INDIAN TAXATION SYSTEM

1. TAX STRUCTURE IN
INDIA
BY MANAN NANDA
(PGT ECONOMICS)

2. TAXES
Taxes are levied by governments on their citizens to
generate income for undertaking projects to boost the
economy of the country and to raise the standard of living
of its citizens.
The authority of the government to levy tax in India is
derived from the Constitution of India, which allocates the
power to levy taxes to the Central and State governments.
All taxes levied within India need to be backed by an
accompanying law passed by the Parliament or the State
Legislature.

3. • There are mainly two types of Taxes,
 direct tax
 indirect tax
 which are governed by two different boards, Central Board
of Direct Taxes (CBDT) and Central Board of Excise and
Customs (CBEC).
• But, besides these two conventional taxes, there are
also other taxes that have been brought into effect by the
Central Government to serve a particular agenda. ‘Other
taxes’ are levied on both direct and indirect taxes such as
the recently introduced Swachh Bharat Cess tax, Krishi
Kalyan Cess tax, and infrastructure Cess tax among others.

4. The taxation system in India is
featured with a 3tier federal structure
that comprises off the following: -
The uniongovernment
The state government
The local ormunicipal
government

5.  Taxeson Income other than
agricultural income;
 Corporation Tax;
 Customs Duties;
 Excise Duties except on alcoholic liquors
for human consumption and opium and
other narcotics;
Central list

6.  Taxeson capital value ofassets;
 Estate Duty other than on
agricultural land;
 Stamp Duty in respect of
certain financial documents;
 Taxesother than stamp duty on
transactions in stockexchanges
and futures market;
 Taxeson inter-state sale ofgoods;

7.  Taxeson sale and purchase of
newspapers and onadvertisements
published in them;
 Taxeson goods and passengerscarried
by railways sea or air, taxes on railway
fare andfreight;
 Taxesnotspecifically enumerated in the
State list and the concurrent list.

8.  Land Revenue;
 Taxeson agricultural income;
 Duties in respect of succession to
agricultural land;
 Estate Duty in respect of agricultural
land;
State list

9.  Excise Duty on alcoholic liquors and narcotics;
 Taxeson entry of goods into local area;
 Taxeson consumption and sale ofelectricity;
 Taxeson sale or purchase of goods other than
newspapers;
 Taxeson lands andbuildings;
 Taxeson mineral rights subject to any limitation
imposed by Parliament by law relating to mineral
development;

10.  Taxeson advertisements other
than those inserted in
newspapers;
 Taxeson goods and passengerscarried
by road on inland water transport;
 Taxeson vehicles;
 Taxeson animals andboats

11.  Tolls;
 Taxes on professions, trade , calling and
employment;
 Taxeson luxuries, including entertainment,
Stamp Duty on documents, other than those
which are subject to duty by Central
Government;

13. 33%
67%
20%
10%
0%
30%
60%
50%
40%
80%
70%
directtax indirect tax
Tax shares

14. DIRECT TAXES
• Direct tax, as stated earlier, are taxes that are
paid directly by you. These taxes are levied
directly on an entity or an individual and cannot
be transferred onto anyone else. One of the
bodies that overlooks these direct taxes is
the Central Board of Direct Taxes (CBDT) which
is a part of the Department of Revenue. It has, to
help it with its duties, the support of various
acts that govern various aspects of direct taxes.

15. Some of these acts are:
• Income Tax Act:
• This is also known as the IT Act of 1961 and sets the rules that
govern income tax in India. The income, which this act taxes,
can come from any source like a business, owning a house
or property, gains received from investments and salaries,
etc.
• Gift Tax Act:
• The Gift Tax Act came into existence in 1958 and stated that if
an individual received gifts, monetary or valuables, as gifts, a
tax was to be to be paid on such gifts. The tax on such gifts
was maintained at 30% but it was abolished in 1998. Initially if
a gift was given, and it was something like property,
jewellery, shares etc.

16. Wealth Tax Act:
• The Wealth Tax Act was enacted in 1951 and is
responsible for the taxation related to the net wealth of
an individual, a company or a Hindu Unified Family.
• The simplest calculation of wealth tax was that if the net
wealth exceeded Rs. 30 lakhs, then 1% of the amount that
exceeded Rs. 30 lakhs was payable as tax. It was
abolished in the budget announced in 2015. It has since
been replaced with a surcharge of 12% on individuals that
earn more than Rs. 1 crore per annum. It is also
applicable to companies that have a revenue of over Rs.
10 crores per annum.

