This document provides an overview of taxation in India. It discusses various direct and indirect taxes collected by the central and state governments. Direct taxes include personal income tax, corporate income tax, and capital gains tax. Indirect taxes previously included excise duty, service tax, customs duty, and central sales tax. Recent reforms like GST have subsumed many indirect taxes. The document also explains concepts like tax deductions, tax collected at source, minimum alternate tax, and taxes on gifts, inheritance, wealth, securities transactions, and more.

1. TAXATION
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MANUEL M. MATHEW
CIVIL SERVICE INSTITUTE PALA
TRIVANDRUM

2. Why taxes?
•Taxes are revenues to the government.
• Taxes are used to regulate production and
consumption (economic) activities.
• Taxes are used to bring distributive justice.
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3. Recent initiatives have made big impact on
taxation
• Demonetization
• Compulsory PAN-Aadhar linkage
• Restriction on physical cash payment
•Introduction of GST.
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4. Types ofTaxes
Taxes
Direct
Taxes
Indirect
Taxes
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5. DirectTax:
A Direct tax is a kind of charge, which is
imposed directly on the taxpayer and paid
directly to the government by the person or
entity (juristic or natural) on whom it is
imposed. A direct tax is one that cannot be
shifted by the taxpayer to someone else.
Direct taxes are mainly taxes on income,
property, capital gains, wealth and
expenditure.
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6. IndirectTax:
An indirect tax is a tax collected by an
intermediary (such as a retail store) from the
person who bears the ultimate economic burden
of the tax (such as the customer). Indirect taxes
are taxed on goods and services. An indirect tax is
one that can be shifted by the taxpayer to
someone else. An indirect tax may increase the
price of a good so that consumers are actually
paying the tax by paying more for the products.
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Centre
DirectTax
Corporate income tax,
Personal income tax
,Capital gains tax, Gift tax,
Inheritance tax, and
surcharges.
IndirectTax
CGST share from
GST/IGST, Customs Duties
and Excise duties on
petroleum products, Cess
and surcharges

8. State
Direct
Agricultural income tax,
profession tax, land
revenue (the last two are
transferred to Local
Bodies).
Indirect
State Excise Duties, SGST
Component from GST/IGST.
(Bulk of the state tax
revenue comes from indirect
taxes).
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9. Progressive, Proportional and Regressive taxes
•This classification is based on the relative burden or liability
of taxes.
Progressive tax
Tax liability of the individual increases with taxable income.
Proportional tax
Tax liability increases in the same proportion.
Regressive tax
Tax liability decreases with increase in income.
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11. Tax base
•The tax base is the legal description of the
object to which the tax applies, such as – net
income of an individual, value of a property etc.
For example, the tax base of an income tax
payer is his net income.
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12. Tax Elasticity
•It refers to changes in tax revenue in
response to changes in tax rate. For example,
how tax revenue changes if the government
reduces corporate income tax from 30 per
cent to 25 per cent indicate tax elasticity.
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13. Tax Buoyancy?
•Tax buoyancy explains the relationship
between the changes in government’s tax
revenue growth and GDP growth rate. It
refers to the responsiveness of tax revenue
growth to changes in GDP. When a tax is
buoyant, its revenue increases without
increasing the tax rate.
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14. surcharge
•Surcharge is a charge on any tax, charged on the
tax already paid. As the name suggests, surcharge
is an additional charge or tax. The main
surcharges are that on personal income tax (on
high income slabs and on super rich) and on
corporate income tax.
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15. Cess
•A cess imposed by the central government is a tax
on tax, levied by the government for a specific
purpose. Generally, cess is expected to be levied
till the time the government gets enough money
for that purpose.
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16. •The usual taxes goes to the consolidated fund of India
and can be spend for any purposes.
•Surcharge also goes to the consolidated fund of India
and can be spent for any purposes.
•Cess goes to Consolidated Fund of India but can be
spend only for the specific purposes.
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17. Major taxes of the central government
1. IncomeTax
Income-tax (or often called personal income tax) is a
tax of Central Government which is collected by
taxing income earned by the persons. Income Tax
Act, 1961 imposes tax on the income of the
individuals or Hindu undivided families or firms or
co-operative societies (other than companies) and
trusts (identified as bodies of individuals
associations of persons) or every artificial juridical
person.
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Sources of income

