A Comparative Study on Indian Taxation

Regime and American Taxation Regime with

legal perspective

Author

Sanket Mohapatra

2nd Year, BA.LLB (HONS).

Saveetha School of Law

Saveetha Institute of Medical and Technical Sciences

Saveetha University

Co Author

Shantilal Jain

2nd Year, BA.LLB (HONS).

Saveetha School of Law

Saveetha Institute of Medical and Technical Sciences

Saveetha University

Abstract

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:33

The Indian Taxation Regime is rigid, complex and has lots of legal obstacles which restricts

itself from its objective of Progressive Taxation as there are various irregularities and

complexities in the furnishings of tax returns and phases of taxation where there is a

permanent existence of economic inequality as some people evade the taxation imposed by

the government by using some illegal and administrative mischief which increases the

burden of tax on one particular class as some groups are exempted due to valid and

rational reasons. The taxation regime causes a stir in the improvement of human

development index and standard of living as more taxes are imposed on the people to

reduce deficits in the economy. The Indian Taxation System has an historical origin from

the ancient Vedic times, medieval Islamic rule and the British Colonisation as there was an

existence of an taxing system based on income, revenue, expenditures, class, religion and

social classification which lacked economic equality and social justice and the importance

of post independent taxation system was it was regulated by specific departments based on

an legal statute and its legal structure and various legal reforms were made in it from time

to time based on situational economic behaviour. The problem arises when people find new

legal and accounting techniques which escape the taxing accountability. The Tax imposed

by the state has an monetary importance on every global economy but there is large scale

difference between the Indian Taxation Regime and American Taxation Regime that

equalises the economic equality among every class of people by imposing a reasonable and

rational amount of tax which can be questioned on the basis of the individuals economic

performance and social mobility of the region which affects his income.

Keywords: Income, Economy, Statutory Mandate, Economic Impact, Social necessity

Introduction

The Indian Taxation Laws impose rigorous taxation on the middle class and the professionals

who suffer from the law of taxation due to higher taxes being imposed on them. The Higher

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:34

Class, Billionaires, Corporate Sector, Business Magnates enjoy the benefits of the concept of

progressive taxation in the Indian Society. There are less economic deliberations on the reduction

of taxes and equalising them among all taxpayers to have constant monetary growth and

expenditure in relative sections of schemes, policies and other public activities. The concept of

progressive taxation has been a mere imagination of the taxpayers as they await the reduction of

taxes and the state has less economic knowledge of reducing any specific tax. There have been

some taxes like Wealth Tax, Gift Tax which have been abolished in India as the cost incurred in

recovering tax was more than the benefit derived. It didn’t have a proper legal framework and it

was a collective loss for the tax department. India is a welfare state which has to look into the

public interest and act in the social-economic interest of the citizens and American Taxation

doesn’t impose Direct and Indirect Taxes at the same time. Indian Indirect Taxation System is

more tumultuous because it causes decrease in income and revenue for the individuals and after

the addition of GST it causes a lot of economic problems to the traders, MSMEs and other

trading sectors as it had a lot of paperwork to do and any mistake in that could cause legal

problems to the person concerned. The effect of demonetisation was that it led to the problems in

the Indian Taxation Structure. American Taxation regime is divided on three basis i.e, Federal,

State and Local. Indian Taxation System has an federal income tax and indirect tax at federal and

state level including local level which include some taxes which are mostly divided between the

Central and Provincial Government after the Introduction of Goods and Services Tax. The aim of

the GST was meant to formalise the tax economy as stated by the then Finance Minister of India.

The ease of indirect tax in case of some taxes was that the burden of paying the tax can be shifted

to another person. In the American Taxation System, individual spending on education can be

taxed at a higher rate because the personal income is being spent on one sector and personal

expenditure on other forms are recognised as investments because they give a benefit to the state

compared to education as it benefits the personality of the respective person. However, in

America Taxes fall heavily on the labour revenue than capital income as it is another form of

investment towards the state and contributes to the economic growth of the state. In American

Taxation Structure, there are less legal exemptions on Income Determination Tax as sources of

the income are not subjected to exemptions from the authority of law because tax administration

believes in tax accounting rules based on consumption and expenditure of the person. American

Taxation System puts less burden on the super billionaires as the richer classes are imposed with

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:35

more taxes to compensate for the exemption of tax from the other lower Economic classes.

