Managerial Economics II, BBAGE 201-18, Macro-economic Framework in Indian Economy–Tax Structure & Tax system in India

1. Tax Structure
& Taxation
System In
India

2. Tax
 India offers a well-structured tax system for its
population. Taxes are the largest source of income
for the government. This money is deployed for
various purposes and projects for the development of
the nation.
 Taxes are determined by the Central and State
Governments along with local authorities like
municipal corporations. The government cannot
impose any tax unless it is passed as a law.

3. Salient features of the taxation system in India
1. Role of the Central and State Government
The entire system is clearly demarcated with specific
roles for the central and state government. The
Central Government of India levies taxes such as
customs duty, income tax, service tax, and central
excise duty.

4. Salient features of the taxation system in India
 The taxation system in India empowers the state
governments to levy income tax on agricultural
income, professional tax, value added tax (VAT),
state excise duty, land revenue and stamp duty.
 The local bodies are allowed to collect octroi,
property tax, and other taxes on various services like
drainage and water supply.

5. Salient features of the taxation system in India
 Tax Collection Bodies:
The three bodies which collect the taxes in
India have clearly defined the rules on what type of
taxes they are permitted to collect.
1. The Central Government: income tax, custom
duties, central excise duty.
2. The State Governments: tax on agricultural
income, professional tax, value- added tax, state
excise duty, stamp duty.
3. Local Bodies: property tax, water tax, other taxes
on drainage and small services.

6. Salient features of the taxation system in India
2. Types of taxes
Taxes are classified under two categories namely
direct and indirect taxes. The largest difference
between these taxes is their implementation. Direct
taxes are paid by the assessee while indirect taxes are
levied on goods and services.

8. Salient features of the taxation system in India
A) Direct taxes
Direct taxes are levied on individuals and
corporate entities and cannot be transferred
to others. These include income tax, wealth
tax, and gift tax.

9. Salient features of the taxation system in India
A) Direct taxes
 Direct Tax is levied directly on individuals and corporate
entities. This tax cannot be transferred or borne by
anybody else. Examples of direct tax include income tax,
wealth tax, gift tax, capital gains tax.
 Income tax is the most popular tax within this section.
Levied on individuals on the income earned with
different tax slabs for income levels. The term
‘individuals’ includes individuals, Hindu Undivided
Family (HUF), Company, firm, Co-operative Societies,
Trusts.

10. Salient features of the taxation system in India
 Income tax
As per the Income Tax (IT) Act, 1961 every assessee
whose total income exceeds the maximum exempt limit
is liable to pay this tax. The tax structure and rates are
annually prescribed by the Union Budget. This tax is
imposed during each assessment year, which
commences on 1st April and ends on 31st March.
 The total income is calculated from various heads such
as business and profession, house property, salaries,
capital gains, and other sources. The assesses are
classified as individuals, Hindu Undivided Family
(HUF), association of persons (AOP), body of
individuals (BOI), company, firm, local authority, and
artificial judiciary not falling in any other category.

11. Salient features of the taxation system in India
B) Indirect taxes
Indirect taxes are not directly paid by the
assessee to the government authorities.
These are levied on goods and services and
collected by intermediaries (those who sell
goods or offer services). Here are the most
common indirect taxes in India:

12. Salient features of the taxation system in India
B) Indirect taxes
Indirect taxes are taxes which are indirectly levied on the
public through goods and services. The sellers of the goods
and services collect the tax which is then collected by the
government bodies.
 Value Added Tax (VAT)– A sales tax levied on goods
sold in the state. The rate depends on the government.
 Octroi Tax– Levied on goods which move from one state
to another. The rates depend on the state governments.
 Service Tax– Government levies the tax on service
providers.
 Customs Duty– It is a tax levied on anything which is
imported into India from a foreign nation.

13. Salient features of the taxation system in India
 Value Added Tax (VAT)
This is levied by the state government and was not
imposed by all states when first implemented.
Presently, all states levy such tax. It is imposed on
goods sold in the state and the rate is decided by the
state governments.
 Customs duty
Imported goods brought into the country are
charged with customs duty which is levied by the
Central Government.

