Taxation in India
Encyclopedia
Tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

es in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

are levied by the Central Government
Government of India
The Government of India, officially known as the Union Government, and also known as the Central Government, was established by the Constitution of India, and is the governing authority of the union of 28 states and seven union territories, collectively called the Republic of India...

 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
Constitution of India
The Constitution of India is the supreme law of India. It lays down the framework defining fundamental political principles, establishes the structure, procedures, powers, and duties of government institutions, and sets out fundamental rights, directive principles, and the duties of citizens...

 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." Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament
Parliament of India
The Parliament of India is the supreme legislative body in India. Founded in 1919, the Parliament alone possesses legislative supremacy and thereby ultimate power over all political bodies in India. The Parliament of India comprises the President and the two Houses, Lok Sabha and Rajya Sabha...

 or the State Legislature
Legislative Assembly
Legislative Assembly is the name given in some countries to either a legislature, or to one of its branch.The name is used by a number of member-states of the Commonwealth of Nations, as well as a number of Latin American countries....

.

Central Board of Direct Taxes

The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India
Government of India
The Government of India, officially known as the Union Government, and also known as the Central Government, was established by the Constitution of India, and is the governing authority of the union of 28 states and seven union territories, collectively called the Republic of India...

. The 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.The Central Board of Revenue as the Department apex body charged with the administration of taxes 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 and Central Board of Excise and Customs with effect from 1.1.1964. This bifurcation was brought about by constitutiofrn of the two Boards u/s 3 of the Central Boards of Revenue Act, 1963.

Organisational Structure of the Central Board of Direct Taxes :

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

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


The 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 and other various departments.

Constitutionally established scheme of Taxation

Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament
Parliament
A parliament is a legislature, especially in those countries whose system of government is based on the Westminster system modeled after that of the United Kingdom. The name is derived from the French , the action of parler : a parlement is a discussion. The term came to mean a meeting at which...

 and the State Legislature
Vidhan Sabha
The Vidhan Sabha or the Legislative Assembly is the lower house or the sole house of the provincial legislature in the different states of India. The same name is also used for the lower house of the legislatures for two of the union territories, Delhi and Pondicherry...

. Schedule VII enumerates these subject matters with the use of three lists;
  • 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 provided under lists I and II. There is no head of taxation in the Concurrent List (Union and the States have no concurrent power of taxation). The list of thirteen Union heads of taxation and the list of nineteen State heads are given below:

Central government

S. No. Parliament
Parliament
A parliament is a legislature, especially in those countries whose system of government is based on the Westminster system modeled after that of the United Kingdom. The name is derived from the French , the action of parler : a parlement is a discussion. The term came to mean a meeting at which...

1 Taxes on income
Income tax in India
The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families , companies, firms, co-operative societies and trusts and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961...

 other than agricultural income (List I, Entry 82)
2 Duties
Duty (economics)
In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...

 of customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...

 including export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...

 duties (List I, Entry 83)
3 Duties of excise
Excise
Excise tax in the United States is a indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are far from uniform throughout the United States...

 on tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...

 and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium
Opium
Opium is the dried latex obtained from the opium poppy . Opium contains up to 12% morphine, an alkaloid, which is frequently processed chemically to produce heroin for the illegal drug trade. The latex also includes codeine and non-narcotic alkaloids such as papaverine, thebaine and noscapine...

, Indian hemp
Hemp
Hemp is mostly used as a name for low tetrahydrocannabinol strains of the plant Cannabis sativa, of fiber and/or oilseed varieties. In modern times, hemp has been used for industrial purposes including paper, textiles, biodegradable plastics, construction, health food and fuel with modest...

 and other narcotic drug
Drug
A drug, broadly speaking, is any substance that, when absorbed into the body of a living organism, alters normal bodily function. There is no single, precise definition, as there are different meanings in drug control law, government regulations, medicine, and colloquial usage.In pharmacology, a...

s and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84)
4 Corporation Tax (List I, Entry 85)
5 Taxes on capital value of assets
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...

