THE INDIAN TAXATION SYSTEM

Introduction

The Indian tax system plays a major role in running the Indian economy. Tax contributes majorly to the government revenue and state and central government has complete vigilance on taxpayers.

There is need to study the taxation system because Indian taxation system goes through various amendments and recently new reform came by the name of GST (Goods and Services tax) so the GST has both positive and negative impacts on economy and people which is need to be studied

Nowadays people use malpractices to evade the tax and the government cannot properly establish a vigilance technique for that, some of the people get busted and some of the people flee away. In this paper we are going to study the types of taxes, the committee to watch the taxpayer money, History and evolution, Impact of GST on the Indian economy.


WHAT IS TAX?

The simple meaning of tax is something which is levied on someone earning to fund the government, it is just a way of collecting revenue from the people by the government.

In a legal way the tax can be called as compulsory payments that have to be burdened by every resident of the country. Government decides the rate of the taxes.

There are several types of taxes that government use to imposed at the earlier times but the ruling government changed and clubbed all the taxes in one called as GST (Good & Services tax)



HISTORY AND EVOLUTION OF TAXATION IN INDIA

Basically the tax is derived from the Latin word taxare or taxo ,it states that to assess the worth of something ,Tax is basically levied on both the goods and services.

The formal tax system can be found to have existed in India since the time of Maurya dynasty. The upper class of citizens contributed 1/6th of their income as tax. Even before the Maurya’s the tax was specified in Manu Smruti, one of the oldest scriptures of India. Then the Mughal invaders come up with their own taxation system. The infamous Jezia was a tax imposed on the non-Islamic people of the land, it was abolished by Akbar.

The tax which we know today was first introduced by the British in 1860. It was introduced to cover the losses sustained by the government due to the rebellion of 1857. Income tax is levied on the both earned income[1] and unearned income[2] . In addition to financing the government operations, progressive income taxation is designed to distribute wealth creation more evenly in a population to serve as a buffer in case of fluctuations in the economic cycle.

In India the income Tax act was passed in 1886 and there constant revisions and refinements were done to these. In 1918 the new income tax act was passed after the first world war and to counter the destruction of the economy by war this act was in place till 1922. The income tax act was modified again after 40 years and 15 years when India gained freedom from the British . The current income tax act was adopted in 1961 and brought into force with the effect from April 1, 1962.

Currently there are 5 boards under which income is taxed by the Government of India –

● Income from salary

● Income from business or profession

● Income from capital gains

● Income from property

● Income from other sources

A noticeable feature of Income tax act of India is the agriculture income is not come under the purview of taxation

India currently has a three tier taxation system. The central government and state government both can impose the taxes and the state government can distribute taxation powers to local governing bodies like municipal corporations and gram panchayats. The Indian tax system is one of the most complex taxes in the world

As nation evolves, Indian also done the changes and club all the different tax[3] which was imposed by central and state government into one known as GST(goods and services tax) on July 1, 2017


REVENUE AUTHORITIES

● CBDT

The CBDT (Central Board Of Direct Taxes) comes under the Department of Revenue under the Ministry of Finance.[4] This body gives input for policy and planning of direct tax in Indian and also responsible for administration of direct tax laws through the income Tax department

● CBEC

The CBEC (The Central Board of Excise and Customs) is also part of the same department of revenue under the Ministry of finance. It is the nodal nation agency responsible for administering customs, central excise duty and service tax in India.

● CBIC

Under the GST regime the CBEC has been renamed to CBIC(The Central Board of Indirect tax & customs).

This department supervises all the works of the fields and directorates and assists the government in policy making in relation to GST, continuing central excise levy and customs functions.


TYPES OF TAXES

Every Individual or any business/organization, all have to pay the tax in some type. These taxes are further bifurcated into two taxes Direct and indirect tax depending upon the manner in which they are paid to the taxation authorities.


● Direct Tax

This is the tax which is the same as its name, it is directly burdened by the citizens and paid directly to the government, The general examples of this type of tax in India are income tax and wealth tax.

From the government perspective estimation of direct tax are easy because it has directly correlation to taxpayers’ income.


● Indirect Tax

Indirect tax is slightly different from direct tax, this tax is levied on the consumption of any goods or services. This is not directly paid to the government, it is collected from the seller of goods/services. The seller basically shifts the burden to the buyers.

Some general examples of indirect tax include sales tax, value added tax etc.


GST (GOODS & SERVICES TAX) A RECENT REFORM

The GST was introduced in December ,2014 in Lok Sabha and later was implemented from July 1 2017, Goods & Services tax is multistage and destination-based tax that is levied on every value addition to the goods.

