Taxation in India made simple for UPSC Prelims and Mains
Taxes in India are levied by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such as the Municipality.
Article 265 of the Indian Constitution: “No tax shall be levied or collected except by the authority of law”
Direct and Indirect Taxes
The most fundamental classification of taxes is based on who collects the taxes from the taxpayer.
Direct Taxes, as the name suggests, are taxes that are directly paid to the government by the taxpayer. It is a tax applied to individuals and organisations directly by the government.
Eg: on- income tax, corporation tax, wealth tax etc.
Indirect Taxes are applied to the manufacture or sale of goods and services. These are initially paid to the government by an intermediary, who then adds the amount of the tax paid to the value of the goods/services and passes on the total amount to the end user.
Eg:- sales tax, service tax, excise duty etc.
Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislature. Schedule VII enumerates these subject matters with the use of three lists:
List – I entailing the areas on which only the parliament is competent to make laws,
List – II entailing the areas on which only the state legislature can make laws, and
List – III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.
The List I
1 Taxes on income other than agricultural income
2 Duties of customs including export duties
3 Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii).
4 Corporation Tax
5 Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies
6 Estate duty in respect of property other than agricultural land
7 Duties in respect of succession to property other than agricultural land
8 Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight
9 Taxes other than stamp duties on transactions in stock exchanges and futures markets
10 Tax on sales or purchase of newspaper and advertisement therein.
11 Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce
12 Taxes on the consignment of goods in the course of inter-State trade or commerce
13 All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian Constitution
The List II
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.
2 Taxes on agricultural income.
3 Duties in respect of succession to agricultural land.
4 Estate Duty in respect of agricultural land.
5 Taxes on lands and buildings.
6 Taxes on mineral rights.
7 Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics.
8 Taxes on the entry of goods into a local area for consumption, use or sale therein.
9 Taxes on the consumption or sale of electricity.
10 Taxes on the sale or purchase of goods other than newspapers.
11 Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television.
12 Taxes on goods and passengers carried by roads or on inland waterways.
13 Taxes on vehicles suitable for use on roads.
14 Taxes on animals and boats.
15 Tolls .
16 Taxes on profession, trades, callings and employments.
17 Capitation taxes.
18 Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.
19 Stamp duty.
Distribution of Revenues Between Union And States
There are few Articles in the Indian Constitution which specifically focuses on the distribution of revenues.
Article 268: Duties levied by the Union but collected and appropriated by the States:
This Article was amended by the Constitution (seventh amendment) Act, 1956 with effect from 1st November 1956. Article 268 (1) provides that stamp duties and excise on medicinal and toilet preparation which are mentioned in Union List, the collection of duties shall be made by the State which shall be levied by the Union Government. The proceeds of any such duty leviable within any State in any financial year shall not form part of the consolidated Fund of India but shall be assigned to that State.
Article 268-A: Service tax levied by Union and collected and appropriated by the Union and States:
This Article was inserted by ninety-fifth Amendment Bill, 2003 which was passed by both the Houses of Parliament – Lok Sabha on 6-5-2003 and Rajya Sabha on 8-5-2003. The article speaks that taxes on services shall be levied by the Government of India which shall be collected by the States. Such tax shall be appropriated by the Government of India and the States.
Article 269: Taxes levied and collected by the Union but assigned to the States:
This Article was lastly amended by the eightieth amendment with effect from 1st April 1996. Taxes which shall be levied and collected by the Government of India which is included in this Article: (a) the consignment of goods which takes place in the course of inter-state trade or commerce, (b) sale or purchase of goods which takes place in the course of inter-state trade or commerce.
National Emergency and Tax Sharing
Under Article 358(b), Parliament can make a law to impose tax and duties even though not in union list and under Article 354, President may change provisions of articles from 268 to 279 during the emergency.