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Direct Tax

Introduction, Various Definitions and Concepts.

.Meaning of Tax

A tax may be defined as " a compulsory extraction made by General Government from the general public. It is a financial charge imposed on individuals or legal entities by the Government in pursuant to its legislative authority. A tax is not a voluntary payment or donation, but an enforced contributation, exacted pursuant to legislative authority. The proceeds from taxes constitute a major source of revenue to government that spends the collected amount for the common benefits of the society. Over the years, a number of taxes have been imposed by various Governments covering different aspects such as income, wealth, sales, expenditure, services provided, production, import, export etc.

.Structure of Indian Taxation System.

Indian taxation system is one of the world 's largest taxation system in terms of its wide application on large number of people and other business entities. It is a well structured system derived from the Indian constitution. As we know that India has a federal system of Government with clear demarcation of power between the Central Government and the State Government. Like political set up of governance, the tax administration is also based on clear demarcation between Central Government and state Government at first instance and then between State Government and Local Bodies . According to the Constitution of India, the Government has the right to levy taxes on individuals and other artificial bodies / organisations (whether juridic or not).

.CONSTITUTIONAL PROVISION GOVERNING TAXATION IN INDIA.

Article 246 ( Seventh Schedule) of the Indian Constitution contains the legislative powers ( including taxation) of the Union Government and the State Governments. It contains the following 3 lists covering the various subjects :

.List-1- Central List. It contains the areas in respect of which only the parliament i.e.,Central Government can make laws ( including taxation laws)

.List -2-State List. It contains the areas in respect of which only the State Legislature can make laws ( including taxation laws)

.List-3- Concurrent List. It contains the areas in respect of which both the Parliament and the State Legislature can make laws concurrently. It is important to note that this list does not specify any law relating to taxation. In other words, there is no head of taxation under the concurrent list and hence Union and the State have no concurrent power of taxation.

.SEVENTH SCHEDULE ( Article 246 )

.List-1-Union / Central List ( 14 Heads of Taxation)

1. Taxes on income other than agricultural income : [ Entry 82 ] [ Income Tax Act 1961 ]

2. Duties of customs including export duties : [ Entry 83 ] [ Customs Act 1962 ]

3. Duties of excise on tobacco and other goods manufactured or produced in India except (1) alcoholic liquor for human consumption, and (2) opium, Indian hemp and other narcotic drugs and narcotics, but including medical and toilet preparations containing alcohol or any substance included in (2) : [ Entry 84 ] [ Central Excise Act 1944 ]

4. Corporation Tax : [ Entry 85 ]

5. Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies : [ Entry 86 ]

6. Estate duty in respect of property other than agricultural land : [ Entry 87 ]

7. Duties in respect of succession to property other than agricultural land : [ Entry 88 ]

8. Terminal taxes on goods or passengers, carried by railway, sea or air , taxes on railway fares and freight : [ Entry 89 ]

9. Taxes other than stamp duties on transactions in stock exchanges and futures markets: [ Entry 90 ]

10. Rate of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of landing, letter of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. [ Entry 91 ]

11. Taxes on the sale or purchase of newspapers and on advertisements published therein: [ Entry 92]

12. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce : [ Entry 92 A ] [ Central Sales Tax Act 1957 ]

13. Taxes on the consignment of goods in the course of inter-State trade or Commerce. [ Entry 92 B ] for e.g. Service Tax.

14. All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian Constitution : [ Entry 92 C ] for e.g. Service Tax.

Note : The Department of Revenue under the Government of India's Finance Ministry is solely responsible for levy and collection of above union taxes.

.List-2-( State List) ( 19 Heads of Taxation)

The nineteen heads List -2 of Seventh Schedule of the Indian Constitution covered under State taxation, on which State Legislative enacts the taxation law, are as under:

1. 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.

