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.