India has a multi-level tax system divided between the central, state, and local governments. There is a multiplicity of tax structures with both direct and indirect taxes levied. Indirect taxes make up a larger share of total tax revenue due to the undeveloped economy and income inequality. While tax revenue has increased over time, the tax-to-GDP ratio remains lower than developed countries due to a narrow tax base and complex tax laws. The Goods and Services Tax implemented in 2017 aims to simplify and standardize indirect taxes nationwide.

2. ESSENTIAL FEATURES
1. Division of Tax
India being a federation, there is the existence of
a multi-level finance system. The constitution of
India forms the basis of division of powers into:
• Union government
• State government
• The local or municipal government
The sphere of taxation of central and state is
clearly defined as per constitutional provision.
Some taxes are again levied by the Central
government and the proceeds of such taxes are
divided between the central and the state
governments.

3. 2. Multiplicity of Tax Structure:
• India is having a broad based and extensive tax structure. Its main feature is the existence of
multiplicity of taxes. There are both union government taxes and state government taxes.
• indirect taxes play a dominant role, it includes excise duties, customs duties, etc. The important
taxes levied by the union government are income tax, corporation tax, central excise duties, wealth
tax, gift tax, custom duties etc. The state governments main taxes are land revenue, sale tax, state
excise duties entertainment tax, stamp and registration duties etc.
• Other prominent taxes are wealth tax capital gains tax, gift tax etc.
3.Larger share of Indirect Taxes:
• In India in the total tax revenue there is the domination of indirect taxes over direct taxes
• If shows that because of the undeveloped character of the economy and glaring inequality in in-
come, the scope of direct taxes is limited.
4. . Insufficient Tax Revenue:
In-spite of rising trend in tax revenue, the total revenue remained small when compared to developed
countries. The tax GDP ratio generally remained in the range of 8 percent to 9 percent in India where
as it is very high in countries like Sweden, France, West Germany, UK, USA, etc

4. 5. Greater Importance to Sate Government in Federal Fiscal System:
In Indian fiscal federalism much importance is assigned to state governments. The field within which
tax revenue, are raised and spend regularly is very wide in India when compared to many federal gov-
ernments.
• This reflects the importance of state government in our federal system. This is because of the growing
responsibilities of the state government in the discharge of developmental activities.
6. Incidence of Taxation:
• In India the incidence of taxation is much higher in urban areas than in rural areas this is because of
the predominance of agriculture in rural area and low income of rural households.
• The urban population depends more on service and business sector and enjoys comparatively higher
income and tax paying capacity.
7. Progressiveness in Tax Structure:
• Indian tax structure is framed in such a way that all indices of ability to pay is taxed. The direct tax is
framed in such a way that as tax base increases, tax rate also rises sharply. Excise duties are levied
and collected discriminately, depending on the type of commodity and the class of consumers.

5. 8. Narrow Base:
• The tax base is very narrow in India in the case of both direct and indirect taxes. A planning
commission estimate shows that only one percent of working population comes under the
preview of direct tax.
• Service tax was introduced in the year 1994-95. Service sector, even though accounts for more
than 50 percent of GDP
• This is a small share when compared to the vast potential from this sector.
• 9. Complexity of Indian Tax Laws:
• With the intension of broad based tax system, a plethora of changes have been introduced in
the tax structure.
• However both direct and Indirect tax laws are highly complex, with a lot of loopholes which
enable the people to avoid as well as to evade taxes.

6. 10. Integration between Centre and Sate Revenue:
• After independence concrete efforts were made to organize the tax structure scientifically in
tune with the requirements of a federal set of government. At present there is well-organized
machinery for the collection distribution and expenditure of the revenue.
• Now the tax system is well structured to generate sufficient revenue to meet the requirements
of development objectives.
• To overcome these defects the government of India over time appointed different taxation
commissions. These commissions were appointed to detect and analyses the defects and to
suggest suitable recommendations.

7. TAX STRUCTURE IN INDIA
CENTRAL
GOVERNMENT
STATE
GOVERNMENT
LOCAL BODIES

8. CENTRAL
GOVERMENT
• Income tax
• Service tax
• Customs duties
• Central excise
• Sales tax
STATE
GOVERMENT
• Stamp duty
• State excise
• Land revenue
• Duty on
entertainment
• Sales tax
• Tax on
profession and
calling
LOCAL BODIES
• Tax on
properties
• Octroi
• Tax on market
• User charges for
utilities like
water supply,
drainage etc.

