Taxation in India

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Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such the Municipality or the Local Council. The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Center and the State. An important restriction on this power is Article 265 of the Constitution which states thats "No tax shall be levied or collected except by the authority of law."^[1] Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.

1 Constitutionally established scheme of Taxation
2 Taxation laws in India
3 Income tax rates
4 See also
5 Reference List

[edit] Constitutionally established scheme of Taxation

Schedule VII of the Constitution distributes the power of taxation between the Parliament and the State Legislature. This Schedule VII carries three lists;

List - I entailing the areas on which only the parliament is competent to makes laws,
List - II entailing the areas on which only the state legislature can make laws, and
List - III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.

In terms of these three lists of Schedule VII, the distribution of taxing powers is as under;

S. No.	Parliament	State Legislature
1	Taxes on income other than agricultural income (List I, Entry 82)	Taxes on agricultural income (List II, Entry 46)
2	Duties of customs including export duties (List I, Entry 83)	Duties in respect of succession to agricultural income (List II, Entry 47)
3	Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84)	Estate Duty in respect of agricultural income (List II, Entry 48)
4	Corporation Tax (List I, Entry 85)	Taxes on lands and buildings (List II, Entry 49)
5	Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies (List I, Entry 86)	Taxes on mineral rights (List II, Entry 50)
6	Estate duty in respect of property other than agricultural land (List I, Entry 87)	Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics (List II, Entry 51)
7	Duties in respect of succession to property other than agricultural land (List I, Entry 88)	Taxes on entry of goods into a local area for consumption, use or sale therein (List II, Entry 52)
8	Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight (List I, Entry 89)	Taxes on the consumption or sale of electricity (List II, Entry 53)
9	Taxes other than stamp duties on transactions in stock exchanges and futures markets (List I, Entry 90)	Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54)
10	Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92)	Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II, Entry 55)
11	Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce (List I, Entry 92A)	Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56)
12	Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A)	Taxes on vehicles suitable for use on roads (List II, Entry 57)
13	All residuary types of taxes not listed in any of the three lists (List I, Entry 97)	Taxes on animals and boats (List II, Entry 58)
14	-	Tolls (List II, Entry 59)
15	-	Taxes on profession, trades, callings and employments (List II, Entry 60)
16	-	Capitation taxes (List II, Entry 61)
17	-	Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (List II, Entry 62)
18	-	Stamp duty (List II, Entry 63)

Any tax levied by the government which is not backed by law or is beyond the powers of the legislating authority and may be struck down as unconstitutional.

[edit] Taxation laws in India

The major tax enactment in India is the Income Tax Act of 1961 passed by the Parliament, which imposes a tax on income of individuals and corporations. This Act of 1961 imposes a tax on income under the following five heads;

Income from house and property,
Income from business and profession,
Employment Income,
Income in form of Capital gains, and
Other income

In essence, the Act of 1961 imposes tax in the nature of the following;

Other major taxation laws enacted by the Parliament are;

Wealth Tax Act, which has a regular history of being passed and repealed;
Service Tax, imposed under Finance Act, 1994, which taxes the provision of services provided by service providers within India or services imported by Indian from outside India;
Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India;
Customs Act, 1962, which imposes duties of customs, counterveiling duties and anti-dumping duties on goods imported in India;
Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in India;
Transaction Tax, which taxes transactions of sale of securities and other specified transactions;

The major taxation enactments passed by the State Legislatures are in the nature of the following;

Excise duties on tobacco, alcohol and narcotics;
Sales tax, on sale of goods within the State;
Stamp duties, on sale of property situated within the State;
Entertainment taxes

[edit] Income tax rates

In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons. The rate of taxes are prescribed every year by the Parliament in the Finance Act, popularly called the Budget. In terms of the Finance Act, 2008, the rate of tax for individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI) is as under;

For the Assessment Year 2008-09 Taxable income slab (Rs.)

Up to 1,50,000 - NIL
Up to 1,85,000 (for women) - NIL
Up to 2,25,000 (for resident individual of 65 years or above) NIL
1,50,000 – 3,00,000 - 10%
3,00,001 – 5,00,000 - 20%
5,00,000 Above - 30%

A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

Note : -

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.