About Tax

• It is the money paid by the taxpayers to the government.
• It is compulsory payment and not voluntary payment, or donation made by the taxpayers.
• Constitutional Provisions:
  • Article 265 of the Indian constitution states that no tax shall be levied or collected except by the authority of law.
    • Article 246 (Seventh Schedule) of the Indian Constitution, distributes legislative powers of taxation between the Parliament and the State Legislature.
  • The 73^rd and 74^th Constitutional Amendment Act have provisions to allow Panchayats and Municipalities to levy taxes.
  • A State Government may by law authorize a Panchayat or Municipality to levy, collect and appropriate taxes, duties, tolls etc.

About Tax Collection Bodies

• The Indian tax system has a three-tier federal structure.
• It consists of the central government, state governments, and local municipal bodies.
• Taxes imposed by:
  • Union Government of India:
    • Customs Duty
    • Central Excise Duty
    • Income Tax
    • Goods and Service Tax (GST).
  • State governments:
    • Income tax on agricultural income
    • State Excise Duty
    • Professional Tax
    • Land Revenue
    • Stamp Duty.
  • Local bodies:
    • Octroi
    • Property Tax
    • Other taxes on various services like water and drainage supply.
• Types of Taxes
  • There are two types of taxes in India: Direct Tax and Indirect Tax
• Direct Tax
  • It is levied directly on individuals and corporate entities.
  • This tax cannot be transferred or borne by anybody else.
  • Thus, the incidence of tax and impact of tax is on the same person in the case of Direct tax,
• Examples of direct tax include:
  • Income tax
    • It is a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction.
    • It is progressive in nature
  • Wealth tax
    • It is a tax based on the market value of assets owned by a taxpayer.
    • It is levied on the total value of personal assets.
  • Gift tax
    • The Government of India introduced Gift Tax in April 1958 regulated by the Gift Act, 1958.
    • It was introduced with an objective to impose a tax on receiving and giving gifts under certain specific circumstances.
    • Gifts include the amount of money given in cash/cheque, a property that is immovable such as land/building or any movable property like shares, jewellery or paintings.
  • Capital gains tax
    • Capital gain means profit arising from the transfer of capital assets, such as selling of lands, buildings, vehicles, patents, trademark, jewellery etc.
    • The owner of the capital assets has to pay capital gains tax on the capital gains made by selling capital assets.
• About Indirect Tax
  • These are taxes that are indirectly levied on the public through goods and services.
  • The sellers of the goods and services collect the tax which is then collected by the government bodies.
  • Here, the economic burden of the tax lies on the ultimate consumer.
• Examples of indirect tax include:
• Goods and Services Tax (GST)
  • It is a destination-based tax on consumption of goods and services.
  • The Constitution (One Hundred and First Amendment) Act, 2016, introduced Goods and Services Tax (GST).
  • It came into force on 1^st July 2017.
  • Taxes subsumed under GST: Sales Tax; Central Excise Duty; Entertainment Tax; Octroi; Service Tax; Purchase Tax; Value Added Tax.
  • The Supreme Court of India in December 2020 held that lottery, gambling and betting are taxable under the Goods and Services Tax (GST) Act, 2017.
  • It is levied on each stage of the supply chain right from purchase of raw material to the sale of the finished product to the end consumer whenever there is value addition and each transfer of ownership.
  • Destination-based means the government in whose jurisdiction the final transaction takes place has the authority to collect GST.
  • For instance, if a fridge is manufactured in Delhi but sold in Mumbai, the Maharashtra government collects GST.
  • Taxes not covered under GST: Property Tax & Stamp Duty; Electricity Duty; Excise Duty on Alcohol; Basic Custom Duty; Petroleum Crude, Diesel, Petrol, Automatic transmission fluid & Natural Gas.
    • CGST: Stands for Central Goods and Services Tax. The Union government collects this tax on an intra-state supply of goods or services.
    • SGST: Stands for State Goods and Services Tax. The state government collects this tax on an intra- state supply of goods or services.
    • IGST: Stands for Integrated Goods and Services Tax. The Union government collects this for the inter-state supply of goods or services.
• Value Added Tax (VAT)
  • It is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.
  • It is tax levied on goods or services sold in the state.
  • After the implementation of GST, VAT is levied on petroleum, alcohol and electricity etc.
• Customs Duty
  • The Government of India levies it on all imports and exports.
  • The amount paid can be determined by several factors such as value, weight, dimensions, etc. of the item in question.
• Stamp Duty
  • Stamp duty is collected on the basis of the property value at the time of registration.
  • Stamp duty's amount varies from state to state and also other factors such as the property type.
• Entertainment Tax
  • Also sometimes referred to as "amusement tax" is any tax levied on any form of commercial entertainment, such as movie tickets, exhibitions, sports events and more.
• CESS
  • It is charged over and above the base tax liability of a taxpayer.
  • This is imposed additionally when the state or the central government looks to raise funds for specific purposes.
  • For example, the government levies an education cess to generate additional revenue for funding primary, secondary, and higher education.
  • It can be levied both on indirect and direct taxes.
  • It is not a permanent source of revenue for the government as it is discontinued when the purpose of levying is fulfilled.

Government Bodies Regulating Taxation in India

• Central Board of Direct Taxes (CBDT)
  • The CBDT is a part of the Department of Revenue under the Ministry of Finance.
  • It provides important ideas and inputs for planning and policy about direct tax in India.
  • The Income Tax department under CBDT is responsible for administration of direct taxes in India.
• Central Board of Excise and Customs (CBEC)
  • It is a part of the Department of Revenue, Ministry of Finance.
  • It deals with policy formulation with regard to levy and collection of customs and central excise duties and service tax.
  • Post GST implementation, the CBEC has been renamed as the Central Board of Indirect Taxes & Customs (CBIC).
  • The main role of CBIC is assisting the government in policy-making matters related to GST.