It covers basic aspects of Taxation, Meaning, Kinds, Characteristics, tax evasion and Tax Avoidance, Tax Planning...etc

1. By
Smt.Sowmya.K
PRINCIPAL
SBRR Mahajana Law College
Mysore

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3. CONCEPT OF TAX
Tax------Latin word ‘taxo’ and ‘taxare’----which
means “rate” and “ to assess”.
A tax is a compulsory payment of money to pay
to the Government by an individuals or Organizations as
the Government covers it’s expenses on various public
functions, and is interference in political, economic and
society life without direct return of benefit to be derived
by the taxpayer.
Taxes are Compulsory payment to government
without expectations of definite return or benefit to the
tax-payer.
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4. DEFINITIONS
 Adam Smith “ The taxes which , it is intended, should fall indifferently
upon every different species of revenue, as Capital taxes and taxes upon
consumable commodities. These must be paid indifferently from
whatever revenue the Contributors may possess, form the rent of their
land, from the profits of their stock, or from the wages of their labour.”
 Dalton “ A tax is a compulsory contribution imposed by a public
authority, irrespective of the exact amount of service rendered to the
tax-payer in return and not imposed as a penalty for any legal offence.”
 Antonio de viti de Marco “ The tax is the price which each citizen pays
to the State to cover his share of the cost of the general public services
which he will consume.”
 Cooley “The word ‘taxes’ in its most enlarged sense embraces all the
regular impositions made by the government upon the person, property,
privileges, occupations and enjoyment of the people for the purpose
raising public revenue.”
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5.  Article 366(28) of the Indian Constitution “ Taxation
includes the imposition of any tax or impost, whether
general or local or special and ‘tax’ shall be construed
accordingly.
Commissioner H.R & C.E v/s Lakshmendra [1954]
“ A tax is a compulsory exaction of money by public’s
authority for public purposes enforceable by law and not
payment for services rendered”.
Mathews v/s Cahtckory Marketing Board [1960]
“Tax means it is a public leavy which cannot be weighed in
terms of actual services rendered.”
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6. NATURE AND CHARACTERISTICS OF TAXES
The following are the important characteristics of taxation-
1. Taxes are imposed by the government on persons and property
within its jurisdiction.
2. A tax is a compulsory contribution of the tax-payer.
3. In the payment of a tax, the element of sacrifice is involved.
4. Payment of a tax is a personal obligation of a tax-payer.
5. The aim of taxation is the welfare of the community as a whole.
6. A tax is a legal collection.
7. An element of force of State is there.
8. A tax is not imposed to realize the cost of benefit.
9. A tax may be imposed upon property or occupation or commodities,
but there are actually paid by individuals.
10. The purpose of the tax is raising public revenue.
11. Tax by a state is used or received for public purpose or common
benefit of all.
12. Tax involves appropriation of private property.
13. Tax is generally payable in money.
14. Tax is commonly required to be paid at regular intervals.
15. Tax is proportionate in character, usually based on the ability to pay.
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7. MEANING OF TAX, FEE, CESS
 TAX : Taxes are Compulsory payment to government
without expectations of definite return or
benefit to the tax-payer.
 FEE : A fee is levy collected to provide a service that
benefits the group of people from which the
money is collected.
 CESS : It is a form of tax charged / levied over and
above the base tax liability of a taxpayer.
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8. Sl No TAX FEE
1. Tax is a compulsory leavy and is
enforced by law.
Fee is not always Compulsory
2. The collection are routed to the
Consolidated Fund.
The amount collected by way of fees
are not merged with the Consolidated
Fund.
3. It is left to the discretion of the
Government to use the tax for any
public benefit.
It is set apart only to cover the
expenses for which it is collected.
4. There is no element of quid pro quo
between the tax payments and public
authority.
In the case of fee, quid pro quo is an
essential element. The fee is charged
according to the magnitude of the
benefit received by the citizens.
5. Tax maybe expropriatory in nature. Fee cannot be discriminatory.
6. The ultimate object of tax in a
welfare State is to bring about social
order.
The ultimate object of fee can at the
most only be for the regulate of social
order.
7. Taxes change when base changes and
the capacity to pay principle is
followed.
Fees are uniform and the capacity to
pay does not form the basis.
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9. KINDS OF TAX
DIRECT TAX INDIRECT TAX
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10. DIRECT TAX
A direct tax is a kind of charge, which is imposed directly on the
taxpayer and paid directly to the government by the person on whom it is
imposed.