, exclusive of agricultural land, of individuals and companies, taxes on capital of companies (List I, Entry 86)
6 Estate duty in respect of property other than agricultural land (List I, Entry 87)
7 Duties in respect of succession to property
Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...

 other than agricultural land (List I, Entry 88)
8 Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight (List I, Entry 89)
9 Taxes other than stamp duties
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...

 on transactions in stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...

s and futures markets (List I, Entry 90)
10 Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92)
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)
12 Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A)
13 All residuary types of taxes not listed in any of the three lists (List I, Entry 97)

State governments

S. No. State Legislature
Vidhan Sabha
The Vidhan Sabha or the Legislative Assembly is the lower house or the sole house of the provincial legislature in the different states of India. The same name is also used for the lower house of the legislatures for two of the union territories, Delhi and Pondicherry...

1 Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues (List II, Entry 45)
2 Taxes on agricultural income (List II, Entry 46)
3 Duties in respect of succession to agricultural income (List II, Entry 47)
4 Estate Duty in respect of agricultural income (List II, Entry 48)
5 Taxes on lands and buildings (List II, Entry 49)
6 Taxes on mineral rights (List II, Entry 50)
7 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)
8 Taxes on entry of goods into a local area for consumption, use or sale therein (List II, Entry 52)
9 Taxes on the consumption or sale of electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...

 (List II, Entry 53)
10 Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54)
11 Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II, Entry 55)
12 Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56)
13 Taxes on vehicles suitable for use on roads
Road tax
Road tax, known by various names around the world, is a tax which has to be paid on a motor vehicle before using it on a public road.-Australia:...

 (List II, Entry 57)
14 Taxes on animals and boats (List II, Entry 58)
15 Tolls
Toll road
A toll road is a privately or publicly built road for which a driver pays a toll for use. Structures for which tolls are charged include toll bridges and toll tunnels. Non-toll roads are financed using other sources of revenue, most typically fuel tax or general tax funds...

 (List II, Entry 59)
16 Taxes on profession, trades, callings and employments (List II, Entry 60)
17 Capitation taxes (List II, Entry 61)
18 Taxes on luxuries, including taxes on entertainments, amusements
Entertainment tax
-In India:In India, movie tickets, large commercial shows and large private festival celebrations may incur an entertainment tax.Entertainment falls in List 2 of the Seventh Schedule of the Constitution of India and is exclusively reserved as a revenue source for the state governments...

, betting and gambling (List II, Entry 62)
19 Stamp duty
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that 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 may be struck down as unconstitutional.

Income Tax Act of 1961

The major tax enactment in India is the Income Tax Act of 1961 passed by the Parliament
Parliament of India
The Parliament of India is the supreme legislative body in India. Founded in 1919, the Parliament alone possesses legislative supremacy and thereby ultimate power over all political bodies in India. The Parliament of India comprises the President and the two Houses, Lok Sabha and Rajya Sabha...

, which imposes a tax on income of individuals
Income tax in India
The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families , companies, firms, co-operative societies and trusts and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961...

 and corporations. This Act imposes a tax on income under the following five heads:
  • Income from house and property,
  • Income from business and profession,
  • Income from salaries,
  • Income in the form of Capital gains, and
  • Income from other sources


However, this Act is about to be repealed and be replaced with a new Act which consolidates the law relating to Income Tax and Wealth Tax, the new proposed legislation is called the Direct Taxes Code
Direct Taxes Code
The Direct Taxes Code is said to replace the existing Indian Income Tax Act, 1961. If approved, the DTC shall come into force on the April 1, 2012, and shall be applicable for income earned during the financial year 2012-13...

(to become the Direct Taxes Code, Act 2010). The new Act is purported to come into effect from 1 April 2012.

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
Parliament of India
The Parliament of India is the supreme legislative body in India. Founded in 1919, the Parliament alone possesses legislative supremacy and thereby ultimate power over all political bodies in India. The Parliament of India comprises the President and the two Houses, Lok Sabha and Rajya Sabha...

 in the Finance Act, popularly called the Budget
Union budget of India
The Union Budget of India, referred to as the annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament...