19. PIT
Individual HUF
Association
of Person
Body of
Individual
Artificial
Juridical
Person
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21. surcharge
•The amount of income-tax shall be increased by a
surcharge at the rate of 10% of such tax, where
total income exceeds fifty lakh rupees but does
not exceed one crore rupees.
•The amount of income-tax shall be increased by a
surcharge at the rate of 15% of such tax, where
total income exceeds one crore rupees.
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22. Cess
• Education Cess: The amount of income-tax and the
applicable surcharge, shall be further increased by education
cess calculated at the rate of two per cent of such income-tax
and surcharge.(AY-18-19)
• Secondary and Higher Education Cess: The amount of
income-tax and the applicable surcharge, shall be further
increased by secondary and higher education cess calculated
at the rate of one per cent of such income-tax and surcharge.
(AY-18-19)
• Health and Education Cess: The amount of income-tax and
the applicable surcharge, shall be further increased by health
and education cess calculated at the rate of four percent of
such income-tax and surcharge.(AY-19-20)
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23. •Rebate under Section 87A: The rebate is
available to a resident individual if his total
income does not exceed Rs. 3,50,000. The
amount of rebate shall be 100% of income-
tax or Rs. 2,500, whichever is less.
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25. Corporate income tax
•Companies and business organizations in India are
taxed on the income from their worldwide
transactions under the provision of Income Tax Act.
A corporation is deemed to be resident in India if it
is incorporated/registered in India or if it’s control
and management (POEM) is situated in India. In
case of non-resident corporations, tax is levied on
the income which is earned from their business
transactions in India or any other Indian sources
depending on bilateral agreement of that country.
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26. CIT
Partnership
Firm
Local
Authority
Domestic
Company
Foreign
Company
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28. Surcharge
Partnership Firm, Local Authority
- 12% where total income exceeds one crore rupees.
Domestic Company
- 7% where total income exceeds one crore rupees but not
exceeding ten crore rupees.
- 12% where total income exceeds ten crore rupees.
Foreign Company
-2% where total income exceeds one crore rupees but not
exceeding ten crore rupees.
- 5% where total income exceeds ten crore rupees.
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29. Cess
• Education Cess: The amount of income-tax and the
applicable surcharge, shall be further increased by education
cess calculated at the rate of two per cent of such income-tax
and surcharge.(AY-18-19)
• Secondary and Higher Education Cess: The amount of
income-tax and the applicable surcharge, shall be further
increased by secondary and higher education cess calculated
at the rate of one per cent of such income-tax and surcharge.
(AY-18-19)
• Health and Education Cess: The amount of income-tax and
the applicable surcharge, shall be further increased by health
and education cess calculated at the rate of four percent of
such income-tax and surcharge.(AY-19-20)
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30. IncomeTax Deductions/Exemptions
. The Indian tax laws include certain provision to give
incentives to achieve socio economic objectives. These
provisions are included under Section VIA and are in
the form of deductions (80 C to 80 U). Deductions are
for certain personal expenditure, social security
expenditure for various purposes and that aims to
support economic development. There are some basic
rules to avail these deductions as well.
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31. Section 80 C
•Section 80 C is the most popular provision and it aims to
encourage savings in the economy by extending several
incentives under it. The section allows income tax
deductions for certain types of payments, subscriptions
and investments/savings made by the tax payer. As per
budget 2016, a maximum of Rs 150000 can be deducted
by a normal person under this section. Following are
some of the tax deduction items under the section.
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32. Deductions on Investments
Deduction for Premium Paid for Annuity Plan of LIC or Other
Insurer
Deduction for Contribution to Pension Account
Deduction from GrossTotal Income for Interest on Savings Bank
Account
Deduction for House Rent Paid Where HRA is not Received
Deduction for Interest on Education Loan for Higher Studies
Deductions on Home Loan Interest for FirstTime Home Owners
Contribution by individuals/companies to political parties etc…
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33. Tax Deducted at Source(TDS)
•TDS requires the income earners to pay the tax at the
spot of income received. When the income is taxed at
the source or at the site of its creation, it is ensured
that those incomes which conventionally skips or
escapes the tax base get reported and pay the tax. A
number of provisions for deducting tax at source were
made after 1991. At present, there around 25 types of
income where TDS has to be paid. The deducted sum is
required to be deposited to the credit of the Central
Government.
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34. Minimum AlternativeTax(MAT)
•The Minimum Alternative Tax (MAT) is imposed on book
profit of companies who record nil or negligible profit to
pay the usual corporate income tax.
•Minimum Alternative Tax, or MAT, is basically a way for
the Income Tax Department to get companies to pay a
minimum tax, which currently stands at 18.5%. This
form of tax was brought into effect through the
introduction of Section 115JA of the Income Tax Act.
However, companies involved in infrastructure and
power sectors are exempt from paying MAT.
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35. Dividend DistributionTax
Dividend Distribution Tax was introduced after the
end of 2007’s Union Budget. It is basically a tax
levied on companies based on the dividend they pay
to their investors. This tax is applicable on the gross
or net income an investor receives from their
investment. Currently, the DDT rate stands at 15%.
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36. Capital gains tax
•Capital gain means an increase in the value of
a capital asset (investment or real estate) that gives it a
higher worth than the purchase price. Hence, capital
gain is income derived from the sale of an investment.
Capital gains are the increase in the market value of an
asset or set of assets, between two dates (buying and
selling).
•Capital gains taxation is taxing the gains derived
from the disposition of capital assets.
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37. •As per the income tax provision, capital assets are: land,
building, house property, vehicles, patents, trademarks,
leasehold rights, machinery, and jewellery. Besides having
rights in or in relation to an Indian company, a right of
management or control or any other legal right are also
considered as capital assets (implies shares).
•Capital assets are classified as Long Term or Short Term
with reference to the period of holding of the assets till it is
transferred.
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39. SecuritiesTransactionTax
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 STT is a type of direct tax payable on the value of taxable
securities transaction done through a recognized stock
exchange in the country.
 The securities on which STT is applicable are shares,
bonds, debentures, derivatives, units issued by any
collective investment scheme, equity based government
rights or interests in securities and equity mutual funds.

