A Bird’s Eye View of Indian Tax System

A Bird’s Eye View of Indian Tax System- Dr. Mayura Sabne

Introduction

The taxation system in India has prevailed for centuries. The government uses the revenue collected through taxes in the development of the nation. Earlier, traders and farmers used to pay taxes in the form of gold, silver and agricultural produce. At the time of independence, the government formalized the taxation system. They presented a well-structured taxation system was presented to Indian citizens, to push economic reform and remove wealth disparity. Over the years, the government has reformed many policies to simplify and automate the taxation process[1].

Tax Structure in India

The taxes are levied in India at three levels- Central, State and Local. The taxes are divided in two types- direct and indirect. While direct taxes are levied on taxable income earned?by individuals and corporate entities, the?burden to deposit taxes is on the assessees?themselves. On the other hand, indirect taxes are levied on the?sale?and provision of?goods and services respectively and the burden to collect and deposit taxes is on the sellers instead of the assessees directly[2].

GST is a comprehensive indirect tax levied on manufacture, sale and consumption of goods as well as services at the national level. It has?replaced all indirect taxes levied on goods and services by the Central and State?Governments. GST regime was implemented from?1st?July 2017, and India has adopted the dual GST model in which both the Centre and States?levy taxes[3]. The GST is applicable on all goods other than the following:

? Alcoholic liquor for human consumption

? Five petroleum products (Petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel). GST on these to be levied post notification about?the effective date[4].

Other Taxes are Securities Transaction Tax (STT) which is levied on the purchase or sale of listed securities, such as shares and mutual funds. Another is Capital Gains Tax which is applicable on the profit earned from the sale of capital assets like property, stocks, and bonds. Dividend Distribution Tax (DDT) was a tax levied on companies for distributing dividends to shareholders. However, it was abolished in 2020, and now dividends are taxable in the hands of the recipient.

Tax incidence of an individual depends upon his residential status,?which is defined on the basis of?his physical presence in India as per the Income Tax Act. Tax incidence of a company depends on the residential status of the company ,i.e., whether the company has been incorporated in India or its place of effective management lies in India.

The Department of Revenue functions under the overall direction and control of the Secretary (Revenue). It exercises control in respect of matters relating to all the Direct and Indirect Union Taxes through two statutory Boards namely, the Central Bord of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC)[5].?Central Board of Indirect Taxes and Customs (erstwhile Central Board of Excise & Customs) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs, Central Excise duties, Central Goods & Services Tax and IGST, prevention of smuggling and administration of matters relating to Customs, Central Excise, Central Goods & Services Tax, IGST and Narcotics to the extent under CBIC's purview[6].?

Features of Tax Structure[7]

1.????The main feature of the Indian tax structure is the existence of a multiplicity of taxes. Union government taxes and state government taxes, both exist, and the tax structure includes both direct and indirect taxes.

2.????The indirect taxes hold a large share in our Indian tax structure. Indirect taxes dominate over direct taxes. According to research, because of the undeveloped economy and major inequality in income, the percentage of direct taxes is limited.

3.????The third feature is the insufficient tax revenue. Although there is a rise in trend in tax revenue still the total tax revenue is still small compared to the developed countries. The GDP ratio is 8 to 9 per cent in India whereas in developed countries like the UK, and the USA the share has a range between 30 to 40 percent.

4.????In the Indian tax structure, the incidence of taxation is much higher in urban areas than compared in rural areas because of the predominance of agriculture as an occupation in rural areas and less income in rural households.

5.????The tax structure is progressive in nature. The Indian tax structure is framed to make sure that all indices of ability to pay are taxed. Depending on the type of commodity and consumer class excise duties are levied and collected discriminately.

6.????The sixth feature is that the tax base is very narrow in India in both direct and indirect tax systems. The research shows that only one per cent of the working population of India comes under the preview of direct tax.

7.????The seventh feature of the Indian tax structure is the complexity of Indian laws. With the intention of a broad-based tax system, a lot of changes have been introduced to the tax structure. There are many loopholes in the direction as well as indirect tax structure which provides a lot of loopholes to people to avoid tax.

Conclusion

Thus, in nutshell, tax structure is complex and progressive. It has evolved since years and has been developed through the process of automation.

[1] Tax Structure & Taxation System In India Explained | Yes Bank, available at https://www.yesbank.in/money-matters/savings/tax-structure---taxation-system-in-india.html

[2] Taxation in India: Overview of Indian Tax System, InvestIndia, Read more at https://www.investindia.gov.in/taxation

[3] Ibid

[4] Ibid

[5] Department of Revenue, About the Department, available at https://dor.gov.in/about-us

[6] CBIC, who we are, available at https://www.cbic.gov.in/

[7] India’s Tax Structure, Unacademy, available at https://unacademy.com/content/ssc/study-material/indian-economy/indias-tax-structure/