Taxation Structure in India Flashcards
Indian Tax System Comprises of
The taxation system in India comprises a three-fold federal structure (it refers to relations between the Centre and the States of the Union of India), which includes the following.
- The Union Government
- The State Government
- The Local Bodies
Taxes that are levied by Indian Government, State Government and Local Bodies
❖ Taxes that are levied by the Indian Government: -
Income Tax, Central Excise Duty (tax imposed on goods for their production, licensing and sale like alcohol), Customs Duty, Sales Tax and Service Tax.
❖ Taxes that are levied by the State Government: -
Entertainment Duty(on films), Land Revenue, Profession Tax, Sales Tax, Stamp Duty and Excise Tax.
❖ Taxes that are levied by the local bodies: - Consumption Tax (tax levied on consumption spending on goods and services), Octroi Tax (Tax by Local bodies on certain categories of goods on entry in state) and Property Tax
Types of taxation based on determination of rate of tax
Progressive tax
proportional tax
regressive tax
degressive tax
What is Progressive tax
When the rate of tax increases along with the increase in income, then such taxation is called ‘progressive taxation’.
● It is considered the best way of redistributing income in a country.
● Under this taxation, rich people pay more tax and poor or low income people pay less.
What is Proportional tax
When no matter how much the income increases but there is no change in the rate of tax, it is called ‘proportional taxation’.
What is regressive tax
When the rate of tax is reduced with increase in income, it is called ‘regressive taxation’.
This type of taxation system is imposed equally on all income groups, that is why the regressive tax system is also called ‘indirect tax system’.
What is degressive tax
When the tax rate increases with the increase in income up to a certain limit, but becomes constant after that limit, it is called ‘regressive taxation’.
What is Laffer Curve
It was propounded by the economist Arthur Laffer.
● This curve shows the negative relationship between tax rate and tax revenue.
● According to this curve, if the tax rate is increased after a point, then the tax revenue starts decreasing, on the contrary, if the tax rate is decreased, then the tax revenue increases.
What are type of tax divided in India
Direct tax :-
Income
corporate tax
wealth tax
capital gain tax
securities transaction tax
Indirect tax :-
GST
custom duty
excise duty
central sales tax
What is Income tax
❖ To fill the treasury, the first Income-tax Act was introduced in February 1860 by Sir James Wilson (British India’s first finance minister). He is known as father of Income Tax in India
.
❖ Father of Tax Reforms of India is known as Raja Chelliah.
❖ Income tax is levied on the income of individuals, Hindu undivided families, unregistered firms and other associations of people.
❖ In India, the nature of income tax is progressive.
❖ For taxation purposes income from all sources is added and taxed as per the income tax slabs of the individual.
● Current income-tax law is governed by the 1961 act, which has 298 sections and four schedules.
● Political parties in India are eligible for 100% tax exemption on all income sources as per Section 13A of the Income Tax Act.
● Agricultural income is not taxable under Section 10 (1) of the Income Tax Act as it is not counted as a part of an individual’s total income.
● Form 16 is a document that contains all details required to file the income tax returns.
What is Corporate Tax
❖ The income-tax paid by domestic companies, and foreign companies on their income in India is corporate income-tax (CIT). The CIT is at a specific rate as prescribed by the income tax act subject to the changes in the rates in the union budget every year.
❖ Rate of tax is different for domestic and foreign companies.
What is Capital Gain Tax
● Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain.
● This gain or profit comes under the category of ‘income’.
● Hence, the capital gain tax will be required to be paid for that amount in the year in which the transfer of the capital asset takes place.
● It is of two types – long term capital gain and short term capital gain
● When the asset is sold after more than 3 years it is called ‘Long Term Capital Gain’ whereas if it is sold in less than 3 years it is called ‘Short Term Capital Gain’.
What is Indirect Tax
Indirect taxes are those taxes which can be shifted by the taxpayers on others.
● If the central government increases the rate of service tax on various services, then the seller passes on this increase to the end consumer of the service.
● GST, Anti Dumping Duty, Custom Duty, Excise Duty, Sales Tax are the example of Indirect tax.
What is GST
Goods and Services Tax (GST) is an indirect tax imposed on manufacture, sale, and consumption of goods and services all over India.
● GST has been added to the constitution under
the 101st Constitutional Amendment Act 2016.
● GST was implemented from July 1, 2017, and thereafter became the biggest tax reform in the country.
● The first country to impose GST was France in 1954.
● Since then, more than 140 countries have implemented the GST.
● Genesis of GST occurred during the previous NDA Government under Atal Bihari Vajpayee when it set up the Asim Dasgupta Committee to design a model for GST.
● GST is levied at four rates viz. 5%, 12%, 18% and 28%.
● The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.
● GST, which subsumed almost all domestic indirect taxes (Petroleum, Alcoholic beverages and stamp duty are the major exceptions) under one head, is perhaps the biggest tax reform in the history of independent India.
What is GST Council
The GST Council was established on 12 September 2016.
● To implement GST, the Constitutional (122nd Amendment) Bill was passed by both the Houses of the Parliament in 2016.
● The GST Council has been notified as a constitutional body to deal with issues related to GST.
● The Finance Minister of India is the chairman of the GST Council.
● It is a joint forum of the Center and the States, which was established by the President in accordance with Article 279A (1) of the amended Constitution.
