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What is Tax?
1. Tax is - a compulsory exaction of
money- for public purpose- by an authority of law
2. It is appropriated to the general expenses of the state
- without reference to a special benefit conferred on the payer.
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Associated Terms
First Set: Tax is expressed in different terms
- Additional Tax - Duty - Levy
- Cess - Toll - Octroi
- Surcharge - Fee
- Revenue - Fine
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Meaning & Appropriate use of these terms
• Duty is : A tax charged especially on transactions carried out by (i) business establishment; (ii) individual; and (iii) Institutions. Examples:
- Stamp duty
- Excise duty
- Customs duty
- Estate duty
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• Stamp duty: - Acknowledgement of receipts exceeding certain amount
- Transfer of Immovable properties
- Transfer of Shares
- Negotiable Instruments other than, Cheques, Drafts
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- Certain types of documents like
– Agreements
– Power of Attorney
– Proxy appointments
- Court related documents
- Affidavits
- Notary attestations
- and so on
require payment of stamp duty.
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• Excise Duty: is levied on
- certain specified goods.
- at the point of manufacture. [before they leave factory and come into market]
The (1) manufactured goods, (2) the tariff rate and (3) its basis of calculation – are included in the schedule annexed to the Act.
Such goods are called - Excise goods
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• Customs duty:
It is levied on the goods imported from other countries.
• Estate duty:
It is charged upon the principal value of all property - which passes on the death of a person
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• Levy: What has been levied - is Levy.
• Cess: Cess is also a kind of levy only.
There is no much difference in the meaning between these two terms except that - we use the same term which the legislatures used while imposing tax.
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• Natural resources are the property of everyone and they should be used carefully and rationally.
• They should be conserved for the use of future generations.
• Anybody exploiting natural resources for his personal gain or advantage, he must pay for it. - Hence, Cess is levied.
• Cess, levy or surcharge are imposed (i) under special circumstances (ii) for a specified period (iii) to raise certain amount (iv) for meeting a particular contingency – (v) which contingency was - not foreseen and - sufficient provision in the budget was not made, for that purpose.
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• Surcharge: - Charge on Charge is Surcharge. - surcharge is on the rate of charge only.
• Example: If the Original Charge is 10% and the Surcharge imposed now is 10%.Then on a Value of Rs.1,00,000/=
Charge is @ 10% = Rs 10,000Surcharge on charge
of Rs.10,000 is @10% = Rs. 1,000 So, total tax payable is = Rs. 11,000
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• Revenue: This expression is used in case of tax on land - Agricultural or - Non-agricultural
The usual expression is Land revenue.
• Toll: is imposed on - Passengers or
- Vehicles or
- on both
- when they pass a particular path or - enter a particular track or area.
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• Octroi: This is collected at the entry points of a particular local market or area - when goods enter such market or area.
• The difference between Customs duty and Octroi lies in that – Customs duty is imposed when foreign goods enter the territory of another sovereign state, whereas
– Octroi is collected on indigenous goods, when they enter a village, town or district limits or a market yard – though all places are within in the same sovereign territory.
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• The difference between Octroi and Toll lies in this
- Octroi & Toll are both entry taxes
• In general
- Octroi is levied on - Goods
- Toll is levied on - Vehicles and - Passengers
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• Fee: - It is collected as charges for services rendered. - The principle of consideration - quid pro quo operates in this case.
• Fine: It is imposed - as penalty
- on the defaulter
who fails to - pay tax or fee or duties - submit returns in time
- adhere to the rules of law of taxation
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Associated Terms• Second Set:
Taxes are classified and expressed mainly
in terms of
- Direct taxes
- Indirect taxes
We can have a better comprehension of these terms, by distinguishing each term from the other.
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Distinction • Direct Taxes
1. Taxes that are directly paid by the tax-payer to the exchequer - - such taxes are named as direct taxes
• Indirect Taxes
1. Taxes that are not directly paid to the exchequer, but the burden is indirectly borne by the people - - such taxes are named as indirect taxes
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• Direct Taxes
2. The burden of Direct taxes cannot be shifted to others
• Indirect Taxes
2. The burden of Indirect Taxes can
be shifted to others
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• Direct Taxes3. Scope- Income earned- Wealth
accumulated- Gift received- Estate inherited- Profession being
carriedare subject to direct
taxation
• Indirect Taxes3. Scope- Sale – purchase
transactions- Imports from
foreign states- Manufacture of
goods- Services rendered - Entertainment are subject to
indirect taxation
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• Direct Taxes
4. Imposed mainly on
- net income
- net assets
- profession being carried
• Indirect Taxes
4. Imposed mainly on
- transfer of property, other than money
- services
- work contracts
- imports
- manufacture or - such other activities or transactions
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• Direct Taxes
5. Collections: Revenue collected under Direct Taxes is lesser than that from indirect taxes – because a few privileged and well to do people are subject to this kind of tax
• Indirect Taxes
5. Collections:Revenue collected under Indirect Taxes is larger than that from Direct Taxes – for the reason, that almost every consumer is subject to this kind of tax.
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Associated Terms• Third Set:
- Tax Planning which may include
- Evasion or
- Avoidance or
- Saving
• Tax evasion is an offence, punishable with heavy or huge amounts of penalty and even it may lead to imprisonment
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• Fourth Set:
The two key words in law are
- Levy
- Collection.
Levy must indicate - rate of tax
- incidence of tax
Collection requires – Inspection – Assessment and
– Collection system
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Tax System in India• CONSTITUTION OF INDIA
• PART XII - FINANCE,
- PROPERTY
- CONTRACTS AND
- SUITS
• CHAPTER I – FINANCE
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CHAPTER I – FINANCE
• General ...Art.(264-267)
• Distribution of Revenues between the Union and the States ...Art.(268-281)
• Miscellaneous Financial Provisions ...Art.(282-291)
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• Article 265 of Constitution of India.
Taxes not to be imposed, save by authority of law:
- No tax shall be
- levied
or - collected
- Except by authority of law
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Consolidated Fund of India1. All
• revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means
• advances and all moneys received by that Government in repayment of loans
- shall form one consolidated fund to be entitled the Consolidated Fund of India.
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• 2. All other public moneys received by or on behalf of the Government of India
shall be credited to the public account of India.
• 3. No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with
- law and
- this Constitution.
Center-State Financial Relations
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Duties levied by the Union but collected and appropriated by the States. [Art – 268]
Taxes levied and collected by the Union but assigned to the States. [Art – 269]
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Taxes levied and collected by the Union and distributed between the Union and the States. [Art – 270]
Surcharge on certain duties and taxes for purposes of the Union. [Art – 271]
Taxes which are levied and collected by the Union and may be distributed between the Union and the States. [Art – 220]
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• Taxes on professions, trades, callings and employments. [Art – 276]
• Savings. [Art – 277]