Law of Taxation in India

Introduction

The taxation of law in India is not a new topic. It was a very early rise at the time of Ancient India and the king was used to taking some valuable things from the general public in the amount of taxation. Like in Mughal period the Mughal rulers will take tax from non Muslims called Jazia and Muslims give the tax in the way of Sadqah. 

Basically it is a system which is the backbone of any Nation's economy to keep their funds manage and consistently grow their country in many fields. We all need money to work in the country like for the infrastructure, schools, hospitals, airports, railway etc all the things are managed by money and taxation is the main source of money. 

In India there are three tier structures under which the Indian government collects the taxes.

• Union Government 
• State Government and 
• Local bodies

These are empowered to collect different taxes and duties in their jurisdiction. 

Under the seventh schedule of the Indian Constitution union and the state both have the power to levy taxes. So today in this article we will talk about what is taxation and we will also see what are the different types of taxation in India.

Definition of Taxation

Tax can be defined as a monetary burden upon the individual and general public to the government in the consideration of the facilities which they provide to their citizens. It is the government’s revenue which is a mandatory contribution by an individual who does not fall under the category of poverty in order to participate in the growth of the nation.

It can be levied by the centre and state government by their legislative authority and can be divided into two types direct tax and indirect tax. The state could also manage their GDP growth with an effective tax system in the country. 

Government of any state uses this revenue in the following fields which are given below:

• To build infrastructure of the country like flyovers, roads, highways, bridges, metro etc.

• A larger part of the revenue is spent on the country's security such as military equipment or we can say on the defence system.

• This money is used in order to maintain law and order  in the country.

• Many social welfare projects are done by this revenue like healthcare and education system.

• Benefits schemes provided by the government are also managed by this revenue.

Indian Taxation System

The Indian Taxation system is divided in the three categories which is defined below:

1. Union list:  

The first and the most important authority to impose the tax on individuals.  under the List 1 of the 7th schedule of the Indian Constitution which contains the matter related to the central government. Under this list the only central government has the power to make laws.

2. State list: 

Under the state list the power to make laws on the matter of list second is lies on the state. State government has authority to make laws under this list.

3. Concurrent list: 

Third list was concurrent list which consisted of the matters on which the centre and state both can make the laws.

If law is made under concurrent list by both a Union and the state and if a conflict arises between both. Then the law made by the union will always prevail. But if the Centre makes law under the state list this will not bind the state and becomes void. However, under some special circumstances the union government can make laws under the state list.

Types of Taxation in India

Let's discuss the types of taxes in India. So basically there are two types of taxes - 

• Direct Tax and 
• Indirect Tax

One of the successful tax reforms in India came in 2019 which was known as a GST (goods and service tax). It was able to collect a huge amount of indirect taxes in India which helps the government to manage their funds and increase their revenue.

Direct Tax

It is a kind of tax which is imposed on the corporate units and individuals. Any person who does not fall under the poverty or below poverty Line are entitled to pay the taxes on their income. It is a type of tax in which the burden of tax remains with the individual; it cannot be transferred like indirect taxes. 

Some examples of direct tax are income tax, gift tax, wealth tax and many more. The ministry of finance and the Central Board of Direct Tax (CBDT) is an authority which provides ideas, policies, and planning regarding direct tax in India. However the management of the direct taxes is done by the Income Tax Department which is held by the Central Board of Direct Taxes.

Indirect Tax

As the name implies this type of taxes are indirectly imposed on the public through goods and services. Whenever you purchase any goods and take any service the tax imposed is called indirect tax. 

In indirect tax the tax payer can transfer the burden of tax to the consumer or purchaser and the government which collects the taxes from the people who sell goods and services. When a goods sell in a state then the sales tax is levied on it. The rates are decided by the government; this is also known as value added tax (VAT).