Merits of Direct Taxes
1. Economy
2. Certainty
3. Equity
4. Reduction in Inequalities
5. Elasticity
6. Civil Consciousness
Demerits of Direct Taxes
1. Lack of Popularity, Inconvenient
2. Possibility of Tax Evasion.
3. People’s indifferences
4. Disincentive to work hard and save.
5. Pinching/ painful
6. Narrow based
7. Arbitrary
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11. INDIRECT TAX/ GST
Atkinson “Indirect taxes are levied on transactions irrespective of
the circumstances of buyer or seller”.
It is a tax levied by the Government and collected by an
intermediary [Such as retail stores] from the person who bears the
ultimate economic burden of the tax [such as the customer].
Merits of Indirect Tax
1. Taxpayer does not feel the burden.
2. Tax Evasion would not be easy
3. Indirect Tax enable everyone.
4. It can be made highly productive.
5. It has wide coverage.
6. Heavy taxation on articles which are injurious to the health .
Demerits of Indirect Tax
1.It fall more heavily upon the poor than upon the rich.
2. The collecting procedure was too lengthy.
3. It discourages the savings.
4. It is said to be uncertain.
5. It was collected through middle-men.
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12. TAX EVASION & TAX AVOIDANCE
Tax evasion is an illegal activity in which a person or entity
deliberately avoids paying a true tax liability. Those caught evading
taxes are generally subject to criminal charges and substantial
penalties. It means failure to pay proper taxes can lead to criminal
charges.
Tax evasion illegal practice of intentionally evading taxes,
Taxpayer who evades their true tax liability may underreport
income, overstate deduction and exemptions, or participate in
fraudulent tax shelters .(Dictionary of finance and investment)
Tax evasion the illegal practice of paying less money in taxes
than is due.(business definition)
Tax avoidance is the legitimate minimizing of taxes and
maximize after-tax income, using methods included in the tax
code. Businesses avoid taxes by taking all legitimate deductions
and tax credits and by sheltering income from taxes by setting up
employee retirement plans and other means, all legal and under
the Internal Revenue Code or state tax codes.
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13. Causes of Tax Evasion
1. Level of Tax Rate/ High Rate of Taxation
2. Social Psychology for Tax Payer/ Unwillingness of Tax Payers to pay Tax
3. The Complexity of Tax System
4. Misuse or mismanagement of Revenue from Taxes
5. Complexity of Tax Laws
6. Corruption in Tax Administration & Attitude of Income Tax Department /
Authority
7. Underground Economy (Black Economy)
8. Absence of spirit of civic responsibility
9. Tax penalties/ Absence of Deterrent Punishments.
10. Political corruption
11. Economic conditions for the taxpayer
12. Overstatement and abuse of concessions- exemptions, deductions and
allowances
13. Moral reasons for tax evasion
14. Double taxation
15. Taxpayer Education & Lack of Publicity
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14. RECOMMENDATIONS
 MAHAVIR TYAGI COMMITTEE
 WANCHOO COMMITTEE.
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15. Income Tax Slabs & Rates 2023-2024
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16. The Finance Minister introduced new tax regime in Union
Budget, 2020 wherein there is an option for individuals and
HUF (Hindu Undivided Family) to pay taxes at lower rates
without claiming deductions under various sections.
New tax regime slab rates are not differentiated based on
age group. However, under old tax regime the basic income
threshold exempt from tax for senior citizen (aged 60 to 80
years) and super senior citizens (aged above 80 years) is ₹ 3
lakh and ₹ 5 lakh respectively.
However, under new tax regime person cannot claim up to
70 income tax deductions while calculating taxes. Hence, every
person has to make his/her own calculation as per old and new
tax regime and calculate which one is beneficial based on type
of investments made and returns earned on those investments.
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17. COMPENSATORY OR REGULATORY TAX
 The concept of regulatory and compensatory taxation has
evolved with a notion to resolve the freedom of trade and
commerce guaranteed by Art. 301 with the prerequisite to tax
such trade at least to the amount of making it pay for the
facilities provided to it by the state, e.g., a road net-work.
 Hence, Compensatory or Regulatory Taxes are not a restriction
to conduct Trade and Commerce, but a platform for the
business entities to allow them to exercise their rights given to
them by the Constitution and expand their commercial reach.
Such taxes encourages trade and helps the economy to develop
and flourish commercially.
 The Indian Courts have applied the concept of regulatory and
compensatory taxation to the State taxation under entries 56
and 57 of list II. The reason behind it is that compensatory and
regulatory measures facilitate, rather than hamper, the flow of
trade and commerce.