40. The rate of taxation for STT is set by the
government and depends upon the type of security
and type of transaction, whether purchase or sale.
For equity transactions that are delivery-based, STT
for purchase and sale is 0.1% of turnover and for
intra-day transactions, STT for purchase is nil and
sale is 0.025% of the turnover.
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41. Gift tax
• Gift can be given in the form of cash, immovable property
(land/building) and movable property (such as securities,
jewellery, painting, sculpture, work of art). Gift received in
cash, which exceed Rs 50,000, are taxable. Similarly, in the
case of other gifts also, taxes are to be paid if the gift
value/stamp duty value crosses Rs 50000. If the value
exceeds Rs 50,000, the whole amount is taxable. The
amount is added to ‘income from other sources’ and, thus,
is taxed according to the person’s tax slab. However, gift
tax is not applicable in the case of: Cash received from
relatives, cash received on the occasion of marriage and
cash received through a will or inheritance.
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42. Inheritance tax and Estate duties (Death duties)
•Inheritance tax is levied on the value of the assets received
from the deceased by the legal heirs. Here, the beneficiaries
who receive benefits or property from the deceased should
pay the tax. Each beneficiary is responsible for paying their
own inheritance tax
•Estate duty is levied on the assets left behind by the
deceased and it is imposed on the deceased’s estate in its
entirety. The executor is responsible for paying this estate tax
to the government.
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43. Wealth tax
•Wealth tax was introduced in 1957 and was levied on
individual/ HUF’s net wealth. However, wealth tax would
be applicable if one possesses more than one property
and the value of the same is more than Rs 30 lakh. The
tax rate was 1 per cent. Wealth tax was abolished in
2015-16 budget and instead the surcharge on superrich
was introduced at a rate of of 10% and 15%.
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44. IndirectTaxes(Before GST Regime)
Central excise duty(entry 84 of Union List)
Central excise duty is tax which is charged on goods that
are manufactured in India and are meant for domestic
consumption. The Central Government levies excise duty
under the Central Excise Act, 1944 and the Central Excise
Tariff Act, 1985. It is mandatory to pay Central Excise Duty
payable on the goods manufactured, unless exempted eg;
duty is not payable on the goods exported out of India.
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45. • There are various types of excise duties: Basis Excise Duty,
Special Excise Duty and Additional Duty of Excise. From 1999,
the centre has adopted VAT format for its excise duties and
hence it is also known as CENVAT (Central Value Added Tax).
With the launch of the GST, the central excise duty was
merged with it and the centre is getting its share in the form of
CGST in the place of Excise Duties and Service taxes.
• Excise duty on production few items including that on liquor is
imposed by state governments. Excise duty on alcohol,
alcoholic preparations, and narcotic substances is collected by
the State Government and is called “State Excise” duty.
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46. Service tax(entry 97 of Union List)
• Service tax rate tax is imposed by the centre using its power to tax
items on the concurrent list. Service tax was introduced in 1993-94
budget, making its entry on only three selected services-general
insurance, telecommunication and stock broking. Since then, the
tax was imposed and collected by the centre. Scope of service
taxation is that services constitutes to 60 per cent of the GDP. The
service tax is the fastest growing tax revenue of the central
government. Introduction of service tax has added buoyancy to
Central tax revenues.
• Service tax was integrated under the GST from July 1, 2017 onwards.
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47. Customs duties(entry 83 of Union List)
•Duties of customs are levied on goods imported or
exported from India at the rate specified under the
customs Tariff Act, 1975 as amended from time to
time or any other law for the time being in force.
Customs duties are thus taxes on international trade.
Tariff cuts under WTO stipulation have brought down
import taxes. Similarly, increasing number of Free
Trade Agreements also has brought down the
revenue from customs duties.
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48. Central SalesTax (CST) ( entry 92A and 92B )
•The Union levy Central Sales Tax (CST) on inter-State
sale and purchase of goods and on inter-State
consignments of goods . CST however is assigned to
the State of origin, as per Central Sales Tax Act, 1956
made under Article 269 of the Constitution.
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49. Central taxes merged under GST
 Union Excise duties
Service tax
Duties of Excise (Medicinal andToilet Preparations)
Additional Duties of Excise (Textiles andTextile Products)
Additional Duties of Excise (Goods of Special Importance)
Additional Duties of Customs (commonly known as CVD)
Special Additional Duty of Customs (SAD)
Cess and surcharges
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50. IndirectTaxes levied by states
Tax on sale and purchase e (entry 54 of the State List)
 Excise duty on alcoholic liquors, opium and narcotics
(entry 51 of the State List)
 Taxes on luxuries, entertainments, amusements,
betting and gambling (entry 62 of the State List)
 Octroi or entry tax (entry 52 of the State List)
 Electricity tax(entry 53 of the 4State List)
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51. Shares of major taxes of the central government
to total tax revenue: 2015-16 budget.
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52. 51