The Tax structure in India

TAX SYSTEM IN INDIA |

As we know in order to contribute to government revenue and an essential part of encouraging ?the economic growth of the nation,Tax is a compulsory contribution. To provide the basic services and amenities to the people of the country the tax-money is used. The right to collect taxes upon the Government of India is granted by The Indian Constitution. The tax structure in India is a three-tier structure, including central, state and local municipal bodies.

WHAT ARE DIFFERENT TYPES OF TAXES IN INDIA ?

What are the different types of taxes in India?

The tax structure includes Direct tax and Indirect taxes.

1.????Direct taxes:?Taxes that are imposed on an individual and are payed directly to the government. The Central Board of Direct Taxes (CBDT) is responsible for the governance of this tax.

Some important Direct taxes include:?

·????????Income tax

·????????Wealth tax

·????????Gift tax

·????????Capital Gains tax

·????????Securities Transaction tax

·????????Corporate tax?

Income tax is the most common tax imposed on individuals. This tax is imposed on the income earned within a financial year. The tax rate is determined according to the applicable tax slab. Individuals include Hindu Undivided Family (HUF), company, firm, co-operative societies and trusts.?

2.????Indirect taxes:?Indirect taxes?are indirect charges that public has to bear.?Goods and services Tax is a most common median used by gov to collect indirect Tax. The seller takes these taxes in the prices, which are then collected by the concerned government bodies.

Some important Indirect taxes include:?

·????????Sales tax

·????????Goods and Services tax

·????????Value Added Tax (VAT)

·????????Customs duty

·????????Toll tax

Who collects the taxes??

The Indian Constitution grants the right to collect taxes in India upon three statutory bodies including:

·????????The Central Government collects income tax, customs duties, central excise duty, etc.

·????????Agricultural income, professional tax, state excise duty, value-added tax, etc are some of the taxes collected by The State Government.

·????????Local Municipal Bodies take taxes, including water tax, property tax, etc.?

GST

·???????In order to incorporate a few taxes in one blanket The central government introduced the Good and Services Tax (GST) in 2017, Some of the taxes replaced by GST are:

·???????Sales tax

·???????Service tax

·???????Central Excise duty

·???????Entertainment tax

·???????Purchase tax

GST is a multi-stage location-based tax charged on each stage of the supply chain from the purchase of raw material, till the sale of finished product and even to the end consumer.

Where there is transfer of ownership in the supply, GST will be applicable.

GST is collected at the time of final purchase.?

3 components of GST:

·????????Central Goods and Services Tax (CGST) – This is charged on the supply of good and services within the state by central Gov.?

·????????State Goods and Services Tax (SGST), or UTGST for Union Territories- Here Collection of ?taxes on the supply of goods and services within the state is done by the state government/Union Territory.

·????????Integrated Goods and Services Tax (IGST)-Here Collection of taxes for the sale of goods and services beyond state borders is done by the central government.?

What are the benefits of taxes?

It is important to give an adequate charge to the collection body.

Paying taxes and duly filing for Income Tax Returns (ITR) also enables you to get faster loan approval, improve credit standing and quick VISA processing.

The money collected from taxes is used for the development of?the country.

The government provides specific standard deductions, tax exemptions, as well as tax deductions for the tax-saving investments made under the purview of the Income Tax law to reduce the burden of taxes on people, particularly income tax.

Tax Evasion?

India's income tax was instituted in 1922 by the Britishers. Relative to other developing countries, India's income tax comprises 5% of its GDP is due to the fact nearly 2-3% of the population is exposed to income taxation.?India faces difficulties in increasing its income tax because there is low amount of formal wage earners. The intention of the bringing the said rules is to ameliorate the ill-practices of the tax payers & tax practitioners .

It was seen recently due to BEPS project by OECD & G 20 Member nations, there was huge confabulation within the Inclusive Framework countries, where every country were trying to protect their respective tax base.

History and Methods:

Initially in the income tax operation, the rates of taxes were comparatively low to levels today and the levels of evasion also. However World War 2 increased conditions encouraging mass tax evasion.Many supplies were cut off and shortages were witnessed, the prices of commodities and level of taxes imposed by the government augmented. This generated black markets and nationwide sentiment of tax evasion.Opportunities for tax evasion are more amongst self-employed individuals, as they have more opportunities to lie about the origination of their income.

The general factors responsible for increasing tax evasion and generation of black money in India:

·????????Complicated tax structure

·????????Frequent amendments

·????????Shortage of personnel

·????????High tax rates

·????????Non-levy of deterrent penalties

·????????Ineffective prosecution machinery

·????????Operation of ill- thought-out controls

·????????Price fixation without proper regulation of production and distribution

·????????Evasion of sales tax

·????????Excise duty

Black income and tax evasion are fueled by bribery and?corruption, corrupt businessmen ,political parties with black money, in order to maintain their wealth reduce their taxation. Individuals blame the government for difficulties and shortages and do not understand the importance of ?paying one's taxes.?

Effects of Mass Tax Evasion:

The levels of tax evasion has encouraged the creation of a black money parallel economy.

Black money causes inflation and hinders the government's ability to bring down the prices of commodities.Black money actually diverts governmental resources from national welfare Unfortunately.

More than anything though, the practice of tax evasion has fleeted positive societal values like honesty and hard work.

Governmental Attempts To Combat Tax Evasion:

·???????The Indian government ?in order to overcome effects and degree of tax evasion has taken several steps like Searches, seizures, surveys, and scrutiny of income tax returns are being done by the Income Tax Department.

·???????The government has also created Voluntary Disclosure of Income Schemes in which assets can actually be declared without penalty.

·???????The introduction of the Prevention of Money‐Laundering Act to cope up with laundering of money a federal offense with a minimum imprisonment of less than three years.

·???????The Finance Act of 2004 highlights the falsification of books and taxing gifts.

·???????We all know ill practices related to tax is widelyspread however it is very difficult for any official or unofficial body to overcome it to maintain healthy tax system.They have historically relegated this issue to recommendations made by :-

·???????Taxation Enquiry Commission (1953), Administrative Reforms Commission (1969), and Direct Tax Enquiry Committee (1971).

·???????India has taken steps to eradicate tax evasion by requiring an identification number ?to track major financial deals. However we need to think of some other alternative as cash transactions are not recorded in this due to inefficiency.