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18.  Atiabari Tea Co. Ltd. v. State of Assam[1961] ,
This was the first case where the concept of Compensatory tax has been
discussed. A tax was levied under Assam Taxation Act, 1954 by the State of
Assam on the carriage of tea by road or inland waterways which was held invalid
because the reason behind the levy of tax was to increase the revenue of State and
thus "directly affects the freedom of trade as contemplated by Article 301." The
Supreme Court took the view that the freedom guaranteed by Article 301 would
become erroneous if the movement, transport, or the carrying of goods were
allowed to be impeded, obstructed or hampered by the taxation without satisfying
the requirements of Article 302-304.
 Automobile Transport Ltd. v. State of Rajasthan. [1962]
In this case, the State of Rajasthan had levied a tax on motor vehicles ( Rs.
60 on a motor car and Rs. 2000 on a goods vehicle per year) used within the State
in any public place or kept for use in the State. And hence, the validity of the tax
was challenged. The freedom of trade and commerce under Article 301 should
not unduly interfere with the State autonomy, and it should be consistent with an
orderly society, the Supreme Court now ruled that regulatory measures and
compensatory taxes for the use of trading facilities were not hit by Article 301 as
these did not hamper, but rather facilitated, trade, commerce and intercourse
throughput the territory of India.
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19. CONSTITUTIONAL PROVISION ON TAXATION or
SCOPE OF TAXING POWERS OF PARLIAMENT, STATE
LEGISLATURES AND LOCAL BODIES.
ARTICLE 13-Laws inconsistent with or in derogation of the fundamental rights.
ARTICLE 14 -Equality before law.
ARTICLE 19 - Protection of certain rights regarding freedom of speech, etc.
ARTICLE 20 - Protection in respect of conviction for offences.
ARTICLE 141 -Law declared by Supreme Court to be binding on all courts.
ARTICLE 162- Extent of executive power of State.
ARTICLE 213 - Power of Governor to promulgate Ordinances during recess of
Legislature. –
ARTICLE 245 - Extent of law made by Parliament and by the Legislatures of States.
ARTICLE 246- Subject-matter of laws made by Parliament and by the Legislature of
States
ARTICLE 246A - Special provision with respect to goods and services tax
ARTICLE 265- Taxes not to be imposed save by authority of law.
ARTICLE 266 - Consolidated Funds and public accounts of India and of the States
ARTICLE 268 - Duties levied by the Union but collected and appropriated by the States
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20. ARTICLE 269- Taxes levied and collected by the Union but assigned to the States. –
ARTICLE 269A- Levy and collection of goods and services tax in course of inter-State trade or
commerce
ARTICLE 270- Taxes levied and distributed between the Union and the States
ARTICLE 271- Surcharge on certain duties and taxes for purposes of the Union. –
ARTICLE 279A - Goods and Services Tax Council
ARTICLE 286- Restrictions as to imposition of tax on the sale or purchase of goods.
ARTICLE 301- Freedom of trade, commerce and intercourse.
ARTICLE 302 - Power of Parliament to impose restrictions on trade, commerce and intercourse.
ARTICLE 303- Restrictions on the legislative powers of the Union and of the States with regard to
trade and commerce.
ARTICLE 304- Restrictions on trade, commerce and intercourse among States.
ARTICLE 366 - Definitions.
(12) “goods” includes all materials, commodities, and articles;
(12A) “goods and services tax” means any tax on supply of goods, or services or both except taxes on the
supply of the alcoholic liquor for human consumption;
(26) “securities” includes stock;
(26A) “Services” means anything other than goods;
(26B) “State” with reference to articles 246A, 268, 269, 269A and article 279A includes a Union territory
with Legislature;
(28) “taxation” includes the imposition of any tax or impost, whether general or local or special, and “tax”
shall be construed accordingly;
(29-A) “tax on the sale or purchase of goods”
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21. SEVENTH SCHEDULE OF THE CONSTITUTION OF INDIA
(Article 246)
List I (Union List); It contains those subjects on which only the Parliament has
the exclusive power to make laws.
Entry No. 82 – Tax on Income other than agriculture income.
Entry No. 83 – Duties of customs including export duties.
Entry No. 84 – Duties of excise on Tobacco and other goods manufactured or
produced in India except alcoholic liquors for human consumption, opium,
narcotic drugs, but including medicinal and toilet preparations containing
alcoholic liquor, opium or narcotics.
Entry No. 85 – Corporation tax
Entry No. 92A – Taxes on sale or purchase of goods other than newspapers,
where such sale or purchase takes place in the cource of Interstate trade or
commerce.
Entry No. 92B – Taxes on consignment of goods where such consignment
takes place during Inter-State trade or commerce.
Entry No. 92C – Tax on services
Entry No. 97 – Any other matter not included in List II, List III and any tax
not mentioned in List II or List III.
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22. List II (State List) : It contains those subjects on which only the State Legislatures are
competent to make laws.