American Taxation system allows reduction in taxable income in person remittance and specific

non-business interests. American Taxation Structure has an economic fairness while imposing

taxes while equalising them with other classes to prevent any economic discrimination. The US

Supreme Court had upheld the constitutionality of imposition of tax on non-resident citizens in

the case of Cook v. Tait. The net income tax is determined at federal, state and local levels but

there is a high level of economic and social difference between the Indian and American

Standard of Living and their Sustenance of economy during any slowdown or economic dip in

the National Income. The Supreme Court of India had upheld the linking of Aadhar Number to

Permanent Account Number in the Puttaswamy Case on the satisfaction of Section 139AA of the

Income Tax Act,1961 because it was in the legitimate interest of the state and there was an

existence of a law. It also rebutted the contentions raised under Article 14 and 19 of the Binoy

Viswam v. Union of India case. Reverse Charge Mechanism is applicable to Legal Services by

Advocates/Firms under Goods and Services Tax under Section 23(2) read with Section 22(2) of

the CGST Act. The Supreme Court held that till the final hearing of the case, there will no GST

registration for lawyers and law firms for any legal service and issued a notice in the Centre’s

Transfer Petitions and stayed the proceedings in both the high courts of Delhi and Chhattisgarh.

The Division Bench of the Delhi Court held that Service Tax on Senior Advocates on Forward

Basis is invalidated under the provisions of the Finance Act, 1994. A division bench of the Delhi

High Court, in the case of Veena Singh v. Department of Income Tax, held that ‘Undisclosed

Money’ deposited in a third party's Bank Account can be subject to search and seizure under the

Income Tax Act, 1961 even without a notice. In the case of Cheek v. United States, the US

Supreme Court reversed the conviction of a person for wilful failure to file tax returns and tax

evasion. The court held that an actual good-faith belief that one is not violating the tax law,

based on a misunderstanding caused by the complexity of the tax law, negates wildfulness, even

if that belief is irrational or unreasonable. The legal difference between the US Taxation

Structure and its judicial pronouncements show the statutory importance for the people and the

Indian Taxation legal framework lacks a lot of legal addition and reforms to be more people

inclusive and tax reforms can be made when Indian People are not reluctant to pay taxes but are

willing to pay taxes for their national and regional development which shapes their futuristic

course of life. American Payroll Taxes have a benefit for the American People when they

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:36

become old and also work as a social security made by them revolutionised by the federal state.

American legal framework may be far more developed than Indian Legal Framework but it's

more people friendly and punishes every individual stringently whoever violates the law.

Objectives

● It identifies the economic difference between the American Taxation System and Indian

Taxation System

● It observes the preventive steps taken by the state to prevent economic discrimination

● It discovers the legality of the taxation structure of both the countries with legal

precedents.

Review of Research Literature

The Research Paper focuses on the legal developments in the Taxation Structure of the American

and Indian System with inference to the Judicial Precedents, Taxing Statutes and Interpretation

of Tax under Article 366(28) and Interpretation of Income Tax under Article 366(29) and

Interpretation of Goods and Services Tax under Article 366(29A) could lead to conflict between

Article 19(1)(g) and Article 6 of the International Covenant on Economic, Social and Cultural

Rights. The Taxation Laws of the American Taxing Statutes consists of the Federal, State and

Local Governments.

The Research Paper also observes the economic discrimination in India due to arbitrary

classfication of taxpayers and low standard of living due to more payment of taxes to the Federal

Governement because of the enacted laws to formalise tax economy which caused decrease in

liquidity in the Market Economy. The Storage of Hoarded Black Money in Foreign Countries

economic institutions are a serious cause of economic concern because they evaded the taxing

accountability in India. The taxing provisions amended in the year 2017 have benefited the

corporates, business magnates the most which is against economic ethics.

The Research Paper also finds that the taxation system of the United States of America has eased

the process of taxation and reduced the burden of the payment of direct and indirect taxes at the

same time in India. It also discovers the financial discrepancies in India and the fugitive

economic offenders who have caused grave economic burden to India and indicates the escape of

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:37

taxing scrutiny in India by the Higher Class and this leads to more socio-economic

discrimination, poverty, unemployment, injustice and increase in tax levels and interest rates.

