Taxation in India

We all live in a human society where we are inter-dependent on each other. For our social security and peaceful co-existence we all surrender ourselves to the state and the state looks after our rights. All infrastructural facilities and developmental works are done by the state directly or indirectly without which it is impossible to dwell. But, from where does the state get funds to do all that?

The answer is simple, i.e. from us, the people subject to it and using those facilities.

The money thus collected from common people for running the state is termed as Tax. In other words, Tax means a financial charge or other levy upon a taxpayer (an individual or legal entity) by the state, or any other body authorized by the state.

In India the tax system is three tier system, i.e. the centre, the state and the local level. This means that the taxes are levied by three different authorities.

Taxes can be divided into two major heads viz.

1.    Direct Tax: - A tax paid directly by the person or organization on whom it is levied; and

2.    Indirect tax: - A tax levied on goods or services rather than on persons or organizations.

In India, the Constitution under Article 246 divides legislative powers including taxation among the centre and the state.

The Central Government has the power to levy taxes like Income Tax (except agricultural income); custom duties; export duty; corporation tax; taxes on capital value of assets; estate duty; duties in respect of succession of property; stamp duties; taxes on sale/purchase of newspapers and advertisements therein; taxes on inter-state trade or commerce etc.

The State Government can levy taxes like Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues; Taxes on agricultural income; Duties in respect of succession to agricultural income; Estate Duty in respect of agricultural income; Taxes on lands and buildings; Taxes on mineral rights; Taxes on entry of goods into a local area for consumption, use or sale therein; Taxes on the consumption or sale of electricity; Taxes on the sale or purchase of goods other than newspapers; Taxes on vehicles suitable for use on roads; Tolls; Taxes on profession, trades, callings and employments; Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling; stamp duties etc.

There is a board constituted in Centre called the Central Board of Direct Taxes (CBDT) which is a part of the Ministry of Finance which plans the scheme of the Direct Tax.

Some important legislations guiding Taxation in India include the Income Tax Act, 1961, Central Excise Act, Customs Act, Central Sales Tax Act etc.

Total tax receipts of Centre & State amount to approximately 18% of national GDP.

Most important amongst these is the Income Tax Act. Although this Act is soon going to be repealed by the Direct tax Code Act, 2010 we must have its knowledge so as to understand the concept of Income Tax.  This act imposes tax on the income of individuals, companies and corporations. It imposes tax under the following five heads: -

•    Income from house and property,

•    Income from business and profession,

•    Income from salaries,

•    Income in the form of Capital gains, and

•    Income from other sources.

As per the existing tax rates, an income exceeding Rs. 1.6 Lakh p.a. is taxable but soon after the enforcement of the Direct Tax Code Act, incomes exceeding Rs.2 Lakh p.a. and Rs. 2.5 Lakh p.a. for Senior Citizens, would be taxed.  This Act will come in force from 2012.

Nonpayment of income tax is a crime and is punishable under law for which a person may be imprisoned and/or fine may be levied upon him.

Indirect taxes are collected tax. Sales Tax, Value Added tax (VAT) etc. are some examples of Indirect taxes. These taxes are not directly paid by the taxpayer to the Government but are collected by intermediaries like retail stores and are deposited together. This is levied per unit of product sold or as per service provided.  In other words this tax is a shift able kind of tax. This is shifted as the product goes from one hand to another.

The key features of the Union Budget 2010-11 on Direct tax are as follows:-

1.    Income tax slabs for individual taxpayers to be as follows: -

            Income upto Rs 1.6 lakh-Nil.

            Income above Rs 1.6 lakh and upto Rs. 5 lakh-10 per cent.

            Income above Rs.5 lakh and upto Rs. 8 lakh-20 per cent.

            Income above Rs. 8 lakh-30 per cent.

2.    Deduction of an additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government.

3.    Besides contributions to health insurance schemes which is currently allowed as a deduction under the Income-tax Act, contributions to the Central Government Health Scheme also allowed as a deduction under the same provision.