Entry No. 46 – Taxes on agricultural income.
Entry No. 51 – Excise duty on alcoholic liquors, opium and narcotics.
Entry No. 52 – Tax on entry of goods into a local area for consumption, use or sale
therein (usually called Octroi or Entry Tax).
Entry No. 54 – Tax on sale or purchase of goods other than newspapers except tax on
interstate sale or purchase.
Entry No. 55 – Tax on advertisements other than advertisements in newspapers.
Entry No. 56 – Tax on goods and passengers carried by road or inland waterways.
Entry No. 59 – Tax on professionals, trades, callings and employment.
List III (Concurrent list) : It contains those subjects on which both the
Parliament and the State Legislatures are competent to make laws.
Entry 6 – Transfer of property other than agricultural land; registration of
deeds and documents.
Entry 44- Stamp duties other than duties or fees collected by means of judicial
stamps, but not including rates of stamp duty.
Entry 47 – Fees in respect of any of the matters in the List, but not including
fees taken in any court.
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23.  Tangkhul v. Simirei Shailei[1958]
In this case all the villagers were paying Rs 50 a day
to the head man in place of a custom to render free a day’s
labour. This was done every year and the practice had
been continuing for generations. The Court, in this case,
held that the amount of Rs. 50 was like a collection of tax
and no law had authorized it, and therefore it violated Art
265. Article 265 is infringed every time the law does not
authorize the tax imposed.
 Chottabhai vs. Union of India [1962 ]
Article 265 is applicable not only for “levy” but also
for the collection of taxes and the expression “assessment”
within its compass covers both the aspects carried out by
the executive functionary.
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24. Tax Planning
Tax Planning is an activity conducted by the
tax payer to reduce the tax liable upon him/her by
making maximum use of all available deductions,
allowances, exclusions, etc. feasible under law. In
other words, it is the analysis of a financial
situation from the taxation point of view. Tax
planning allows all elements of the financial plan
to function in sync to deliver maximum tax
efficiency.
Most people merely perceive tax planning as
a process that helps them reduce their tax
liabilities. However, it is also about investing in
the right securities at the right time to achieve
your financial goals.
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25. TYPES OF TAX PLANNING
Following are some of the various methods of tax planning:
1. Short-range tax planning
Under this method, tax planning is thought of and executed at the end of the fiscal
year. Investors resort to this planning in an attempt to search for ways to limit their
tax liability legally when the financial year comes to an end. This method does not
partake long-term commitments. However, it can still promote substantial tax
savings.
2. Long-term tax planning
This plan is chalked out at the beginning of the fiscal and the taxpayer follows this
plan throughout the year. Unlike short-range tax planning, you might not be offered
with immediate tax benefits but it can prove useful in the long run.
3. Permissive tax planning
This method involves planning under various provisions of the Indian taxation laws.
Tax planning in India offers several provisions such as deductions, exemptions,
contributions, and incentives. For instance, Section 80C of the Income Tax Act,
1961, offers several types of deductions on various tax-saving instruments.
4. Purposive tax planning
Purposive tax planning involves using tax-saver instruments with a specific purpose
in mind. This ensures that you obtain optimal benefits from your investments. This
includes accurately selecting the appropriate investments, creating an apt agenda to
replace assets (if required), and diversification of business and income assets based
on your residential status.
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26. Advantages of tax planning:
1. To minimize litigation:
2.To reduce tax liabilities:
3. To ensure economic stability:
4. To leverage productivity/ utilization of funds for
productive causes.
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27. CANONS OF TAXATION
canons of taxation we simply mean the characteristics or
qualities which a good tax system should possess. In fact, canons
of taxation are related to the administrative part of a tax. Adam
Smith first devised the principles or canons of taxation in 1776.
Types of Canon of taxation
• In this sense, his canons of taxation are ‘classical’ in sense, four
canons of taxation are:
(i) Canon of equality or equity
(ii) Canon of certainty
(iii) Canon of economy
(iv) Canon of convenience.
• Modern economists have added more in the list of canons
of taxation, these are:
(v) Canon of productivity
(vi) Canon of elasticity
(vii) Canon of simplicity
(viii) Canon of diversity.
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28. CONCEPT OF TAX
DEFINITIONS
NATURE AND CHARACTERISTICS OF TAXES
MEANING OF TAX, FEE, CESS
KINDS OF TAX
TAX EVASION & TAX AVOIDANCE
INCOME TAX SLABS & RATES 2020-2021
COMPENSATORY OR REGULATORY TAX
 CONSTITUTIONAL PROVISION ON TAXATION
 TAX PLANNING
 CANONS OF TAXATION
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