Structure of taxation and classification of taxes


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Structure of taxation and classification of taxes

  1. 1. What is tax? Tax is a compulsory payment by a person to the Government . Prof. Adams defined ‘Tax’ as , from the state point of view; a tax is a derivative revenue; from the point of view of the citizen, a tax is a coerced payment.
  2. 2. Classification of taxes: Direct taxes Indirect taxes
  3. 3. What is direct tax? A direct tax is one in which the immediate and ultimate burden will be on the same person. Direct taxes are those which are imposed on a person either on his income or wealth and the tax liability cannot be escaped.
  4. 4. What is indirect tax? If the tax is levied on the prices of goods or services then it is known as Indirect tax.  Indirect tax is collected by middle men in the channels of distribution of goods and it is remitted to the Government treasury.
  5. 5. Indian Tax Structure Taxes /imposed by
  6. 6. Taxes levied by Central Government: • Direct taxes: Following are the direct taxes levied by Central Government.  Income tax: The tax which is levied on the income of the person is called direct income. It is levied on the total income a person has earned in the whole year. Wealth tax: It is levied on the net wealth of the person or is levied on the assets a person possess.
  7. 7. Indirect taxes:  Custom duty: Custom duty is levied on the goods which are imported and exported. This is levied in order to prevent illegal import and export of goods to and from India.  Excise duty: Excise duty is levied on the goods which are produced in the country. Firstly the manufacturer has to pay the tax to government and then he charges that amount from customers.  Services tax: It is a tax on the services rendered by a business man or by Professional persons.  Sales tax: Sales tax is a tax on the sale of goods sales tax is payable by the seller, which is recovered from the purchaser
  8. 8. Taxes levied by the State Government: • Direct taxes: Professional tax: State Government fixes a specified amount to be paid on each type of profession like salaried person, professional like Doctors, Advocates, Chartered Accounts. Agricultural tax: As on today no government has passed any legislation on agricultural income. But still it is taken into consideration for taxing non agricultural income.
  9. 9. • Indirect tax:  Entertainment tax: State government levy entertainment tax on cinemas, trade fairs, exhibitions etc. Entertainment tax is cinema is very popular.  V.A.T: VAT(Value Added Tax) is a tax on final consumption of goods and services. VAT will be levied on the value added to goods on each stage.  State excise duty: It is levied on Alcoholic consumptions, marijuana, opium. Revenue from this duty is the major source of revenue to State Government .
  10. 10. Tax levied by Local Government: • Indirect tax:  Property tax: Local bodies like Municipal Corporation levy property tax on the basis on rental capacity of the house.  Water tax: Municipal Corporation levy water taxes on the amount of usage of water.  Sewerage tax: The municipality is responsible for building and maintaining the sewer system in the city. You must pay sewage tax if: - a link to the sewer system is present; - you directly or indirectly discharge wastewater via the sewer system; - you are a tenant or user of the property and/or own the property.
  11. 11. Merits of direct taxes:  Economy: The cost of collecting direct taxes is low as compared to indirect taxes. The payment of these is made directly to the government.  Certainty: The tax payer knows how much to and when he has to pay tax and the government also knows who much to receive.  Elastic : Direct taxes are elastic in nature . Government can increase its revenue just by increasing the tax rate and by withdrawing the deductions and exemptions.  Equity: Direct taxes are equitable because rich has to pay more tax and the poor has to pay less tax or no tax.
  12. 12. Demerits of direct taxes:  Complex laws: Generally the provisions of direct taxes contain deduction, exemptions and chargeability of income etc. To a common man it becomes a problem to understand the provisions of the Act and is compelled to take the help of “tax consultants”.  Unpopular: Direct taxes are not popular when compared to indirect taxes. No person is willing to forego his part of income or wealth towards payment of taxes. i.e., people will oppose imposition of direct taxes.
  13. 13. Merits of indirect taxes:  Convenience: Indirect taxes are included in the prices the goods and services and as such tax payer is not aware of tax payment while purchasing goods or services.  Productivity: Indirect taxes are highly productive. By imposing few taxes government can get huge revenue.  Wide coverage: Indirect taxes covers most of the peoples irrespective of rich and poor will make to contribute to the Government. Indirectly it is helping one and all to participate in the development of the nation.
  14. 14. Demerits of Indirect tax: Inflationary in nature: Indirect taxes leads to a rise in prices . The increase in the prices of raw material , finished goods etc, creates inflationary trend in the economy. High cost of collection: Administrative cost of collecting indirect taxes may be high because they have to be collected from large number of persons that too in small amounts.
  15. 15. Any Questioners??