Taxation in India

Taxation
An aspect of fiscal policy
Policies Government revenue Tax revenue Non-tax revenue Tax law Tax bracket Tax threshold Exemption Credit Deduction Tax shift Tax cut Tax holiday Tax advantage Tax incentive Tax reform Tax harmonization Tax competition Double taxation Representation Unions Medical savings account Tax, tariff and trade
Economics Price effect Excess burden Tax incidence Laffer curve Optimal tax Theory Optimal capital income taxation
Collection Revenue service Revenue stamp Tax assessment Taxable income Tax lien Tax refund Tax shield Tax residence Tax preparation Tax investigation Tax shelter Private tax collection Tax farming
Noncompliance Tax avoidance Tax evasion Tax resistance Tax haven Smuggling Black market Transfer mispricing Unreported employment Tax shelter
Distribution Tax rate Progressive Regressive Proportional
Types Direct Indirect Per unit Ad valorem In rem Capital gains Carbon Consumption Dividend Ecotax Excise Fuel Georgist Gift Gross receipts Income Inheritance (estate) Land value Payroll Pigovian Property Sales Sin Single Stamp Steering Turnover Value-added (VAT) Corporate profit Excess profits Windfall profits Negative (income) Flat Wealth
International Financial transaction tax Currency transaction tax Tobin tax Spahn tax Tax equalization Tax treaty European Union FTT
Trade Custom Duty Tariff Import Export Tariff war Free trade Free trade zone Trade agreement
Religious Church tax Eight per thousand Teind Tithe Fiscus Judaicus Leibzoll Temple tax Tolerance tax Jizya Kharaj Khums Nisab Zakat
By country List of countries by tax rates Tax revenues as %GDP Albania Algeria Argentina Australia Azerbaijan Bangladesh Bhutan Bulgaria Canada China Colombia France Germany Greece Iceland India Indonesia Iran Ireland Israel Italy Japan Kazakhstan Lithuania Malta Namibia Netherlands New Zealand Norway Pakistan Palestinian territories Peru Philippines Poland Russia Singapore South Africa Sweden Switzerland Tanzania United Kingdom United States Uruguay

Taxes in India are levied by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such as the Municipality.^[1]

The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Centre and the State. An important restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law".^[2] Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature. In 2013-2014, the gross tax collection of the Centre amounted to ₹13.64 trillion (US$200 billion).^[3]

Constitutionally established scheme of taxation

Article 246^[4] of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislature. Schedule VII enumerates these subject matters with the use of three lists:^[5]

• List - I entailing the areas on which only the parliament is competent to make 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.

Separate heads of taxation are no head of taxation in the Concurrent List (Union and the States have no concurrent power of taxation).^[6] The list of thirteen Union heads of taxation and the list of nineteen State heads are given below:^[6]

Central government of India

^[7]

State governments

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

Arun Jaitley, Finance Minister, Government of India

The Central Board of Revenue or Department of Revenue is the apex body charged with the administration of taxes. It is a part of Ministry of Finance which came into existence as a result of the Central Board of Revenue Act, 1924.

Initially the Board was in charge of both direct and indirect taxes. However, when the administration of taxes became too unwieldy for one Board to handle, the Board was split up into two, namely the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) with effect from 1 January 1964. This bifurcation was brought about by constitution of the two Boards under Section 3 of the Central Boards of Revenue Act, 1963.

Central Board of Direct Taxes

Indian Revenue Service Logo

The Central Board of Direct Taxes (CBDT) provides essential inputs for policy and planning of direct taxes in India and is also responsible for administration of the direct tax laws through Income Tax Department. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963. It is India’s official FATF unit.^[8]

Organisational Structure

The CBDT is headed by CBDT Chairman and also comprises six members, all of whom are Special Secretary to Government of India.

• Member (Income Tax)
• Member (Legislation and Computerisation)
• Member (Revenue)
• Member (Personnel & Vigilance)
• Member (Investigation)
• Member (Audit & Judicial)

The CBDT Chairman and Members of CBDT are selected from Indian Revenue Service (IRS), a premier civil service of India, whose members constitute the top management of Income Tax Department.^[9]

Income Tax Department

Income Tax Department

Income Tax Department functions under the Department of Revenue in Ministry of Finance. It is responsible for administering following direct taxation acts passed by Parliament.^[10]

• Income Tax Act, 1961
• Various Finance Acts (Passed Every Year in Budget Session)

Income Tax Department is also responsible for enforcing Double Taxation Avoidance Agreements and deals with various aspects of international taxation such as Transfer Pricing. Finance Bill 2012 seeks to grant Income Tax Department powers to combat aggressive Tax avoidance by enforcing General Anti Avoidance Rules.^[11]

Central Board of Excise and Customs

Central Board of Excise and Customs (CBEC) deals with indirect taxation (central) in India.

