TAX STRUCTURE IN INDIA

The tax system in India mainly, is a three tier system which is based between the Central

government, State Governments and the Local government organizations. India has a well-

developed tax structure with clearly separated authority between Central and State Governments

and local bodies. Central Government levies taxes on income, customs duties, central excise and

service tax. According to the Constitution of India, the government has the right to levy taxes on

organizations and individuals. However, the constitution states that no one has the right to levy

taxes except the authority of law or the parliament. The main body, which is responsible for the

collection of taxes, is the Central Board of Direct Taxes, which is a part of the Department of

Revenue under the Ministry of Finance of the Indian government. The CBDT functions as per

the Central Board of Revenue Act of 1963. In last 10- 15 years, Indian taxation system has

undergone wonderful reforms. The tax laws have been simplified and the tax rates have been

rationalized resulting in better compliance, ease of tax payment ad better enforcement.

Indian Tax Structure after Independence: The period after Independence was quite

challenging for the tax planners. An enormous black economy set in both due to Second World

War and increases in economic activity after independence. Savings and investment were

encouraged through the different taxation laws by the way of incentives. There was a

requirement for generating huge amount of revenues to fund the economic growth of the country.

The tax department took great care to plan the tax structure not only with the aspect to widen the

income tax base but also to look for alternate taxes and to eliminate tax avoidance. The

department was harshly tested due to the high volumes of work.

Income earned by individual.

Income to be considered while computing total income of individuals

Income from salaries,

Income from house property,

Profits and gains of business or profession,

capital gains and

Income from other sources.

INCOME TAX IN INDIA

The Central Government has been empowered by Entry 82 of the Union List of Schedule VII of

the Constitution to levy tax on all income other than agricultural income (subject to Section

10(1)). The Income Tax Law comprises The Income Tax Act 1961, Income Tax Rules 1962,

Notifications and Circulars issued by Central Board of Direct Taxes (CBDT), Annual Finance

Acts and Judicial pronouncements by Supreme Court and High Courts.

The government of on taxable income of all persons including individuals, Hindu Undivided

Families(HUFs), companies, firms, association of persons, body of individuals, local authority

and any other artificial judicial person. Levy of tax is separate on each of the persons. The levy is

governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed

by CBDT and is part of the Department of Revenue under the Ministry of Finance, Govt. of

India. Income tax is a key source of funds that the government uses to fund its activities and

serve the public.

The Income Tax Department is the biggest revenue mobilizer for the Government. The total tax

revenues of the Central Government increased from 1392.26 billion in 1997-98 to

5889.09 billion in 2007-08.

History of income tax

In India, the tradition of taxation has been in force from ancient times. It finds its

references in many ancient books like 'Manu Smriti' and 'Arthasastra'. There was a

perfect admixture of direct taxes with indirect taxes and they were varied in nature.

India's history of taxation suggests existence of a large and composite taxable

population. With the advent of the moguls in India the country witnessed a sea of

change in the taxation system of India. Although, they also practiced the same norm

of taxation but it was more homogeneous in structure and collection. The period of

British rule in India witnessed some remarkable change in the whole taxation system

of India. Although, it was highly in favor of the British government and its exchequer

but it incorporated modern and scientific method of taxation tools and systems. In

1922, the country witnessed a paradigm shift in the overall Indian taxation system.

Setting up of administrative system and taxation system was first done in the history

of taxation system in India. The period thereafter witnessed rapid growth and

modernization of the Indian taxation system and the present.

The history of taxation dates back to time immemorial and it is not a recent

development by any account. A thorough research on the history of taxation system

shows that taxes were levied on either on the sale and purchase of merchandise or

livestock.

Further, the history of taxation suggests that the process of levying and the manner

of tax collection were unorganized. But it suggests that all historical leaders and head

countrymen collected taxes to run its authority. In other words taxes on income,

sale, purchase and properties were collected to run the ruling Government

machineries. Further, these taxes were collected to meet their military and civil

expenditure and also to meet the common needs of the subjects like maintenance of

roads, drainage system, government buildings, administration of justice and other

functions of the region. day India tax machinery is very much based on that laid

down foundation.

Although, there were no homogeneous tax rate structures but it depended on the

production capacity and commodity of that particular country and/or region.

Moreover, the tax rates and quantum varied according to the annual production.

These taxes were collected in cash or in kind and it entirely depended on the type of

commodity or service on which it was levied upon. For example, there was a very

common practice of selling food crops and cash crops to government machineries

against no money. The history of taxation suggests these were done to store

government buffer stocks to meet emergencies. Taxes were levied on all classes of

citizens, like actors, dancers, singers and even dancing girls. Taxes were paid in the

form of gold-coins, cattle, grains, raw-materials and even by rendering personal

service.