Taxation in India
|An aspect of fiscal policy|
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". 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$210 billion).
- 1 Constitutionally established scheme of taxation
- 2 Department of Revenue
- 3 Central Taxes
- 4 State Taxes
- 5 Local Body Tax
- 6 Goods and Service Tax
- 7 See also
- 8 References
- 9 External links
Constitutionally established scheme of taxation
Article 246 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:
- 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). The list of thirteen Union heads of taxation and the list of nineteen State heads are given below:
Central government of India
|S. No.||Parliament of India|
|1||Taxes on income other than agricultural income (List I(Union List), Entry 82)|
|2||Duties of customs including export duties (List I(Union List), Entry 83)|
|3||Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii). (List I(Union List), Entry 84)|
|4||Corporation Tax (List I(Union List), Entry 85)|
|5||Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies (List I(Union List), Entry 86)|
|6||Estate duty in respect of property other than agricultural land (List I(Union List), Entry 87)|
|7||Duties in respect of succession to property other than agricultural land (List I(Union List), Entry 88)|
|8||Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight (List I(Union List), Entry 89)|
|9||Taxes other than stamp duties on transactions in stock exchanges and futures markets|
|10||Taxes on the sale or purchase of newspapers and on advertisements published therein|
|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|
|12||Taxes on the consignment of goods in the course of inter-State trade or commerce|
|13||All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian Constitution|
|S. No.||State Legislate|
|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 land (List II, Entry 47)|
|4||Estate Duty in respect of agricultural land (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 (see Value added tax) (List II, Entry 52)|
|9||Taxes on the consumption or sale of electricity (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 (List II, Entry 57)|
|14||Taxes on animals and boats (List II, Entry 58)|
|15||Tolls (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, betting and gambling (List II, Entry 62)|
|19||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.
Department of Revenue
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
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.
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.
Current CBDT Chairman is Anita Kapur.
Income Tax Department
- Income Tax Act, 1961
- Gift Tax Act
- Expenditure Tax Act
- Interest Tax Act
- 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.
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
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.[when?] 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.
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. This Act imposes a tax on income under the following five heads:
- Income from house property
- Income from business and profession
- Income from salaries
- Income in the form of capital gains
- Income from other sources
In terms of the Income Tax Act, 1961, a person includes
- Hindu Undivided Family (HUF)
- Association of Persons (AOP)
- Body of Individuals (BOI)
- Local authority
- 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.
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.
Excise and Customs
- Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India;
- Customs Act, 1962, which imposes duties of customs, countervailing duties, and anti-dumping duties on goods imported in India;
- 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
|This section requires expansion. (October 2015)|
Local Body Tax
Goods and Service Tax
|This section requires expansion. (October 2015)|
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.
- 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
- "Directorate of Town Panchayats".
- Article 265 of the Indian Constitution (PDF), retrieved 2009-04-18
- "Analysis of Tax and Non-tax Revenue Receipts Included in Annex" (PDF). IndiaBudget.nic.in. Retrieved 2014-09-01.
- Article 246 of the India Constitution (PDF), retrieved 2009-04-18
- Seventh Schedule of the Indian Constitution (PDF), retrieved 2009-04-18
- Distribution of Powers between Centre, States and Local Governments, retrieved 2009-04-18[dead link]
- "Union Budget 2012: GAAR empowers I-T department to deny tax benefits to 'companies'". The Times Of India. 2012-03-16.
- "Direct Taxes Code Bill: Government keen on early enactment". The Times Of India. March 16, 2012.[dead link]
- Indian Income Tax Act, 1961, retrieved 2009-04-18
- Section 14 of Income Tax Act, retrieved 2009-04-18
- Taxation System in India, India in Business, Ministry of External Affairs, Government of India, Investment and Technology Promotion Division
- "New service tax rate of 14% to come into effect from June 1". Times of India. 19 May 2015. Retrieved 21 May 2015.
- Indian Income Tax Department
- Electronic Filing of Income Tax returns[dead link]
- Income Tax Slab Rates