Indian Taxation System | Famous Books for UPSC Exam (Summary & Tests) PDF Download

Introduction

Taxation is the mandatory collection of funds by the government from individuals and institutions. It serves as the primary source of government revenue and is essential for maintaining the administration of the country and realizing the goals of a welfare state.

Distribution of Tax at 3 Levels

In India, taxes are collected at three levels:

1. Central Government:

• Income Tax
• Custom Duty
• Central Excise

2. State Government:

• Tax on Agricultural Income
• Professional Tax
• Value-Added Tax (VAT)
• State Excise
• Stamp Duty

3. Local Bodies:

• Property Tax
• Water Tax
• Taxes on Minor Services (e.g., drainage)

Types of Taxes

1. Direct Tax

• Direct tax is levied directly on the taxpayer and cannot be transferred to another person. It is known as a progressive tax, as it varies based on the taxpayer's income. Examples of direct taxes include income tax and corporate tax.
• Income Tax: Imposed on individuals and entities, with different tax slabs based on income. Farmers are exempt from paying income tax. Governed by the Income Tax Act, 1961.
• Corporate Tax: Levied on the net income or profit of a company.

2. Indirect Tax

• Indirect tax is imposed on suppliers or manufacturers, but the ultimate burden falls on customers. It is considered a regressive tax. Examples include customs duty, central excise duty, and sales tax.

3. Goods and Services Tax (GST)

• GST is a significant tax reform in India aimed at simplifying the tax structure and promoting economic growth. It came into effect on July 1, 2017. GST is an indirect destination tax based on the consumption of goods and services and includes multiple tax slabs ranging from 0% to 28%.
• GST Council: Established under Article 279(A) of the Constitution, the GST Council is chaired by the Union Finance Minister. It makes decisions based on a weighted voting system, with the Central Government and State Governments having specific vote weightages.

Types of GST

• Central Goods and Services Tax (CGST): Applicable to intrastate sales, with revenue shared with the Central Government.
• Integrated Goods and Services Tax (IGST): Applied to interstate sales.
• State Goods and Services Tax (SGST): Applicable to intrastate sales, with revenue shared with the State Governments.
• Taxes Subsumed under GST: GST subsumed various taxes at both the central and state levels, such as Central Excise Duty, Service Tax, State Value Added Tax/Sales Tax, Entertainment Tax, and more.

Constitutional Provisions regarding Taxation in India

The Indian Constitution empowers Parliament and State Legislatures to make laws regarding taxation. There are three types of lists under the Seventh Schedule:

• Union List: Subjects on which only Parliament can legislate.
• State List: Subjects on which only the state legislature can legislate.
• Concurrent List: Subjects on which both Parliament and State Legislature can legislate concurrently, with Parliament's laws prevailing in case of a dispute.

Additionally, Article 248 grants Parliament the residuary powers of legislation, enabling it to make laws on subjects not covered in any list. Article 249 allows Parliament to legislate on state subjects in the interest of the nation. Panchayats and municipalities also have the authority to levy taxes under Article 243(H) and 243(X) of the Constitution.

Tax Regulatory Bodies in India

• Central Board of Direct Taxes (CBDT): CBDT, under the Central Revenue Act, 1963, deals with the levy and collection of direct taxes, such as personal income tax and corporate tax. It operates under the Department of Revenue in the Ministry of Finance and consists of a Chairman and six Members overseeing various tax-related functions.
• Central Board of Indirect Taxes and Customs (CBIC): Previously known as CBEC, it was renamed CBIC after the implementation of GST. CBIC formulates policies related to the collection of indirect taxes and customs, including Central Excise, Central Goods and Service Tax (CGST), and Integrated Goods and Services Tax (IGST). It also handles matters concerning customs, excise, and other related areas.

Conclusion

The Indian taxation system is a critical pillar of the nation's financial structure. With a history dating back to ancient times, it has evolved significantly, culminating in the implementation of Goods and Services Tax (GST), a revolutionary tax reform. The constitutional provisions and regulatory bodies ensure effective and fair taxation, contributing to the growth and development of the nation. Understanding these aspects is essential for taxpayers and policymakers alike to ensure a prosperous and equitable economic landscape.