2. TAX BURDEN
Calculated by finding out the tax-GDP ratio
Increased over the years
Even though India broke away from the Hindu rate of growth, the ratio
remained constant (whereas, an increase was expected)
3. TAXES ON INCOME AND WEALTH
Income tax: Levied on the incomes of individuals, Hindu families, unregistered firms and other
associations of people
Income from all sources are added
Progressive income tax
Extraordinarily high tax rates leads to tax evasion and black money
Chelliah Committee favored significant tax reductions at all levels
Laffer effect
4. Measure of redistribution
Income tax should have a wide base
However, in India the base is very narrow
Many exceptions: savings in Government sponsored saving schemes, fringe benefits like
employer provided housing, charitable contributions to specified charitable trusts
5. CORPORATION TAX
Levied on incomes of registered companies and corporations
The Union Budget 2019-20 reduced the Corporation tax rate to 25% for companies with less
than 400 rupees crore turnover.
This brought down the tax rate for as many as 99.3% of the companies
Certain provisions provide incentives to investors, others nullify their effect
Companies take undue advantage of rebates and exemptions
Chelliah Committee recommended elimination of most of the incentives except those meant
for promoting savings and exports
6. TAXES ON WEALTH AND CAPITAL
Wealth tax
First introduced in May, 1957 on the recommendations of Kaldor
Levied on the excess of net wealth over exemption of individuals, joint Hindu families and
companies
Exceptions: agricultural land and balance of PF and life insurance
Abolished in Union budget of 2016-17
7. STT TAX
Securities Transaction Tax (STT)
Direct tax payable on every purchase or sale of securities that are listed on the Indian Stock
exchanges
Shares, derivatives, equity-oriented mutual funds
Not applicable on off-market transactions, commodity or currency transactions
Tax gets added to the price of the stock at the time of the transaction
8. LTCG TAX (LONG-TERM CAPITAL GAINS TAX)
Introduced in Union Budget of 2018-19
Earlier exemption had two negative effects
1. Incentivized investments in financial instruments and thereby disincentivised investment in
manufacturing
2. Resulted in significant tax base erosion
Tax rate is 10% on LTCG exceeding 1 lakh rupees
