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Constitutional Framework...
Taxes levied by Central Government and State Government(s)
Authority to levy a tax is derived from the Constitution of India
Which allocates power to levy various taxes between the Centre and
State
Article 265 of the Constitution which states that "No tax shall be
levied or collected except by the authority of law
Article 246 of the Indian Constitution, distributes legislative powers
including taxation, between the Parliament of India and the State
Legislature
Schedule VII enumerates use of three lists;
List - I Where the parliament is competent to make laws
List - II Where only the state legislature can make laws
List - III Where both the Parliament and the State Legislature can
make laws upon concurrently
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...Constitutional Framework
Union List
Income Tax
State List
Taxes on lands and
Custom Duty
Excise Duty
Corporation Tax
Service tax
Central Sales Tax
Stamp duty in respect of
bills of exchange,
cheques, promissory
notes, etc
buildings
Excise duty on alcoholic
liquor etc
Entry tax
Sales Tax
Tolls
Luxury Tax
Stamp duty in respect of
documents other than
those specified in the
provisions of List I
Concurrent List
Stamp duties other than
The constant blurring of taxing jurisdiction between the Centre and the States has
necessitated multiple Constitutional challenges
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Parliament
Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for
human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal
and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84)
Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of
companies (List I, Entry 86)
Estate duty in respect of property other than agricultural land (List I, Entry 87)
Duties in respect of succession to property other than agricultural land (List I, Entry 88)
Terminal taxes on goods or passengers, carried by railway , sea or air; taxes on railway fares and freight (List I,
Entry 89)
Taxes other than stamp duties on transactions in stock exchanges and futures markets (List I, Entry 90)
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Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92)
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Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course
of inter-State trade or commerce (List I, Entry 92A)
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Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A)
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All residuary types of taxes not listed in any of the three lists (List I, Entry 97)
State Legislature
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 (List II, Entry 45)
Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii)
opium, Indian hemp and other narcotic drugs and narcotics (List II, Entry 51)
Taxes on entry of goods into a local area for consumption, use or sale therein (List II, Entry 52)
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Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54)
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Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II,
Entry 55)
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Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56)
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Taxes on vehicles suitable for use on roads (List II, Entry 57)
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Taxes on profession, trades, callings and employments (List II, Entry 60)
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Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (List II, Entry 62)
Stamp duties like those on financial documents and excise or medicinal or toilet
preparations as mentioned in the Union list are to be levied by the Government of
India but are to be collected by the States (Article 268).
Central Sales Tax is levied and collected by the Government of India but is assigned
to the States (Article 269).
All taxes and duties referred to in the Union list, except those referred to in Articles
268 and 269, surcharge on taxes and duties, for the purposes of the Union and any
cess levied by the Parliament for specific purposes are to be collected by the
Government of India and are to be distributed between the Union and the States
in the manner prescribed by the President by order until a Finance Commission
has been constituted and after its constitution, as prescribed by the President by
order after considering the recommendations of the Finance Commission.
As per recommendations of the Thirteenth Finance Commission duly accepted by
the Government, in the overall scheme of transfer of funds, 39.5% of the gross
revenue receipts is the ceiling for such transfer of funds to the States.
The share of states in the net proceeds of shareable central taxes has been raised
from 30.5 per cent to 32 per cent.
Review Questions
1. Which of the following does not fall under the State List as stipulated in the
Article 246 read with Schedule VII of the Constitution of India
(a) Excise on alcoholic liquors and narcotics
(b) Taxes on consumption and sale of electricity
(c) Taxes on advertisements in newspapers
(d) Taxes on advertisements other than those contained in newspapers.
2. What percentage of the net proceeds of shareable central taxes are
transferred to the States as per recommendations of the Thirteenth
Finance Commission
a) 39.5%
b) 30%
c) 30.5%
d) 32%.
Review Question
1. Powers given to Parliament by Entry No.97 of
List I of Seventh Schedule to the Constitution
of India are called_____________.
Review Questions
Which schedule to the Constitution of India indicates bifurcation of powers
to make laws, between Union government and State governments
(a) First Schedule
(b) Seventh Schedule
(c) Eighth Schedule
(d) Twelfth Schedule.
(ii) Which article of the Constitution of India provides that no tax shall be
levied or collected except by authority of law
(a) Article 265
(b) Article 268
(c) Article 269
(d) Article 274.
Review Question
(i) What is the source of power of levying VAT under the
Constitution of India (a) Entry 84 of List I
(b) Entry 97 of List I
(c) Entry 52 of List II
(d) Entry 54 of List II.