. In terms of the Finance Act, 2009, 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 Rs 10,000,000.


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.

Service tax

Service tax is a part of Central Excise in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

.
It is a tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 levied on services provided in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

, except the State of Jammu and Kashmir
Jammu and Kashmir
Jammu and Kashmir is the northernmost state of India. It is situated mostly in the Himalayan mountains. Jammu and Kashmir shares a border with the states of Himachal Pradesh and Punjab to the south and internationally with the People's Republic of China to the north and east and the...

. The responsibility of collecting the tax lies with the Central Board of Excise and Customs
Central Board of Excise and Customs
The Central Board of Excise and Customs is the national agency responsible for administering customs and excise in India.The Customs & Excise department was established in the year 1855 by the then British Governor General of India, to administer customs laws in India and collection of import...

(CBEC).

The Finance Minister of India
Finance Minister of India
The Minister of Finance, also known as the Finance Minister of India is a cabinet position in the Government of India and heads the Ministry of Finance. He drafts the general budget of the country, and is in charge of the national economy. Currently, Pranab Mukherjee holds the charge of finance...

, Pranab Mukherjee
Pranab Mukherjee
Pranab Kumar Mukherjee is the current Finance Minister of India and leader of the current Lok Sabha.Mukherjee is a senior member of the Cabinet Committees on Economic Affairs, Infrastructure, Parliamentary Affairs, Political Affairs, Prices, Security, Unique Identification Authority of India,...

 in his Budget
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...

 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.
In budget presented for 2008-2009 It was announced that all Small service providers whose turnover does not exceed Rs10 lakhs need not pay service tax.

Circular No. 127/9/2010-ST, dated 16-8-2010 regarding Service tax on commercial training and coaching - Whether ‘donation' is ‘consideration'.
A representation has been received seeking clarification whether donations and grants-in-aid received from different sources by a charitable Foundation imparting free livelihood training to the poor and marginalized youth, will be treated as ‘consideration' received for such training and subjected to service tax under ‘commercial training or coaching service'.
2. The matter has been examined. The important point here is regarding the presence or absence of a link between ‘consideration' and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to service tax.
Donation or grant-in-aid is not specifically meant for a person receiving such training or to the specific activity, but is in general meant for the charitable cause championed by the registered Foundation. Between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.

Other Major Taxation Laws

Other major taxation laws enacted by the Parliament are;
  1. Wealth Tax Act, which has a regular history of being passed and repealed;
  2. 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;
  3. Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India;
  4. Customs Act, 1962, which imposes duties of customs, counterveiling duties and anti-dumping duties on goods imported in India;
  5. Central Sales Tax, 1956, which imposes sales tax
    Sales tax
    A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....

     on goods sold in inter-state trade or commerce in India;
  6. Transaction Tax, which taxes transactions of sale of securities and other specified transactions;


The major taxation enactments passed by the State Legislatures
Vidhan Sabha
The Vidhan Sabha or the Legislative Assembly is the lower house or the sole house of the provincial legislature in the different states of India. The same name is also used for the lower house of the legislatures for two of the union territories, Delhi and Pondicherry...

 are in the nature of the following;
  1. Excise duties on tobacco, alcohol and narcotics;
  2. Sales tax, on sale of goods within the State;
  3. Stamp duties, on sale of property situated within the State;
  4. Entertainment taxes

See also

  • Central Excise (India)
    Central Excise (India)
    Central Excise is a central government department which is administered by the Central Board of Excise and Customs. The Chairman, CBEC is the administrative head of the department exercising jurisdiction over entire India...

  • Union budget of India
    Union budget of India
    The Union Budget of India, referred to as the annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament...

  • Tax law
    Tax law
    Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...

  • Special Economic Zone
    Special Economic Zone
    A Special Economic Zone is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws...

  • Domestic tariff area
    Domestic tariff area
    Domestic Tariff Area or Domestic Tariff Zone means an area within India that is outside the Special Economic Zones and EOU/EHTP/STP/BTP....

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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