4.    Current surcharge of 10 per cent on domestic companies reduced to 7.5 per cent.

5.    Rate of Minimum Alternate Tax (MAT) increased from the current rate of 15 per cent to 18 per cent of book profits.

6.    To further encourage R&D across all sectors of the economy, weighted deduction on expenditure incurred on in-house R&D enhanced from 150 per cent to 200 per cent. Weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research enhanced from 125 per cent to 175 per cent.

7.    Payment made to an approved association engaged in research in social sciences or statistical research to be allowed as a weighted deduction of 125 per cent. The income of such approved research association shall be exempt from tax.

8.    Benefit of investment linked deduction under the Act extended to new hotels of two-star category and above anywhere in India to boost investment in the tourism sector.

9.    Allow pending projects to be completed within a period of five years instead of four years for claiming a deduction of their profits, as a onetime interim relief to the housing and real estate sector. Norms for built-up area of shops and other commercial establishments in housing projects to be relaxed to enable basic facilities for their residents.

10.    Limits for turnover over which accounts need to be audited enhanced to Rs. 60 lakh for businesses and to Rs. 15 lakh for professions.

11.    Limit of turnover for the purpose of presumptive taxation of small businesses enhanced to Rs. 60 lakh.

12.    If tax has been deducted on payment by way of any expense and is paid before the due date of filing the return, such expenditure to be allowed for deduction. Interest charged on tax deducted but not deposited by the specified date to be increased from 12 per cent to 18 per cent per annum.

13.    To facilitate the conversion of small companies into Limited Liability Partnerships, transfer of assets as a result of such conversion not to be subject to capital gains tax.

14.    “The advancement of any other object of general public utility” to be considered as charitable purpose” even if it involves carrying on of any activity in the nature of trade, commerce or business provided that the receipts from such activities do not exceed Rs.10 lakh in the year .

15.    Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000 crore for the year.

                                          (Source: http://indiabudget.nic.in/ub2010-11/bh/bh1.pdf)

So, it can be felt that the Government runs on the basis of an efficient Tax machinery which is very necessary for the working of the government. we the taxpayers must ensure that we pay all taxes which has been levied on us so that the same can be used to serve us in a better manner.

Alternative Dispute Resolution

It is believed that wherever there is existence of more than one human being, so called ‘a human society’, there ought to be disputes between individuals. In today’s state of that human society, disputes are inevitable as there are differences between individuals in every sphere and respect. In olden days such disputes were redressed by the head of the state or the ‘King’. But today law is the king of all kings and thus disputes are resolved by the machinery framed by law.
Disputes can either arise out of infringement of personal rights or that of social rights like right to life, freedom etc. The former is termed as civil dispute and the latter as criminal dispute. The court system in India is no new and its origination can be traced back to the ancient times. Kautilya in his ‘Arthasastra’ has mentioned that there was a two tier system for administration of justice, i.e.  separate courts for administering civil and criminal justice. The civil courts were called the ‘Dharmasthiyas’ and the criminal courts, ‘Kantakasodhanam’.
As the nation progressed many rulers came and ruled India as per their own laws and legal systems. But if we trace back the history to the times of British Raj, it is evident that the most remarkable and efficient contributions to the genre of law, justice and judiciary was made by the English men. The same system is still being followed. Post independence India has been constantly developing and thus many new woes have got introduced. Problems like population explosion, unemployment and coloured growth in society where rich are growing richer and poor even poorer, the number of disputes have increased overwhelmingly. Courts have been flooded with suits and complaints. It is said that justice delayed is justice denied and that is what is happening in many instances. We hear of certain cases where the victim gets justice after he dies.
This is the reason for developing new machinery which could alternatively resolve certain disputes and the place where the concept of Alternative Dispute Resolution comes in. Alternative Dispute Resolution or ADR can be defined as an alternate method for settlement of disputes outside Courts either on being directed by the Court or suo moto by the mutual consent of the parties to a dispute. The major act dealing with ADR in India is the Arbitration and Conciliation Act. The central government, in order to reduce delays in various levels has enacted the Civil Procedure Code (Amendment) Act, 1999 under which it is made obligatory to the courts to refer a dispute after issues are framed for settlement by alternative dispute resolution methods.
The major methods forming the part of the Alternative Dispute Resolution System are:

1.    Arbitration:- It is the most widespread and efficient means of ADR. It can be defined as “the hearing and determination of a dispute by an impartial referee agreed to by both parties.” The ‘impartial referee’ referred to hereinabove is called the Arbitrator. There are several ways of appointing an Arbitrator prescribed under the Arbitration and Conciliation Act. The first and the most common method is mentioning it in the Arbitration Agreement between the parties which is inevitable and has to be signed so as to surrender any dispute to arbitration. Secondly, in absence of any such fixed arbitrator, both the parties select one arbitrator each and they further select one presiding arbitrator. The total number of Arbitrator if opted for more than one should be odd. An order passed by an Arbitrator is referred to as an “Award” and in most of the cases is non revocable, binding, non-appealable and can only be challenged on very limited grounds. There is a great advantage attached to this process, i.e. an expert of that field can be appointed as an Arbitrator to which the dispute pertains. This is the reason why this is widely accepted in the fields of IPR where special knowledge and know how is required.
2.    Conciliation: - In this method the parties choose an independent third party who hears both sides, either privately or together, and then prepares a compromise which the conciliator believes is a fair disposition of the matter. The conciliator's report or conclusions are then put to both sides, who may agree or disagree with it. It is not binding nor is it enforceable unless the parties adopt it.
3.    Mediation: - It is a form of alternative dispute resolution (ADR), which aims to assist two (or more) disputants in reaching an agreement. The decision as to whether accept or revoke the agreement is taken by the parties themselves rather than accepting something imposed by a third party.
4.    Negotiation :- It is a process by which the involved parties or group resolve matters of dispute by holding discussions and coming to an agreement which can be mutually agreed by them. It also includes negotiation of claims between the parties.

In India, the ADRS also includes tribunals which have quasi judicial authorities to decide cases of certain nature and subject matter like tax, debt recovery, labour and industrial dispute, cyber crime etc. Another latest and most successful type of ADR in India is Lok Adalat System. It is a kind of mock Court organized by the Government authorities usually presided over by retired judges, social activists, or other members of the legal profession. The Legal Services Authorities Act, 1987 gave the Lok Adalats a statutory platform by vesting following power in them:-
a.    Every Award passed by a Lok Adalat is to be final, binding and non-appealable.
b.    The members of the Lok Adalats are to be deemed as Publc Servants as under the I.P.C.
c.    Every Lok Adalat is to be deemed to be a civil cour for the purposes of Section 195 and Chapter XXVI of the C.P.C.
d.    All proceedings in front of the Lok Adalat shall be deemed to be judicial proceeding within the meaning of Sections 193, 219, and 228 of the I.P.C.
For referring a dispute to Lok Adalat, there are three methods. Firstly, by consent of both the parties; Secondly, by application of either of them, and Thirdly, by the order of Court. All compromises and settlements are guided by the principles of justice, equity and fair play. Some of the disputes that can be brought to the Lok Adalat include municipal tax cases, insurance claims, motor accident compensation, land acquisition cases, matrimonial disputes and family dispute matters, bank loan cases, dispute related to private parties etc.
Some other methods of ADRS include ombudsmen (in India Lokpal & Lokayukta), med-arb, mini trials, early neutral evaluation, fact finding, case evaluation, private judging etc.
Thus the merits of ADRS over conventional Court system can be traced from the above paragraphs as follows:-
i.    Open and effective communication.
ii.    Flexibility.
iii.    Adaptability.
iv.    Confidentiality.
v.    Constant review and chances for improvement.

But the issue is that the process can only be applied to those disputes which are compoundable in nature or which essentially do not need the accent of a Court. Any issue which is non compoundable or relates to serious matters of rights cannot be referred to ADRS and in such case the Courts of law have to be given recourse and it shall decide accordingly.