(ii) What is the source of power of levying Service Tax under the
Constitution of India
(a) Entry 92C of List I
(b) Entry 97 of List I
(c) Entry 54 of List II
(d) Entry 59 of List II.
Review question
CONCEPT OF INCOME
Inclusive definition and not exhaustive u/s 2(28).
Certain important principles relating to income
are:
A periodic monetary return which accrues or is
expected to accrue regularly from definite sources.
Exceptions are income from lottery, horse racing etc.
Income normally refers to revenue receipts. Exception
is capital gains tax.
Income means net receipts and not gross receipts.
Income is taxable on due or receipt basis.
Income earned in the previous year is assessed to tax
in the assessment year.
Cash or kind
Legal or illegal source
Temporary/Permanent
Lumpsum/instalments
Gifts
Revenue or Capital receipt
PERSON,SEC 2(31)
The term person as per Income Tax law is defined to include: 1)
An Individual. e.g. Mr. A or Mr. B.
2)
A Hindu Undivided Family. e.g. Mr. A (HUF) or Mr. B (HUF).
3)
A Company. e.g. XYZ Pvt. Ltd. Or ABC Ltd.
4)
A Partnership firm. e.g. M/s ABC or M/s XYZ and Co.
5)
An Association of persons or a body of Individuals, whether incorporated or
not. e.g. ABC Sangh or XYZ Dal.
6)
A Local Authority. e.g. Pune Municipal Corporation or PCMC Municipal
Corporation.
7)
Every Artificial Juridical persons not falling within any of the above
categories. (Residual Category).
ASSESSEE,SEC 2(7)
It is defined broadly to include the following:
In Simple terms any Person whose income is
assessable under the tax law is called an Assessee.
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ASSESSMENT YEAR,SEC.2(9)
Assessment year in simple terms means the financial year immediately succeeding
the previous year. In other words it is the year in which one is assessed for his/ her
income. Below mentioned example will help you gain more clarity on these
terms:
Mr. B, a salaried individual earned an income of Rs. 3, 50,000/- in the previous year
starting from 1st April 2013 to 31st March 2014 (i.e. 2013-14). Now he has to pay
tax on income earned, at applicable rates for assessment year starting from 1st
April 2014 to 31st March 2015.
PLEASE NOTE:
Previous year and Assessment year will always be starting from 1st April and
ending on 31st March, In no case it can be followed as a Calendar year i.e. 1st
January to 31st December.
At present the assessment year 2015-2016 is going on.
Tax Rate
NIL
ii.
iii.
i.
iv.
Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1
crore. (Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax and Surcharge.
Tax Rate
Where the total income does not exceed Rs. 3,00,000/-. NIL
ii.
iii.
iv.
Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1
crore. (Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax and Surcharge.
Tax Rate
i.
NIL
ii.
Where the total income exceeds Rs. 5,00,000/but does not exceed Rs. 10,00,000/-
iii.
Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1
crore. (Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax and Surcharge.
Review Question
Mr. X has a total income of Rs. 12,00,000. Compute his gross tax liability.
Tax Liability = Rs. 1,25,000+ 30% of Rs. 2,00,000 = 1,85,000..
Alternatively:
Tax Liability:
First Rs. 2,50,000
- Nil
Next Rs. 2,50,000- Rs. 5,00,000 - @ 10% of Rs. 2,50,000= Rs. 25,000
Next Rs. 5,00,000- Rs. 10,00,000 -@ 20% of Rs. 5,00,000= Rs. 1,00,000
Balance i.e Rs. 2,00,000
-@ 30% of Rs. 2,00,000= Rs. 60,000
Tax
Rs. 1,85,000
Education cess @ 3%
Rs.
5,550
Total tax
Rs. 1,90,550
It is to be noted that for a senior citizen (being a resident individual who is of
the age of 60 years but not more than 80 years at any time during the previous
year), the basic exemption limit is Rs. 3,00,000. Further resident individuals at
the age of 80 years or more at any time during the previous year, being very
senior citizens, would be eligible for a higher basic exemption limit of Rs.
5,00,000.
Review Question
Surcharge of 10% is payable by an individual where the total
income exceeds :
(a) Rs.7,50,000
(b) Rs.100,00,000
(c) Rs.10,00,000
(d) None of these
(ii) Additional surcharge (Education cess) of 2% is payable on
(a) Income-tax
(b) Income-tax plus surcharge, if any
(c) Surcharge
(d) Not payable by any assessee