2. Taxes on agricultural income : [ Entry 46 ]

3. Duties in respect of succession to agricultural income:[ Entry 47 ]

4. Estate Duty in respect of agricultural land : [ Entry 48 ]

5. Taxes on lands and buildings :[ Entry 49 ]

6. Taxes on mineral rights : [ Entry 50 ]

7. Duties of excise for following goods manufactured or produced within the state (1) alcoholic liquors for human consumption, and (2) opium, Indian hemp and other narcotic drugs and narcotics : [ Entry 51 ]

8. Taxes on entry of goods into a local area for consumption, use or sale therein : [ Entry 52 ]

9. Taxes on the consumption or sale of electricity : [ Entry 53 ]

10 Taxes on the sale or purchase of goods other than newspapers : [ Entry 54 ]

11. Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television : [ Entry 55 ]

12. Taxes on goods and passengers carried by roads or in land waterways : [ Entry 56 ]

13. Taxes on vehicles suitable for use on roads : [ Entry 57 ]

14. Taxes on animals and boats : [ Entry 58 ]

15. Tolls : [ Entry 59 ]

16. Taxes on profession, trades, callings and employments : [ Entry 60 ]

17. Capitation taxes : [ Entry 61 ]

18. Taxes on luxuries, including taxes on entertainments amusements, betting and gambling : [ Entry 62 ]

19. Stamp duty in respect of documents other than those specified in the provisions of List 1.

.List-3 ( Concurrent List)

No Head of Taxation

. Taxes to be imposed only by Authority of Law [ Article 265 ] .

Article 265 of the Indian Constitution states that no tax shall be levied or collected in India except by the authority of law as sanctioned by the Constitution. Thus, every tax to be charged in India has to be backed by the law passed by the Parliament or State Legislature and any tax charged without the constitutional authority shall be void .

INCOME TAX -A FAMOUS FORM OF TAX.

Income tax is an important type of tax which is found practically in all most all the countries of the world. It is a tax an income, gains or profits earned by a person such as individuals and other artificial entities.

. Features of Income tax in India.

1. Levied as per the constitution. Income tax is levied in India by virtue of entry 82 of List 1 of Seventh Schedule to the Article 246 of the Constitution of India which authorises the central Government to ' impose tax on income other than agricultural income '.

2. Levied by Central Government. Income tax is charged by the Central Government on all income other than agricultural income. However, the power to charge income tax on agricultural income has been vested with the State Government.

3. Direct Tax. Income tax is a direct tax . It is so because the liability to deposit and ultimate burden are on same person. The person earning income is liable to pay income tax out of his own pocket and cannot pass on the burden of tax so paid on the persons from whom the income has been earned.

4. Annual Tax. Income tax is an annual tax because it is the income of a particular year which is chargeable to tax.

5.Tax on Person. It is a tax on income earned by a person. The term 'person' has been defined under the Income tax Act. It includes individual, HUF, Firm, Company, local authority, Association of person or body of Individual or any other artificial juridical persons. The persons who are covered under Income tax Act are called ' assessees '

6.Tax on Income. It is a tax on income. The income tax Act has defined the term income and it includes salary income, house property income, business /profession income, capital gains and other sources income. However, there are certain incomes which are specifically exempt from income tax.

7. Income of ' Previous Year' is assessable in ' Assessment Year'. Income earned during a particular financial year is assessed to tax in the immediately following financial year. The year of earning income is called 'Previous Year' and the year in which assessment of income is done is called ' Assessment Year ' . The return of previous year's income is filed in the relevant assessment year.

8. Charged at prescribed rate (s). Income tax is charged at prescribed rate (s). The rates of income tax differ for different incomes and for different persons.

9.Administered by the Central Government. Income tax is administered by the Central Government ( Ministry of Finance) with the help of ' Income tax department ' with branches throughout the country. The Central Government has constituted the ' Central Board of Direct Taxes ' ( CBDT) which exercises overall control over the Income tax department by issuing guidelines for various related matters.