Tax System

Tax System

A compulsory contribution given by a citizen or organization to the government is called tax, which is used for meeting expenses on welfare work.

Tax imposing and Tax collecting is at three levels in India – Central level, state level and local level.

The distribution of tax between central and state has been clearly mentioned in the provisions of Indian Constitution. For rationalizing it from time to time, Finance Commission has been constituted.

The tax system has been divided into two parts :

Tax by central Government : custom Duty, Income tax and Corporate tax etc.

Tax by State Government : the state government has right to collect all the taxes in this category and to spend them.

There are two types of taxes : 1.Direct taxes 2. Indirect  taxes.

*Direct Taxes :- The taxes levied by the central government on incomes and wealth are important direct taxes .the important direct taxes. The important taxes levied on incomes are- corporation tax and income tax. Taxes levied on wealth are wealth tax, gift tax etc .

*Indirect taxes :- This type of tax is not paid by someone to the authorities and it is actually passed on to the other in the other in the form of increased cost. they are levied on goods and services produced or purchased . Excise tax, sales tax, vat, Entertainment tax and indirect taxes. The main forms of indirect taxes are customs and excise duties and sales tax. the central  government is empowered  to levy customs and excise duties (except on alcoholic  liquors and narcotics) whereas sales tax is tax is the exclusive jurisdiction of the state governments.

However, the  union excise duties form the most significant part of central taxes. The major tax revenue sources for states are their shares in union excise duties and income tax, commercial taxes , land revenue, stamp duty, registration fees, state excise duties on alcohol and narcotics etc. Sales tax forms the most important component of commercial taxes.

Progressive Tax :- A tax that takes away a higher proportion of one’s income as the income rises is known as progressive tax. Indian Tax is a progressive and direct tax.

  1. Chelliah Committee was constituted in August, 1991 for suggesting reforms in tax structure.

Chelliah Committee recommended Income tax for agricultural income of more than Rs. 25,000 p.a. Chelliah Committee also recommended for lowering down the tax rates and reducing the tax slabs.

K.L. Rekhi Committee was constitute in 1992 for suggesting uniform regulations for indirect taxation (Custom Duty and Excise Duty).

Finance Commission

Finance Commission is  constituted by the president under Act 280 of the Constitution. Since Independence, 12 finance Commissions have submitted their reports.

1st Finance commission was constituted under chairmanship of K.C. Neogi while 12th finance commission was constituted under chairmanship of  Dr.C. Rangarajan. The recommendations of 12th finance commission cover period 1st April, 2005 to 31st March, 2010.

13th finance commission, for the period 2010-2015, had been constituted in  November, 2007 with Dr. Vijay L.Kelkar as the Chairman.

The 14th finance commission, for the period 2015-2020, has been constituted on January 2,2013 with Y.V.Reddy as the Chairman.

Important taxes Imposed in India

Tax on Income and Wealth :- the central government imposes different types of tax on income and wealth, viz. income tax, corporate tax, wealth tax and gift tax. Out of them income  tax and corporate tax are more important from the revenue point of view.

Personal income tax :- Personal income tax is generally imposed on an individual combined  Hindu families and total income of people of any other communities .In addition to tax, separate surcharges are also imposed some times. Agriculture income is India is free from income tax .

Corporate tax :- Corporate tax is imposed on registered companies and corporations. The rate of corporate tax on all companies is equal. However, various types of rebates and exemptions have been provided.

Custom Duties :- As per the constitutional provisions, the central government imposes import duty and export duty and export duty both. Import and export duties are not only sources of income but with the help of it the central government regulates the foreign trade.

Import Duties :- Generally import duties are ad-velorem  in India .It means import duties are imposed on the taxable item on percentage basis.

Export Duties :- Export Duties are more important, compared to import duties in terms of revenue and regulation of foreign trade.

Excise Duties :- Excise duties are commodity tax as it is imposed on production of an item and it has no relevance with its sale. This is the largest source of revenue for the central Government .

Except liquor, opium and other drug, production of all the other items is taxable under central Excise Duties. One Coin and one Rupee note belong to ‘Legal tender money’ Category.

M1 is known as Narrow Money.

M3 is known as Broad Money.



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