Taxation Policy in India

An overview of taxation policy in India

India has a well-structured tax system considering the large population in the country. Taxes are the largest source of income for the government. The revenue earned from taxes is used for various purposes which revolve around the development of the nation.

Tax structure in India is a three-tier federal structure. The central government, state governments, and local municipal bodies make up this structure. Article 256 of the constitution states that “No tax shall be levied or collected except by the authority of law”.

The Tax structure in India consists of 3 federal parts:

1. Central Government
2. State Governments
3. Local Municipal bodies

According to Article 256 of the Indian Constitution: “No tax shall be levied or collected except by the authority of law”.

Taxes are determined by the Central and State Governments along with local authorities like municipal corporations. The government cannot impose any tax unless it is passed as a law.

Read more: An overview of India’s Foreign Policy

Here are the salient features of the taxation system in India:

Role of Central and State Government:

The entire system is clearly very specific about the roles of the central and state government. The central government of India levies taxes like customs duty, excise duty, income tax and service tax.

The taxation system in India empowers the state governments to levy income tax on agricultural income, professional tax, value added tax (VAT), state excise duty, land revenue and stamp duty. The local bodies are allowed to collect octroi, property tax, and other taxes on various services like drainage and water supply.

Types of Taxes:

1. Direct Taxes

Direct Taxes are levied on individual and corporate entities and cannot be transferred to others. It includes income tax, wealth tax and gift tax.

2. Indirect Taxes

Indirect taxes are not directly paid by the tax-payer to the government authorities. These are levied on goods and services and collected by intermediaries. Some common indirect taxes are as follows:

Value Added Tax (VAT)

This is levied by the state government and was not imposed by all states when first implemented. Presently, all states levy such tax. It is imposed on goods sold in the state and the rate is decided by the state governments.

• Customs duty

Imported goods brought into the country are charged with customs duty which is levied by the Central Government.

• Octroi

Goods that move from one state to another are liable to octroi duty. This tax is levied by the respective state governments.

• Excise duty

All goods produced domestically are charged with excise duty. Also known as Central Value Added Tax (CENVAT), this is paid by the manufacturers.

• Service Tax

All services provided domestically are charged with service tax. The tax is paid by all service providers unless specifically exempted.

Good and Services Tax:

As a significant step to reform the indirect taxation policy in India, the central government introduced the ‘Goods and Services’ Tax popularly known as GST. GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India and aimed to subsume many indirect taxes levied by the Central and State Governments. GST is implemented through Central GST (CGST), Integrated GST (IGST) and State GST (SGST).

Revenue Authorities

CBDT

The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue under the Ministry of Finance. This body provides inputs for policy and planning of direct taxes in India and is also responsible for administration of direct tax laws through the Income Tax Department.

CBEC

The Central Board of Excise and Customs (CBEC) is also a part of the Department of Revenue under the Ministry of Finance. It is the nodal national agency responsible for administering customs, central excise duty and service tax in India.

CBIC

Under the GST regime, the CBEC has been renamed as the Central Board of Indirect Taxes & Customs (CBIC) post legislative approval. The CBIC would supervise the work of all its field formations and directorates and assist the government in policy making in relation to GST, continuing central excise levy and customs functions.

The Indian taxation system in India has witnessed several modifications over the years. There has been standardization of income tax rates with simpler governing laws enabling common people to understand the same. This has resulted in ease of paying taxes, improved compliance, and enhanced enforcement of the laws.

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