The Research Paper also discusses the level of taxation in India and compares it with the

systematic distribution of taxes in India as this indicates the failure of the Indian Taxing

Structure as it levies taxes on one class and gives exemption to another class which displays the

partiality and biased nature of the Indian Taxation System. Sometimes, the Indian State also fails

to scrutinize the proper assessment of every assessee as India is a populous country with 1.3

Billion People and some living without any proper common economic identity until the

attachment of Aadhaar with Pan which classifies the person’s number of bank accounts,

transactions, incoming credit balances and deposition of money with other person being

monitored by the Indian Tax Department.

The Research Paper discusses the Changing effect of More expenses on families would be less

buying power, which indicates a fall in resource utilization levels and consumption patterns, just

as gathering of social obligations as family members look for new growth of assets to help their

work. Then again, higher taxes influence the work of organizations, as they eat into the

organizations' benefits, fundamentally shrinking the net income that could be utilized in

extension of business or new ventures. Therefore, the entire economy will in general endure, as

purchase and consumption diminishes essentially.

Therefore, subsequently, there is a major requirement for state organizations answerable for

charging guidelines to start charging new reasonable changes and arrangements that would be

helpful to all the investing partners in the economy. Also, given that the citizens are legitimately

influenced by the expense framework set up, it is significant that the framework ought to be

evenhanded, accommodative, and reasonable for all partners to boost the power and functioning

of the economy.

The Research Paper identifies that monetary action mirrors a harmony between what individuals,

taxing organizations, and governments need to purchase to uphold the economic power and what

they need to sell to reduce the deficit. In the short run, request factors pose a potential threat

because there can’t be higher returns in a short time. Over the long haul, however, supply

assumes the essential job in deciding monetary potential as it protects the sanctity of the trade.

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:38

Our beneficial limit relies upon the size and abilities of the workforce as they run the industrial

work of the state; the sum and nature of machines, structures, vehicles, PCs, and other physical

capital that laborers use are necessary because these are fundamental elements of economic

functions; and the load of information and thoughts which calculate the final outcome.

The Research Paper observes the impacting motivating forces which change the monetary

mindset, assessments can influence both organic market factors as they determine the productive

value. Decreasing minimal expense rates on wages and pay rates are a cause of concern as they

could increase the tax burden and pose a serious economic threat, for instance, can provoke

individuals to work more. Extending the earned personal duty credit can bring all the more low-

talented specialists into the work power as it could promote work atmosphere and enthusiasm.

Lower negligible expense rates on the profits to resources, (for example, intrigue, profits, and

capital increases) can support sparing are a good economic sign for the future. Lessening

negligible expense rates on business pay can make a few organizations contribute locally instead

of abroad as it could create an anxiety of initial investment outcome. Tax reductions for

monetary research can energize the production of new thoughts that overflow to support the

more extensive economy etc.

Materials and Methods

The present paper was analysed through the non-doctrinal research methodology and descriptive

method of research was used. The present analysis was made through a random sampling method

where the survey was taken from the common public, professionals, etc. The sample size in the

present analysis is 33 samples, the independent variable in the analysis is educational

qualification and the dependent variables are reliable on the statement that whether they are

aware of the occurrence of social crimes and the groups provoking and promoting such illegal

actions. The research tools used in the present paper such as pie diagram, bar graph and case

summary were also used to analyse the study.

Analysis

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:39

Results :- Out of the 33 Respondents interviewed for this study, 53.3% Respondents agree that

Indian Taxation Structure Impose More Taxes on Working Class, Middle Class and

Professionals, 33.3% Respondents interviewed for this study disagree that Indian Taxation

Structure Impose More Taxes on Working Class, Middle Class and Professionals and 13.3%

Respondents interviewed for this study are neutral that Indian Taxation Structure Impose More

Taxes on Working Class, Middle Class and Professionals

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:40

Results:- Out of the 33 Respondents interviewed for this study, 16.0% Respondents agree that

Indian Taxation Structure Impose More Taxes on Working Class, Middle Class and

Professionals, 10.0% Respondents interviewed for this study disagree that Indian Taxation

Structure Impose More Taxes on Working Class, Middle Class and Professionals and 4.0%

Respondents interviewed for this study are neutral that Indian Taxation Structure Impose More

Taxes on Working Class, Middle Class and Professionals

Results:- Out of the 33 Respondents interviewed for this study, 50.0% Respondents agree that

Indian Taxation Regime deviate from the economic path of Progressive Taxation, 40.0%

Respondents interviewed for this study disagree that Indian Taxation Regime deviate from the

economic path of Progressive Taxation and 10.0% Respondents interviewed for this study are

neutral that Indian Taxation Regime deviate from the economic path of Progressive Taxation.