9. GOODS AND SERVICE TAX
• Goods and Services Tax (GST) is an indirect tax (or consumption tax) levied in India on the supply of goods
and services.
• Goods and services are divided into five tax slabs for collection of tax - 0%, 5%, 12%,18% and 28%.
• Petroleum products, alcoholic drinks, electricity, and real estate are taxed separately by the individual state
governments
• There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold
• top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products.Pre-GST, the
statutory tax rate for most goods was about 26.5%, Post-GST, most goods are expected to be in the 18% tax
range.
• The tax came into effect from July 1, 2017 through the implementation of One Hundred and First Amendment
of the Constitution of India by the Indian government. The tax replaced existing multiple cascading taxes
levied by the central and state governments.

10. • The tax rates, rules and regulations are governed by the GST Council which comprises finance ministers
of center and all the states. GST simplified a slew of indirect taxes with an unified tax and is therefore
expected to dramatically reshape the country's 2.4 trillion dollar economy
• In the 2014 Lok Sabha election, the Bharatiya Janata Party-led NDA government was elected into power.
With the consequential dissolution of the 15th Lok Sabha, the GST Bill – approved by the standing
committee for reintroduction – lapsed. Seven months after the formation of the Modi government, the
new Finance Minister Arun Jaitley introduced the GST Bill in the Lok Sabha, where the BJP had a
majority. In February 2015, Jaitley set another deadline of 1 April 2017 to implement GST. In May 2016,
the Lok Sabha passed the Constitution Amendment Bill, paving way for GST. However, the Opposition,
led by the Congress, demanded that the GST Bill be again sent back to the Select Committee of
the Rajya Sabha due to disagreements on several statements in the Bill relating to taxation. Finally in
August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the
Constitution amendment Bill and the President Pranab Mukherjee gave his assent to it.
• The GST was launched at midnight on 1 July 2017 by the President of India, Pranab Mukherjee, and
the Government of India. The launch was marked by a historic midnight (30 June – 1 July) session of
both the houses of parliament convened at the Central Hall of the Parliament. Though the session was
attended by high-profile guests from the business and the entertainment industry.

11. DIRECT TAX
• A direct tax is paid directly by an individual or
organization to the imposing entity. A taxpayer, for
example, pays direct taxes to the government for
different purposes, including real property tax, personal
property tax, income tax or taxes on assets
• The ability to pay taxes is a way to redistribute the
wealth of a nation. Direct taxes cannot be passed onto a
different person or entity; the individual or organization
upon which the tax is levied is responsible for the
fulfillment of the full tax payment.
• Direct taxes, especially in a tax bracket system, can
become a disincentive to work hard and earn more
money, because the more money a person earns, the
more taxes he pays.
• Direct taxes are based on the ability-to-pay principle.
This principle is an economic term that states that those
who have more resources or earn higher income should
pay more taxes

12. • Direct taxes are paid in entirety by a taxpayer directly to the government. It is also defined as the tax where the liability as well as
the burden to pay it resides on the same individual. Direct taxes are collected by the central government as well as state
governments according to the type of tax levied. Major types of direct tax include:
• Income Tax: Levied on and paid by the same person according to tax brackets as defined by the income tax department.
• Corporate Tax: Paid by companies and corporations on their profits.
• Wealth Tax: Levied on the value of property that a person holds.
• Estate Duty: Paid by an individual in case of inheritance.
• Gift Tax: An individual receiving the taxable gift pays tax to the government.
• Fringe Benefit Tax: Paid by an employer that provides fringe benefits to employees, and is collected by the state government.
•
• indirect taxes
• Excise Duty: Payable by the manufacturer who shifts the tax burden to retailers and wholesalers.
• Sales Tax: Paid by a shopkeeper or retailer, who then shifts the tax burden to customers by charging sales tax on goods and
services.
• Custom Duty: Import duties levied on goods from outside the country, ultimately paid for by consumers and retailers.
• Entertainment Tax: Liability is on the cinema owners, who transfer the burden to cinemagoers.
• Service Tax: Charged on services rendered to consumers, such as food bill in a restaurant.

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