Indian Tax Structure of Indian Economy PDF

INDIAN TAX STRUCTURE 

TAX

Tax is a compulsory levy payable by an economic unit to the government without any corresponding entitlement to receive a definite and direct quid pro quo means something given or taken equivalent to another.

Classifications of Taxation

The taxation can be classified mainly into three types as shown in

Proportional taxation

Progressive taxation

Regressive Taxation

Proportional Taxation

Tax levied as a % of tax base irrespective of size of tax base, at a uniform rate is called as proportional tax.

Progressive Taxation

If tax rate increase with the increase in size of tax base, it is called progressive tax.

Regressive Taxation

If tax rate decrease with the increase in the tax base it is called regressive tax.

Methods of Taxation on Goods

1. Ad valorem

If tax is levied as a % of the value of the goods regardless of number of units produced/ sold/ imported, then it is called valorem.

2. Specific duty

If tax is levied at a flat rate per unit of goods produced/ sold/ imported regardless of the value then it is called specific duty.

Types of Taxes

There are two types of taxes namely

1. Direct tax

2. Indirect tax

1. Direct taxes

If the impact and incidence lies on same point it is called as direct tax. Direct taxes are progressive in nature in India and all over the world and are highly elastic in nature.

Income Tax (Personal income tax)

It is a tax on the personal income of the individuals Hindu Undivided Families, (HUFs), partnership firm etc.

Corporate Tax

It is levied on the company's profit income. There is no any separate tax called corporate tax. It is also income tax.

Wealth tax

It is imposed on the accumulated wealth or property of every individual, Hindu undivided family. 

Securities Transaction Tax (STT)

It was introduced in 2004- 05. It is a tax imposed on transactions of Securities in Stock Exchanges.

Commodities Transaction Tax

It is a tax on the sale of commodities in Commodity Exchanges.

Minimum Alternate Tax (MAT)

It is a tax imposed on companies, which escaped corporate tax net or pay very low tax by using the provisions of exemptions, deductions, incentives etc, which are called Zero tax companies. It was introduced in 1996-97.

2. Indirect Tax

If impact is on one point and incidence on some other point, it is called indirect tax. E.g. excise duty levied on producer, but ultimately paid by consumer along with price.

Excise Duties

It is the tax on production of commodities

Customs Duties

It is the tax on import and export of commodities.

Mod VAT (Modified VAT)

LK. Jha Commitee recommended tin 1976. It is an excise duty Introduced as MANVAT (Manufacturing VAT). Then it was changed as Mod VAT in (1986-87).

Sales Tax/ VAT (Value Added Tax)

It is a tax on sale of commodities. It is a state level sales tax 

Service Tax

It is a tax on the services provided. It was introduced in 1994-95. It is like sales tax. While sales tax is imposed on goods, it is imposed on services.

Octroi

It is a tax on the entry of goods into a local area for consumption, use, or sale.

FRBM Act 2003

Fiscal Responsibility and Budget Management Act]

FRBM Act was enacted in the year 2003 with the purpose of correcting the fiscal imbalances like high revenue and fiscal deficit. Apart from provisions of the act, FRBM rules also framed which fix targets or deficits among other things. Special features of the act and rules are as under

Act

• Central Government to take appropriate measures to reduce the fiscal deficit and revenue deficit so as to eliminate revenue deficit by March 31, 2008 and thereafter build up adequate revenue Surplus
• Rule to be made under this Act to specify the annual targets for reduction of fiscal deficit and revenue deficit, contingent liabilities and total liabilities

The revenue deficit and fiscal deficit may exceed targets specified in the rules only on grounds of national security or national calamity or such other exceptional grounds as the central Government may specify.

(A). List I of Seventh Schedule of the Constitution enlists the Union Taxes which are :-

1. Taxes on income other than agriculture income.

2. Corporation tax

3. Custom duties

4. Excise duties except on alcoholic liquors and narcotics not contained in medical or toilet preparation.

5. Estate and succession duties other than on agricultural land.

6. Taxes on the capital value of assets except agricultural land of individuals and companies

7. Rates of stamp duties on financial documents

8. Taxes other than stamp duties on transactions in stock exchanges and future markets.

9. Taxes on sales or purchases of newspapers and on advertisements therein.

10. Taxes on railway freight and fares.

11. Terminal taxes on goods or passengers carried by railways sea or air.

12. Taxes on the sale or purchase of goods in the course of interstate trade.

(B). List I1 of Seventh schedule enlists the taxes which are within the jurisdiction of the States:-

1. Land revenue.

2. Taxes on the sale and purchase of goods, except newspapers.

3. Taxes on agricultural income.

4. Taxes on land and buildings.

5. Succession and estate duties on agricultural land

6. Excise on alcoholic liquors and narcotics.

7. Taxes on the entry of goods into a local area.

8. Taxes on the consumption and sale of electricity

9. Taxes on mineral rights (subject to any limitations imposed by the Parliament.

10. Taxes on vehicles, animals and boats.

11. Stamp duties except those on financial documents

12. Taxes on goods and passengers carried by board or inland water ways

13. Taxes on luxuries including entertainments, betting and gambling

14. Tolls

15. Taxes on professions, trades, callings and employment

16. Capitation taxation

17. Taxes on advertisements other than those contained in newspapers

(C). A part from taxes levied and collected by the States, the Constitution has provided for the revenues for certain taxes on the Union List to be allotted, partly or wholly to the States.

These provisions fall into various categories.

1. Duties which are levied by the Union Government but are collected and appropriated by the States. These includes stamp duties, excise duties on medical preparations containing alcohol or narcotics.

2. Taxes which are levied and collected by the Union, but the entire proceeds of which are assigned to the states, in proportion determined by the Parliament. These taxes include:

(i) Succession and Estate duty
(i) Terminal taxes on goods and passengers
(ii) Taxes on railway freight and fares
(iv) Taxes on transactions in stock exchanges and future markets
(v) Taxes on sale and purchase of newspapers and advertisements therein

3. Central taxes on income and union excise duties are levied and collected by the union but are shared by it with the States in a prescribed manner.

4. Proceeds of additional excise duty on mill-made textiles, sugar and tobacco which are levied by the Union since 1957 in replacement of state sales taxes on these commodities, are wholly distributed among the states in a manner as to guarantee their former incomes from the displaced sales taxes

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