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:41

Results:- Out of the 33 Respondents interviewed for this study, 15.0% Respondents agree that

Indian Taxation Regime deviate from the economic path of Progressive Taxation, 12.0%

Respondents interviewed for this study disagree that Indian Taxation Regime deviate from the

economic path of Progressive Taxation and 3.0% Respondents interviewed for this study are

neutral that Indian Taxation Regime deviate from the economic path of Progressive Taxation.

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:42

Results:- Out of the 33 Respondents interviewed for this study, 55.9% Respondents agree that

American Taxation Regime is more Progressive and Intelligible than Indian Taxation System,

26.5% Respondents interviewed for this study disagree that American Taxation Regime is more

Progressive and Intelligible than Indian Taxation System and 17.6% Respondents interviewed

for this study are neutral that American Taxation Regime is more Progressive and Intelligible

than Indian Taxation System.

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:43

Results:- Out of the 33 Respondents interviewed for this study, 18.0% Respondents agree that

American Taxation Regime is more Progressive and Intelligible than Indian Taxation System,

9.0% Respondents interviewed for this study disagree that American Taxation Regime is more

Progressive and Intelligible than Indian Taxation System and 6.0% Respondents interviewed for

this study are neutral that American Taxation Regime is more Progressive and Intelligible than

Indian Taxation System.

Discussion

There has been a anxiety and fear of more economic problems after the leakage of NSSO Report

on Unemployment Data and Fall of Ranking in World Economic Forum and Fall in GDP in the

Fourth Quarter of 2019-2020 as it raised the monetary consciousness of the people because the

market was not in good stage until there was some economic relief from the Finance Ministry by

some press briefing by the Hon’ble Finance Minister of India and Reserve Bank of India

Notifications for example like slash in the corporate tax and other measures taken by the

Government of India and Finance Ministry and change in Income Tax Patterns in the Income

Tax and some respondents had reiterated that due to demonetisation there was no liquidity in the

market, other sectors like Gold, Real Estate were going low as when the black Money or Parallel

Economy is removed there is no alternative investment and the bringing of GST caused a big

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:44

change in the Tax Economy of the Country as it brought in more revenue for the Federal and

Provincial State Government but it was an harassment for the consumers as the price of the

goods and services rocketed sky high.

Suggestions ● Protection of Progressive Nature of the Tax Economy in the Indian Taxation Structure

● Further Study can be made with comparison and analysis with any other country’s

taxation system.

Conclusion

The taxation system of India needs new legal reforms to agree with the modern industrialized

and global economy because growth of the National Income of the Country should not reduce

and new economic problems shouldn’t arise due to increasing imposition of taxes on the people

to reduce the deficit. Tax Economy of the Country should have a sense of economic equality to

serve the monetary needs of the people and not increase unemployment, poverty, reduction in

human development index, malnutrition index. Taxes should be imposed where it is necessary

and it has a socio-economic necessity because taxes are meant to create development and work

on the socio-economic development of the country. Taxpayers Money shouldn’t be wasted on

Constructing a statue of 3000 Crores or use it for the purchase of arms and ammunition. It should

be spent on Education, Healthcare, Infrastructure and other basic amenities and public facilities

which work as a common property resource for the people which ultimately benefits the people

to serve their socio-economic needs. Therefore, I conclude that various tax reforms are required

in the economic justice of the people and to cater to the growth of the Economy.

Acknowledgments and credits

This work is completed through the Motivation and Inspiring Thoughts given by our Faculties,

Parents and the credit for this work goes to the persons who have contributed in the making of

this Research Paper and collection of Research Data.

