This slide contains: Incidence of Tax, its shift-ability, effect of residental status of assesse on taxability of income, effect on tax in different demand situations.

1. Submitted By:
Ravi Kumar
Roll No. :
2066/13
Class : B. Com III (B)
Post Graduate Govt. College Sector -11, Chandigarh

2. MEANING
 Incidence of tax or tax burden is the analysis of
the effect of a particular tax on the distribution
of economic welfare.
 Tax incidence is said to "fall" upon the group that
ultimately bears the burden of, or ultimately has to
pay, the tax.
 It is thus the ultimate resting of a tax upon
individuals or class who cannot shift it further.

3. CONCEPT
 A tax may be impose on some person.
 It may be transferred by him to a second person.
 It may be ultimately borne by this second person or
transferred to others by whom it is finally assumed.

4. SHIFTING OF TAX

5. DEFINITION
 Shifting: The process of transfer of a tax, while its impact
lies on the person who pays it at first instance. Or Shifting is
the process through which a taxpayer escapes the burden of a
tax.
 Forward shifting: Tax burden from the producer to the
consumers in the form of higher price of the commodity. Price
serves as the vehicle through which a tax is shifted.
 Backward shifting: When the imposition of a tax caused a
reduction in the prices paid to the factor-owner.

6.  Whether the price will increase to enable the firm to shift the tax
depends on –
1. The nature of the tax,
2. The economic environment under which the tax is levied, and
3. Taxpayers practice in taking advantage of any possibility of shifting.
4. A tax cannot be shifted:
(i) when it is purely personal and
(ii) when it is levied upon “economic surplus”
5. A commodity tax is levied on the product of a firm.
6. The tax leads to the price and cost adjustments and the burden of
the tax may be borne by the enterprise that pays the tax at the first
instance or it may be shifted forward to the consumers of the
product.

7. INCIDENCE OF TAX & STATUS OF ASSESSE
Different Types of Incomes
Different types of Status
Resident
Not Ordinary
Resident
Non-
resident
1. Income received or deemed to be
received in India. It is immaterial
whether it is earned in India or in
Foreign country.
Taxable Taxable Taxable
2. Income earned in India whether
received in India or outside India. Taxable Taxable Taxable
3. Income earned and received
outside India from a business
controlled or profession set up in
India. Income may or may not be
remitted to India.
Taxable Taxable
Not-
Taxable

8. 4. Income earned or received
outside India from a business
controlled or profession set-up
outside India.
Taxable Not Taxable
Not
Taxable
5. Income earned and received
outside India from any other source
(Expect income under point 3) Taxable Not Taxable
Not
Taxable
6. Income earned and received
outside India in the years preceeding
the previous year in question and if
the same is remitted to India during
the current previous year. Not-Taxable Not Taxable
Not
Taxable

9. ELASTICITY OF DEMAND & TAX INCIDENCE
SS- Supply curve before any tax levied
S1S1- The imposition of tax shifts supply
curve
R- commodity purchased
P- Commodity purchase at higher price with
Tax
(A) Highly elastic Demand
Quantity
Price
S
S
S1
S1
D
D
TAX
R
P
Tax incidence or tax burden does not
depend on where the revenue is collected,
but on the price elasticity of demand and
price elasticity of supply.

10. (B) Moderately elastic demand
Quantity
Price
S
S
S1
S1
D
D
TAX
R
P
SS- Supply curve before any tax levied
S1S1- The imposition of tax shifts supply
curve
R- commodity purchased
P- Commodity purchase at higher price with
Tax

11. (C) Absolutely Inelastic Demand
Quantity
Price
S
S
S1
S1
D
D
TAX
R
P
SS- Supply curve before any tax levied
S1S1- The imposition of tax shifts supply
curve
R- commodity purchased
P- Commodity purchase at higher price with
Tax
When commodity is produced at constant cost, the relative elasticity of
demand exclusively determines the long -term reaction of price and
output to the imposition of the tax.