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Some Insight on Indian taxation rules:
The basis of the Indian tax structure is laid down in the constitution of India. According to article 265 of the constitution, a tax can be levied by the authority of the law. For this reason, an appropriate state or union law has to be passed before any relevant tax can be collected.
The framework of the Indian taxation rules was created on the basis of article 246 and the famous Income Tax Act of 1961. Since 2005, these rules have been simplified to a large extent and the tax structure has become easier to comprehend. This has increased collection and the transparency of the entire system.
The basic taxation structure is as follows:
- Since the country follows a quasi-federal structure of governance, certain powers are exclusively in the hands of the central government as defined by the union list. The state list defines the subject which is under the control of the state. If any tax is to be imposed or modified on the subjects on union list, the central government has to pass a law. Same is required of the state government for state list. No taxes are imposed on the items of concurrent list which is jointly administered by the center and the state.
- Union government can impose thirteen different taxes at present. These include income tax, excise and custom duties, corporation tax, estate duty, stamp duties, terminal tax etc.
- State government has the authority to impose nineteen different taxes including land revenue, tax on agriculture, tolls, taxes on consumption and sale of electricity, capitation tax, stamp duty etc.
- One of the important organizations in the Indian tax structure is the Central Board of Direct Taxes.
It is a statutory body constituted under the Department of Revenue, Ministry of Finance in 1924. It administers the direct taxes in the country. In 1964, the Central Board of Excise and Customs was separated from this body.
- The direct taxes in India include the income tax, capital gains tax, fringe benefit tax, securities transaction tax etc while the indirect taxes include excise and custom duties and service tax.
- The Income Tax Act of 1961 is the milestone law in the Indian taxation system. It levies income tax on incomes accrued through either of five different channels like income from salaries, business, houses or property, capital gains and from other sources. The rate is decided by the parliament in the annual budget.
- There are special provisions for taxation of NRIs and foreign companies in India. In general, taxes are charged only on income earned in India alone.
Major reforms in the tax structure after 1991.
1991 marked the era of liberalization and its effects were also felt on the tax structure of the country. Some major changes are:
- The Tax Reform Committee created a system where rate of income tax varied according to different income groups. Annual earnings below Rs. 50,000 were exempted. This exemption limit has now been raised to Rs. 2, 00,000.
- The agricultural income of non farmers above Rs. 25,000 was made tax liable at par with income tax.
- Corporate income tax was drastically reduced in order to woo foreign investment.
- A few new taxes were introduced. For example, in 1994, union service tax was imposed on telephone, general insurance and stock brokerage.
- Since 1999, uniform rate of sales tax was adopted in the entire country, though it is a matter of state jurisdiction. It was gradually phased out in favor of value added tax which was uniformly implemented by all the states since December 2005.
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