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:45

References

1. (M. 2015)

2. (Nuggehalli 2020a)

3. (N., Ashok, and Divyashree 2018)

4. (Ahuja 2015)

5. (Jain 2015)

6. (A. K. Singh and Anand 2017)

7. (John, Yadav, and Sinha 2018)

8. (Ellis 1974)

9. (Nuggehalli 2020b)

10. (Devol 2005)

11. (Kantawala 2016)

12. (Nuggehalli 2019)

13. (R. Singh and Thawani 2017; “Historic Tax Reform Could Help Reshape Indian

Economy” 2016)

14. (Sinha 2018)

15. (Shokeen, Banwari, and Singh 2017)

16. (Bhasker et al. 2017)

17. (Agarwal 2017)

18. (Auerbach 2019)

19. (Jha 1990)

20. (Kavita Rao and Mukherjee 2019)

Agarwal, Anjali. 2017. Goods and Services Tax (GST): Impact on the Indian Economy.Ahuja, Neyati. 2015. “Influence of Double Taxation Avoidance Agreements on FDI: A

Critical Review.” VISION : Journal of Indian Taxation. https://doi.org/10.17492/vision.v2i1.6597.

Auerbach, Alan J. 2019. “Tax Equivalences and Their Implications.” Tax Policy and the

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:46

Economy. https://doi.org/10.1086/703229.Bhasker, G. Vijaya, G. Vijaya Bhasker, Telangana State Model School, Nidmanoor,

Nalgonda, Telangana, and India. 2017. “Research On an Impact of Goods and Service Tax GST on Indian Economy.” International Journal of Trend in Scientific Research and Development. https://doi.org/10.31142/ijtsrd5788.

Devol, Valerie R. 2005. “Taxation Update.” American Indian Law Review. https://doi.org/10.2307/20070763.

Ellis, Hal William. 1974. “Federal Taxation: Exclusion of Earnings on Allotted Indian Land from Federal Income Taxation.” American Indian Law Review. https://doi.org/10.2307/20067821.

“Historic Tax Reform Could Help Reshape Indian Economy.” 2016. Emerald Expert Briefings. https://doi.org/10.1108/oxan-es212817.

Jain, Sandeep. 2015. “Taxation of Agriculture Income in India: An Overview.” VISION : Journal of Indian Taxation. https://doi.org/10.17492/vision.v2i1.6598.

Jha, S. M. 1990. Taxation and the Indian Economy. Deep and Deep Publications.John, Rijo M., Amit Yadav, and Dhirendra N. Sinha. 2018. “Smokeless Tobacco Taxation:

Lessons from Southeast Asia.” The Indian Journal of Medical Research 148 (1): 46–55.Kantawala, Amita S. 2016. “Individual Taxation and Inflation.” The Indian Economic

Journal. https://doi.org/10.1177/0019466220160403.Kavita Rao, R., and Sacchidananda Mukherjee. 2019. Goods and Services Tax in India.

Cambridge University Press.M., Umesh. 2015. “Centre-State Financial Relations: The Federal Aspects of Indian

Taxation.” VISION : Journal of Indian Taxation. https://doi.org/10.17492/vision.v2i1.6596.

N., Abhishek, M. L. Ashok, and M. S. Divyashree. 2018. “Emerging Trend in Indian Direct Taxation: An Analysis of Income Computation and Disclosure Standards.” VISION : Journal of Indian Taxation. https://doi.org/10.17492/vision.v5i2.14389.

Nuggehalli, Nigam. 2019. International Taxation: The Indian Perspective. Springer.———. 2020a. “BEPS, The Principal Purpose Clause and Indian Taxation.” International

Taxation. https://doi.org/10.1007/978-81-322-3670-2_9.———. 2020b. “Overview of Indian Legislation Regarding International Taxation.”

International Taxation. https://doi.org/10.1007/978-81-322-3670-2_2.Shokeen, Seema, Vijeta Banwari, and Pooja Singh. 2017. “Impact of Goods and Services

Tax Bill on the Indian Economy.” Indian Journal of Finance. https://doi.org/10.17010/ijf/2017/v11i7/116568.

Singh, Amit Kumar, and Ashween Anand. 2017. “GST: Farewell to Multilevel Taxation.” VISION : Journal of Indian Taxation. https://doi.org/10.17492/vision.v3i1.7069.

Singh, Rupal, and Vijay Thawani. 2017. “Tax-Free Sanitary Napkins.” Indian Journal of Medical Ethics 2 (4): 301–2.

Sinha, Narain. 2018. “Tax Reforms, Fiscal Illusion and Moral Hazard: Some Econometric Evidence from Indian Economy.” VISION : Journal of Indian Taxation. https://doi.org/10.17492/vision.v5i2.14516.

Plagiarism Snapshot

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:47

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:48

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:49

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:50

Parishodh Journal

Volume IX, Issue IV, April/2020

ISSN NO:2347-6648

Page No:51