17. • Expenditure Tax Act:
• This is an act that came into existence in 1987 and deals
with the expenses you, as an individual, may incur while
availing the services of a hotel or a restaurant. It is
applicable to all of India except Jammu and Kashmir. It
states that certain expenses are chargeable under this
act if they exceed Rs. 3,000 in the case of a hotel and all
expenses incurred in a restaurant.
• · Interest Tax Act:
• The Interest Tax Act of 1974 deals with the tax that was
payable on interest earned in certain specific situations.
In the last amendment to the act it was stated that the
act does not apply to interest that was earned after
March 2000.
•

18. • By definition, indirect taxes are those taxes that are levied
on goods or services. They differ from direct taxes
because they are not levied on a person who pays them
directly to the government, they are instead levied on
products and are collected by an intermediary, the person
selling the product.
• The most common examples of indirect tax Indirect tax
can be VAT (Value Added Tax), Taxes on Imported Goods,
Sales Tax, etc.
• These taxes are levied by adding them to the price of the
service or product which tends to push the cost of the
product up.

19. Examples of Indirect Taxes
• Sales Tax:
• As the name suggests, sales tax is a tax that is levied on
the sale of a product.
• Service Tax:
• Like sales tax is added to the price of goods sold in India,
so is service tax added to services provided in India. In
the reading of the budget 2015, it was announced that
the service tax will be raised from 12.36% to 14%.

20. •GST - Goods and Service Tax:
The Goods and Services Tax (GST) is the largest reform in India’s indirect tax
structure since the market started opening up about 25 years ago. The GST
is a consumption-based tax, as it is applicable where consumption takes
place.
Value Added Tax:
VAT, also known as commercial tax is not applicable on commodities that
are zero rated (eg. food and essential drugs) or those that fall under
exports. This tax is levied at all the stages of the supply chain, right from the
manufacturers, dealers and distributors to the end user.
The value added tax is a tax that is levied at the discretion of the state
government and not all states implemented it when it was first announced.
The tax is levied on various goods sold in the state and the amount of the tax
is decided by the state itself.

21. Custom duty & Octroi:
When you purchase anything that needs to be imported from
another country, a charge is applied on it and that is the
customs duty. It applies to all the products that come in via
land, sea or air.
Excise Duty:
This is a tax that is levied on all the goods manufactured or
produced in India. It is different from customs duty because
it is applicable only on things produced in India and is also
known as the Central Value Added Tax or CENVAT.

22. • Professional Taxes
• Municipal Taxes
• Entertainment Taxes
• Stamp Duty, Registration Fees, Transfer Tax
• Surcharge
• Gift Taxes
• Wealth Taxes
• Toll and Road Taxes
• Swachh Bharat Cess

23. AGRICULTURE TAXATION
• As per Section 10(1) of the Income Tax Act, 1961, agricultural
income is exempted from taxation. The central government
cannot levy tax on the agricultural income received.
However, agricultural income is considered for rate
purposes while assessing the income tax liability if the
following two conditions are met:
• Net agricultural income is greater than Rs. 5,000/- for
previous year.
• Total income, excluding net agricultural income, surpasses
the basic exemption limit (Rs. 2,50,000 for individuals
below 60 years of age and Rs. 3,00,000 for individuals
above 60 years of age).

24. TAXATION ON AGRICULTURE
What is Agricultural Income ?
• Section 2 (1A) of the Income tax Act,1961
• Agricultural income means :
• Revenue generated through rent or lease of a land in India that is used for
agricultural purposes ; Any income derived from commercial sale of produce
gained from an agricultural land, Any income from farm building.
• Key points to validly classify an income as “agricultural income”
• Income should be from an existent piece of land in India ;
• Income should be from a piece of land that is used for agricultural operations ;
• Income should stem from produce achieved after cultivation of the land.
• Cultivation of land is a must ; Income can be from a land that is not under the
assessee’ ownership. i.e. ownership of Land is not essential.

25. TAXATION ON AGRICULTURE
INCOME
What is not an Agricultural Income ?
 Income from sale of grass, tress etc. grown spontaneously
 Income from sale of processed produce without carrying out any agricultural
operations.
 Income in cases where the produce is subjected to substantial processing which
changes the very nature of the product (for instance, canning of fruits etc).
 Income from trees that have been cut and sold as timber
 Income from stone quarries
 Income from breeding of livestock
 Income from dairy farming
 Income from poultry farming
 Income from brick making
 Income from supplying water to agriculturalists
 Income derived from letting out of land
 Income arising out of transfer of Agricultural land

26.  According to the finance ministry, 2,746 entities and individuals declared
agricultural income of above Rs. 1 crore during 2015-16. More than 90% of
the agricultural land is cultivated by marginal farmers who do not file any
Income Tax Returns as their income is exempt from tax.
 Hardly 2 % of income tax assessees declare agricultural income and this
miniscule percentage of so-called farmers have declared agricultural
income worth thousands of trillions
 The exemption for agricultural incomes is benefiting rich farmers and
agricultural companies, which was not the intended outcome.
 Thus a need is felt to amend the definition of ‘agricultural income’ under the
tax laws, and impose an appropriate monetary threshold after careful study
 So, as much as Rs.25,000 crores could be collected as agriculture income
tax just by bringing to tax the incomes of the top 4.1% of the total
agricultural households. The amount that would be brought to tax as a
result of plugging the tax loophole, would be in addition to this direct
revenue.
SHOULD AGRICULTURAL INCOME
BE TAXED?