14. Salient features of the taxation system in India
 Octroi
Goods that move from one state to another are liable
to octroi duty. This tax is levied by the respective state
governments.
 Excise duty
All goods produced domestically are charged with
excise duty. Also known as Central Value Added Tax
(CENVAT), this is paid by the manufacturers.
 Service Tax
All services provided domestically are charged with
service tax. The tax is paid by all service providers
unless specifically exempted.

15. Salient features of the taxation system in India
C) Goods and Service Tax (GST)
 As a significant step towards the reform of indirect
taxation in India, the Central Government has
introduced the Goods and Service Tax (GST). GST is a
comprehensive indirect tax on manufacture, sale and
consumption of goods and services throughout India
and will subsume many indirect taxes levied by the
Central and State Governments. GST will be
implemented through Central GST (CGST), Integrated
GST (IGST) and State GST (SGST).
 Four laws (IGST, CGST, UTGST & GST (Compensation
to the States), Act) have received President assent. All
the States & UT expected to pass State GST Act, by end
of May 2017. GST law is expected to take effect from
July 1, 2017.

16. Salient features of the taxation system in India
C) Goods and Service Tax (GST)
 In India, the three government bodies collected direct
and indirect taxes until 1 July 2017 when the Goods
and Services Act (GST) was implemented. GST
incorporates many of the indirect taxes levied by states
and the central government. What does the GST mean
for your money?
Some of the taxes GST replaced include:
 Sales Tax
 Central Excise Duty
 Entertainment Tax
 Octroi
 Service Tax
 Purchase Tax

17. Salient features of the taxation system in India
C) Goods and Service Tax (GST)
 It is a multi-stage destination-based tax. Multi-stage
because it is levied on each stage of the supply chain
right from purchase of raw material to the sale of the
finished product to the end consumer whenever there
is value addition and each transfer of ownership.
 Destination-based because the final purchase is the
place whose government can collect GST. If a fridge is
manufactured in Delhi but sold in Mumbai, the
Maharashtra government collects GST.
 A major benefit is the simplification of taxation in
India for government bodies.

18. Salient features of the taxation system in India
C) Goods and Service Tax (GST)
 GST has three components:
1. CGST: Stands for Central Goods and Services
Act. The central government collects this tax on an
intrastate supply of goods or services.
(Within Maharashtra)
2. SGST: Stands for State Goods and Services Tax.
The state government collects this tax on an
intrastate supply of goods or services.
(Within Maharashtra)
3. IGST: Stands for Integrated Goods and Services
Tax. The central government collects this for inter-
state sale of goods or services. (Maharashtra to
Karnataka)

19. Salient features of the taxation system in India
3. Revenue Authorities
 CBDT
The Central Board of Direct Taxes (CBDT) is a part of
the Department of Revenue under the Ministry of
Finance. This body provides inputs for policy and
planning of direct taxes in India and is also responsible
for administration of direct tax laws through the
Income Tax Department.
 CBEC
The Central Board of Excise and Customs (CBEC) is
also a part of the Department of Revenue under the
Ministry of Finance. It is the nodal national agency
responsible for administering customs, central excise
duty and service tax in India.

20. Salient features of the taxation system in India
3. Revenue Authorities
 CBIC
Under the GST regime, the CBEC has
been renamed as the Central Board of
Indirect Taxes & Customs (CBIC) post
legislative approval. The CBIC would
supervise the work of all its field
formations and directorates and assist the
government in policy making in relation
to GST, continuing central excise levy and
customs functions.

21. Benefits of Taxes:
 While paying taxes may not be a pleasant feeling, however,
it is prudent to understand that tax paid by every single
individual contributes towards the country’s
administration and resources required for its economic
progress.
1. It promotes savings as well as investments. If an
individual makes certain set of investments, a part
amount of the same would be tax exempted, thereby
enabling him or her to pay reduced amount of taxes.
2. Paying tax also works as a proof that you are not only
disciplined in filing your tax returns but also helps at the
time of loan application. This is because at the time of
purchasing a home loan, the bank requires proof of
whether the applicant has filed his or her taxes regularly.

22. Conclusion
 The Indian taxation system in India has witnessed
several modifications over the years. There has been
standardization of income tax rates with simpler
governing laws enabling common people to
understand the same. This has resulted in ease of
paying taxes, improved compliance, and enhanced
enforcement of the laws.