost may be considered as?
(A) Social cost
(B) Private cost
(C) Normal cost
(D) Variable cost

6 ‘The Mid-day Meal’ scheme is covered under the Ministry of?
(A) Human Resource Development
(B) Health and Family Welfare
(C) Social Justice and Empowerment
(D) Consumer Affairs, Food and Public Distribution

7. Which of the following associate bank has been taken over by the State Bank of India in 2008?
(A) State Bank of Travancore
(B) State Bank of Hyderabad
(C) State Bank of Mysore
(D) State Bank of Saurashtra

8. Which of the following demand curves is not a constant elasticity curve?
(A) Vertical
(B) Horizontal
(C) Linear
(D)Rectangular hyperbola

9. The following theory of profit has been given by J. A. Schumpeter?
(A) Risk theory of profit
(B) Uncertainty bearing theory of profit
(C) Innovation theory of profit
(D) Dynamic theory of profit

10. The formula for determination of number of class-interval for a frequency distribution is given by?
(A) Connor
(B) Spur
(C) Sturges
(D) Secrist

Answers:

1	c
2	b
3	a
4	a
5	a
6	c
7	d
8	a
9	a
10	b