- 25 OCT 2017
Understanding the Basics of Tax Structure and Taxation System in India
Taxation system in India traces its roots to the ancient texts like Manusmriti and Arthashastra. As prescribed by these texts, artisans, farmers and traders hundreds of years ago would pay taxes in the form of silver, gold and agricultural produces. Taking clues from these texts and with some added tweaks, the basis for the modern tax system in India was laid by the British when Sir James Wilson introduced income tax for the first time in 1860. At the time of independence, the newly-formed Indian Government cemented the system to catalyse the economic progress of the country and also to eradicate income and wealth disparity.
Since then, the tax structure in the country has undergone revival with abolitions and amendments as well as additions of new reforms. Let’s have a look at the current aspects of taxation system in India.
Definition and Main Highlights
Tax can be defined in very simple words as the government’s revenue or source of income. The money collected under the taxation system is put into use for country’s development through a number of projects and schemes.
- The Indian Constitution authorizes the Central and the State Governments to levy taxes.
- The Parliament passes laws to approve taxes collected by the Central Government. In case of the State Governments, the State Legislature holds this power.
- In addition, the local governing and civic bodies too have the right to levy certain taxes.
Types of Taxes
There are two ways to classify different types of taxes in India:
- Taxes Levied by the Central Government and State Governments
- By the Central Government: These include income taxes (exception being the tax on agricultural income), custom duties, corporation taxes, excise duties, estate duty and more
- By the State Government: Taxes on agricultural incomes, VAT (value added taxes), electricity consumption and sale taxes, land revenues, tolls and more
- By the Local Civic Bodies: Municipal corporations and other local governing bodies collect taxes like property taxes
- Direct and Indirect Taxes
- Direct Taxes: These taxes are directly paid by the individuals to the respective governments. The most important examples include income tax, capital gains tax, perquisite tax, corporate tax and securities transaction tax.
- Indirect Taxes: These taxes are not directly paid to the governments but are collected by the intermediaries who sell or arrange products and services. Service tax, sales tax, octroi, customs duty, value added tax and excise duty are some of the top examples.
The Concerned Authorities
In 1964, the Central Board of Revenue was constituted to govern the taxation system in the country. Two bodies formed under the board include:
- Central Board of Direct Taxes (CBDT): Plans and administers the direct taxes
- Central Board of Excise and Customs (CBEC): Administers service tax, customs and excise duties
Highlights of Taxation System 2017
- Revised Income Tax Slabs: In a major relief to the low-income individuals, the Union Budget presented in 2017 reduced the tax rate for the income bracket 2.5-5 lakh from 10% to 5%.
- Goods and Service Tax (GST): Passed in 2016, but levied in July, 2017, GST brings various indirect taxes levied by the Central and the State Governments under a single comprehensive indirect tax.
- Central Board of Indirect Taxes and Customs (CBIC): Another important development was renaming CBEC to CBIC under the newly-levied GST.
The Government of India penalizes offenders, who don’t pay taxes, through penalties ranging from fines to imprisonment. Paying taxes on time and with honesty is indeed beneficial for all.
- 20 SEP. 2018
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