The document discusses various direct taxes levied in India including income tax, corporation tax, dividend tax, capital gains tax, wealth tax, gift tax, estate duty, land revenue, agricultural income tax, and professional tax. It outlines the introduction and key aspects of each tax. It also discusses direct taxes at the state and local government levels. The document notes both the merits and demerits of direct taxes, such as equity and economy but also possibilities of evasion, complexity, and unsuitability for underdeveloped countries.
3. INCOME TAX
Introduced by Sir. James Wilson
Income tax Act was passed in1886, which was amended in
1922, 1939, and1947.
Income tax in India is levied and collected on the basis of
finance Act passed every year under central budget and the
Income tax act1961, aided by the income tax rules,1962.
Payable by individuals, HUF, AOP, BOI, AJP, co-operative
societies, partnership firms, companies etc.
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4. CORPORATION TAX
Income tax paid by limited companies is called corporation
tax.
It is levied on the profit made by companies as per the rates
given in the finance act passed by parliament annually.
All profit companies are required to make advance payment
annually.
Corporation tax forms the major chunk of income tax in
India.
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5. DIVIDEND TAX
Limited companies in India are required to pay
dividend tax at10%on the dividend paid by them to
their shareholders.
This tax is in addition to the corporation income tax.
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6. CAPITAL GAIN TAX
Capital gain tax was introduced in 1947 by finance
minister Liquat Ali Khan.
It was abolished in1950 and reintroduced again
in1956.
This tax is applicable to individual as well as
companies.
It is payable on gain realised from capital assets.
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7. WEALTH TAX
It was introduced by Prof.Kaldor in1957.
Wealth tax is imposed on the wealth or assets held by
individuals.
It is levied every year on the total value of a person‟s
property or wealth or capital.
It is payable at 1%on the net wealth exceeding
rupees15 lakhs.
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8. GIFT TAX
It was introduced in 1956.
With effect from 1November 1998 gift tax was
abolished due to its low yield to the union government.
To complement estate duty and also to prevent large
scale avoidance of estate duty.
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9. ESTATE DUTY OR INHERITANCE TAX OR
DEATH DUTY
Estate duty was introduced in India from October1953.
Death taxes assume two major forms.
One is called Estate Duty which is levied upon the entire
estate left by a decreased person.
The other form is Inheritance tax which is levied on the
separate shares of the estate transferred to the beneficiaries.
It was abolished from 16th march 1985.
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11. LAND REVENUE
Land Revenue was the most important source of
revenue to the government.
Land Revenue is purported to be the state‟s share in the
output from land.
Land Revenue is abolished in some states and others
the rate varies from state to state.
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12. AGRICULTURAL INCOME TAX
Agricultural Income Tax is defined as a tax on income
earned from Agriculture or other related activities.
Indian constitution specifically provide for levy of
Agricultural Income Tax by the state government
No, state government has actually passed legislation to
tax Agricultural Incomes.
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13. PROFESSIONAL TAX
This is a tax on Professionals, payable annually.
State government fixes a specified amount to be paid
by each category of Professionals.
It may be paid in two instalments.
In case of Professionals working as salaried
employees, the employer deducts the amount of tax in
two instalments from the salary of the employees.
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14. DIRECT TAXES AT LOCAL GOVERNMENT
LEVEL
Local governments like municipalities, corporations,
panchayats levy some direct taxes like house property
tax.
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15. EQUITY
Direct taxes based on the principle of “ability of the
tax payer to pay”.
They are comparatively just and equitable because
people with large income usually have to pay more
direct taxes than those with lower incomes.
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16. ECONOMY
Direct taxes are mostly progressive, the tax revenue
rises without any corresponding addition to cost of
collection.
The administrative cost of collecting direct taxes is
low because the same tax officials who assess small
income or properties can assess large income and
properties.
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17. CERTAINTY
There is an element of certainty in the case of direct
taxes.
The tax payer knows the amount of tax to be paid and
the time of payment.
The government is also fairly certain how much it can
receive as tax
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18. CONVENIENCE
Most of direct tax are collected at the source itself, it is
convenient for tax payer s to pay.
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19. ELASTICTY AND PRODUCTIVITY
Increase of rates of tax can bring in more revenue .
Tax also will be more when incomes of tax payers
increase .
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20. LESS POSSIBILITY OF LEAKAGE
The possibility of leakage in the amount collected as
direct taxes is rare.
The whole amount collected reaches the state treasury.
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21. REDUCTION IN INEQUALITIES
Direct taxes affect the rich and take away a significant
portion of their income and wealth.
Such collection can be used to rise the income levels of
poor citizens.
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22. CIVIC CONSCIOUSNESS
Direct taxes arise civic consciousness and they
educative value .
Tax payers who pay direct tax naturally take interest in
the usage of funds by the government.
Such interest in the methods of public expenditure can
lead to protests if the public funds are misused or
misappropriated.
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23. TRACING EFFECT OF DIRECT TAXES
It is possible to trace the effect of direct taxes easily.
If necessary, the adverse effect can be minimized.
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25. UNPOPULAR
Direct taxes are generally not shifted and are paid in
lumpsum for the whole year.
As a result, they are painful to the tax payers.
Hence they are unpopular and resisted.
They are opposed sometimes with political
disturbances.
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26. POSSIBILITY OF EVASION
“A direct tax is a tax on honesty”.
It is not evaded only when the tax payer is honest.
It can be evaded through fraudulent practices.
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27. INCONVENIENCE
Tax payers have to submit statement of income along
with sources of income, thus revealing their private
affairs.
Moreover, payment of lumpsum amount at a time may
also be inconvenient.
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28. ARBITRARINESS
Tax rates are generally arbitrary because there are no
scientific principle to determine them.
Whims and fancies of tax authorities may cause
overestimation or underestimation of taxable capacity
of the people.
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29. COMPLEXITY
Direct tax laws are usually complex with a lot of
exemptions, procedures and provisions which are not
understandable by common citizens.
Producing necessary „returns‟ and preparing required
accounts may necessitate assistance of professional
accountants or auditors.
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30. POSSIBILITIES OF INJUSTICE
It is difficult to assess the income of all classes
accurately.
So ,direct taxes may not fall with equal weight on all
classes.
Injustice may be done to different sections of citizens,
leading to protests.
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31. UNSUITABLE TO UNDER DEVELOPED
COUNTRIES
Rich people are in an insignificant minority compared
to mass of poor in under developed countries.
So, revenue collection from direct taxes may not be
productive and economical.
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