• Service Tax
• Excise Duty
• Custom Duty

Central Taxes

Direct Taxes

Direct Taxes in India were governed by two major legislations, Income Tax Act, 1961 and Wealth Tax Act, 1957. A new legislation, Direct Taxes Code (DTC), was proposed to replace the two acts.^[12] However, the Wealth Tax Act was repealed in 2015 and the idea of DTC was dropped.

As of 2015, Income Tax is the major source of direct tax in India.

Income Tax

The major tax enactment in India is the Income Tax Act, 1961 passed by the Parliament, which imposes a tax on the income of persons.^[13] This Act imposes a tax on income under the following five heads:^[14]

1. Income from house property
2. Income from business and profession
3. Income from salaries
4. Income in the form of capital gains
5. Income from other sources

In terms of the Income Tax Act, 1961, a person includes^[15]

1. Individual
2. Hindu Undivided Family (HUF)
3. Association of Persons (AOP)
4. Body of Individuals (BOI)
5. Company
6. Firm
7. Local authority
8. Artificial Judicial person not falling in any of the preceding categories

The tax rate is prescribed every year by Parliament in the Finance Act, popularly called the Budget. In terms of the Finance Act, 2015, the rate of tax for individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI) is as under;

• A surcharge of 2.50% of the total tax liability is applicable in case the payee is a Non-Resident or a Foreign Company; where the total income exceeds ₹1 crore (US$150,000).
• Education cess (EC) is applicable @ 2% on income tax, inclusive of surcharge if there is any.
• Secondary and Higher Education Cess (SHEC) is applicable @ 1% on Income Tax.
• A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over ₹10 lakh (US$15,000) is limited to an amount by which the income is more than this mentioned amount.

Indirect Taxes

Service tax

It is a tax levied on services provided in India, except the State of Jammu and Kashmir. The responsibility of collecting the tax lies with the Central Board of Excise and Customs(CBEC). From 2012, service tax is imposed on all services, except those which are specifically exempted under law(e.g. Exempt under Negative List, Exempt as exclusion from Service definition as per Service Tax, Exempt under MEN(Mega exemption notification)). In budget presented for 2008-2009, it was announced that all small service providers whose turnover does not exceed ₹10 lakh (US$15,000) need not pay service tax. Service tax at a rate of 14 percent(Inclusive of EC & SHEC) will be imposed on all applicable services from 1 June 2015.^[16]From 15th November 2015, Swacch Bharat cess of 0.5% has been added to all taxable service leading the new Service Tax rate to be 14.5 percent (Inclusive of EC, SHEC & Swacch Bharat cess).^[17]

Excise and Customs

Logo of Customs and Central Excise

1. Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India;
2. Customs Act, 1962, which imposes duties of customs, countervailing duties, and anti-dumping duties on goods imported in India;
3. Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in Indisale of property situated within the state^[15]

State Taxes

Road NH 71 B to Shekhawati-Tax collection point for Haryana

Value Added Tax (VAT) is a major source of revenue for Indian States. Other state level taxes include Entertainment tax, Entry Tax and Octroi.

Local Body Tax

Goods and Service Tax

The ex-Finance Minister of India, Pranab Mukherjee in his Budget speech has indicated the government's intent of merging all taxes like Service Tax, Excise and VAT into a common Goods and Service Tax by the year 2011. To achieve this objective, the rate of Central Excise and Service Tax will be progressively altered and brought to a common rate. However, as of May 2015, Goods and Services Tax Bill has not been passed by the Parliament because of meaningless disrupt caused by Opposition Allies (INC) on some private State level issues. Now, Service Tax and Excise will be inclusive part of GST in due course of time.

See also

• History of the British salt tax in India
• Indian tax forms
• Investigation Division of the Central Board of Direct Taxes
• James Wilson (businessman)
• States of India by tax revenues
• Union budget of India
• Value-added taxation in India

References

External links

• Union budget and Economic Survey
• Department of Public Expenditure and Reform
• Indian Income Tax Department
• Electronic Filing of Income Tax returns
• Income Tax Slab Rates
• Income Tax Slab for FY 2015-16 & AY 2016-17

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