GST was introduced with the objective of one nation one tax system, Under this bill all other taxes like octroi, central excise VAT got consolidated into one and restructured the indirect taxation. GST has divided the goods and services into various categories and applied the tax from 5% to 28%.

● Benefits Of GST for the centre and the states

The GST has created a split of burden between the manufacturing and services/retain in taxes which will result in financial gain with 15billion a year as per the prediction by the experts. GST will promote more exports thereby creating more employment opportunities and thus will boost the growth


● Benefits of GST for individual and companies

Due to GST the individuals will be also get benefited as the prices will come down mean more consumption and more consumption means more production so it will faster the growth of the companies too


POSITIVE IMPACT OF GST

Increase in foreign investment– India is now a unified market with The GST and foreign investment has increased in India. The manufacture of goods in Indian boundaries has become more competitive in the international market due to reduced cost leading to growth in export. The implementation of GST makes selling easier for Indian businessmen in the global market because it puts India in the line of international tax standards.


Fewer Tax – GST has two parts, The Central GST and the State GST. The central GST replaced – service tax, central excise duty and custom duty etc. The state GST will replace State VAT, central sales tax, advertisements tax luxury tax, Purchase tax etc.


Reduce the Cost of doing business – GST has replaced the VAT all over India . Now we don’t need to pay different taxes in different states as GST is one tax all over India


Transparency- The tax administration has started working corruption free. Also enabling sales invoices to show the tax applied has resulted in transparency.


NEGATIVE IMPACT OF GST

1. Dual Control- GST is called a single tax but state and central both the governments charge taxes upon the sale and service.

2. Incumbent increase of the cost of some commodities – For some of the product’s cost has been increased due to increase in taxes.

3. Some sectors are at a loss - Sectors like Textile, Media, Pharma, Dairy Products, IT and Telecom are bearing the brunt of a higher tax. Also, the price of commodities has increased like jewellery, mobile phones and credit cards.

4. Real Estate Market affected – GST in India has already had a negative impact on the real estate market. It has added up to 8% to the cost of new homes and reduced demand by about 12 percent,[5]


LEGISLATIVE STATUTE ON INCOME TAX

The income Tax Act, 1961

In 1961 the Income Tax Act was enacted in India. It is a complex statute with the aim of governing taxation through several rules and regulations. This Act specifies how the Indian government administers, levies, recovers and collects income tax in India. In order to deal with many income tax aspects in India, the act contains 23 chapter and 298 section[6] . All the important provisions relating to the income tax are included.

Income tax is levied on a person’s entire earnings over the course of fiscal year


Finance Act

The Finance Minister of India delivers the budget to the Indian parliament every year. This act showed any changes to income slabs and rates that occur each year.

The finance act becomes law as soon as a financial bill is passed through parliament and approved by the president. For closing loopholes in the Act the CBDT[7] produces circulars which also helps in to understand the better meaning of provisions


CONCLUSION

The Indian taxation system is the most complex taxation system among the world. It traces back from the Manu smritis and British led Indian era. Three revenue authorities work under the finance ministry to control the taxation and in India two types of taxes were taken from direct to indirect tax.

Indian taxation went through a reform and a new one nation one tax aimed taxation come called as GST which have both negative and positive impact like every coin has two faces.

Two statutes control the income tax with rules regulations which are income tax Act 1961 and finance act. SO basically Indian taxation system after the reform is not too hard to understand as earlier there were many types of taxes were charged


-- [1] Wages, salaries or commission [2] Dividend interest or rent [3] Income Tax, wealth tax , property tax , gift tax , sales tax etc [4] Revenue authorities, available at https://www.cbic.gov.in/htdocs-cbec/whoweare/fns-dep-rev <accessed on july 7.2022> [5] Impact of GST, available at https://www.civilserviceindia.com/subject/Essay/what-are-the-positive-and-negative-impacts-of-GST.html, <accessed on july 7,2022> [6] Income Tax Act, 1961 [7] Central Board of Direct Taxes


BIBLIOGRAPHY

Articles

1. Anjali Tyagi, An analysis of the tax structure in india, SSRN-id3980513

2. Aayushi Shukla, Impact of GST, Civil service India

3. CA Tarun Kumar, history & evolution of Income tax act in India, Taxguru.com

E journals

1. History of taxation in India, https://www.levare.co.in/articles/history-taxation-india

2. Tax laws in India by Shah Ishfaq https://www.legalserviceindia.com/legal/article-749-tax-laws-in-india.html

3. Tax in India https://groww.in/p/tax

Statute

  1. Income Tax Act, 1961

  2. Finance Act


This article is written by Sitanshu shekhar Srivastava of MIT WPU Pune.

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