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Economy

Taxation System in India

Tax

A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government, a payment exacted by legislative authority.

A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority".

Taxes in India

The tax system in India is mainly a three tier system which is based between the Central, State Governments and the local government organizations(local councils and the municipalities).

Local bodies such as the Panchayats and Municipalities are also empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc.

Article 265

 "No tax shall be levied or collected except by the authority of law".

It means, whatever tax is being charged has to be backed by the law passed by the legislature or the parliament.

Article 246

Article 246 (Seventh Schedule) of the Indian Constitution, distributes legislative powers including taxation, between the Parliament and the State Legislature.

Schedule VII enumerates these subject matters with the use of three lists;

  1. List - I entailing the areas on which only the parliament is competent to makes laws,
  2. List - II entailing the areas on which only the state legislature can make laws, and
  3. List - III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.

Taxes levied by Central Government

List-I of Seventh Schedule:

    1. Taxes on incomeexcept agricultural income(the State Governments can levy).
    1. Dutiesof customs including export duties.
    1. Duties of excise on tobacco and other goods manufactured or produced in India except
      1. alcoholic liquor for human consumption, and
      2. opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii).
    1. Corporation Tax
    1. Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies.
    1. Estate dutyin respect of property other than agricultural land.
    1. Duties in respect of succession to propertyother than agricultural land.
    1. Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight.

Taxes levied by State Governments

 List-II of Seventh Schedule:

    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.
    1. Taxes on agricultural income.
    1. Duties in respect of succession to agricultural income.
    1. Estate Duty in respect of agricultural income.
    1. Taxes on lands and buildings.
    1. Taxes on mineral rights.
    1. Duties of excise for following goods manufactured or produced within the State
      1. alcoholic liquors for human consumption, and
      2. opium, Indian hemp and other narcotic drugs and narcotics.
    1. Taxes on entry of goods into a local area for consumption, use or sale therein.
    1. Taxes on the consumption or sale of electricity.
    1. Taxes on the sale or purchase of goods other than newspapers.
    1. Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television.
    1. Taxes on goods and passengers carried by roads or on inland waterways.
    1. Taxes on vehicles suitable for use on roads.
    1. Taxes on animals and boats.
    1. Tolls.
    1. Taxes on profession, trades, callings and employments.
    1. Capitation taxes.
    1. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.
    1. Stamp duty.
  1. Provisions have been made by 73rd Constitutional Amendment, enforced from 24th April, 1993, to levy taxes by the Panchayat.  A State may by law authorise a Panchayat to levy, collect and appropriate taxes, duties, tolls etc.
  2. Provisions have been made by 74th Constitutional Amendment, enforced from 1st June, 1993, to levy the taxes by the Municipalities.  A State Legislature may by law authorise a Municipality to levy, collect and appropriate taxes, duties, tolls etc.