Taxation System in India

Taxation System in India

Let us consider the technical definition of the Tax. It is a compulsory contribution to the governments’ revenue that the people made from an employee’s earning or business profits or on the cost of goods, services, and transactions.
Taxes are the highest source of income for the government. This money is utilised for various welfare goals and projects for the development of the nation.

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

1. Role of Central and State Government in Taxation System

  • The entire taxation system is divided with specific roles for the central and state government with reference to tax collection.
  • The Central Government imposes taxes such as customs duty, income tax, service tax, and central excise duty.
  • The state governments impose a professional tax, value-added tax (VAT), state excise duty, land revenue and stamp duty.
  • The local bodies authorities like municipal corporations are authorised to collect octroi, property tax, and other taxes on various services like drainage and water supply.

2. Types of taxes

Taxes in India are broadly classified into two categories viz direct and indirect taxes. The biggest difference between these taxes is the way of collecting taxes. Direct taxes are paid by the taxpayer directly while indirect taxes are levied on goods and services.

A) Direct taxes

  • Direct taxes are levied on individuals and corporate entities. This tax includes income tax, wealth tax, and gift tax.

B) Indirect taxes

  • Indirect taxes are not directly paid to the government authorities.
  • These are imposed on goods and services and collected by the one who sells goods or offers services.

Here are some of the indirect taxes in India:

Value Added Tax (VAT): It is imposed on goods sold in the state and the rate is decided by the state governments.

Customs duty: Imported goods transported to the country are subjected to customs duty which is imposed by the Central Government. 

Octroi: Goods that travel from one state to another are subjected to octroi duty. This tax is levied by the corresponding state governments.

Excise duty: It is paid by the manufacturers. All goods produced domestically are charged with excise duty. It is also known as the Central Value Added Tax (CENVAT). 

C) Goods and Service Tax (GST) 

  • It is an significant step towards the reform of indirect taxation in India
  • Officially it is the Constitutions (122nd Amendment) Bill 2014.
  • It was introduced in the Lok Sabha on December 19, 2014, by Finance Minister Arun Jaitley.
  • GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services in India
  • GST is implemented with these 3 entities Central GST (CGST), Integrated GST (IGST) and State GST (SGST)

3. Revenue Authorities

CBDT

  • CBDT is an Abbreviation for Central Board of Direct Taxes
  • It’s an organization which is a part of the Department of Revenue under the Ministry of Finance
  • This organisation plays a vital role in the policy-making and planning of direct taxes in India
  • It is also accountable for the execution of direct tax laws through the Income Tax Department. 
  • Pramod Chandra Mody is a current chairperson of the CBDT

CBEC

  • CBEC is an Abbreviation for Central Board of Excise and Customs
  • It’s a part of the Department of Revenue under the Ministry of Finance
  • CBEC is responsible for governing Customs, central excise duty and service tax in India
  • Pranab Kumar Das is a current chairperson of CBEC

CBIC & CBEC

  • CBIC is an Abbreviation for Central Board of Indirect Taxes and Customs
  • The CBEC has been renamed as the Central Board of Indirect Taxes & Customs (CBIC) as an effect of the GST implementation in the Indian taxation system
  • The CBIC controls and assists the government in policymaking about GST
  • It also supervises the central excise tax and customs functions.
  • Pranab Kumar Das is a current chairperson of CBEC

The Indian taxation system in India has witnessed numerous changes across the years. There has been the continuity of income tax rates with more flexible administering laws allowing common people to follow the same.

Leave a Reply

Your email address will not be published. Required fields are marked *