DIRECT TAX

IN INDIA

G.PRIYA
M.Com ( I year )
 DIRECT TAXES LEVIED BY
CENTRAL GOVERNMENT

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 INCOME TAX

 Introduced by Sir. James Wilson

 Income tax Act was passed in1886, which was amended in

1922, 1939, and1947.

 Income tax in India is levied and collected on the basis of

finance Act passed every year under central budget and the
Income tax act1961, aided by the income tax rules,1962.

 Payable by individuals, HUF, AOP, BOI, AJP, co-operative

societies, partnership firms, companies etc.

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 CORPORATION TAX

 Income tax paid by limited companies is called corporation

tax.

 It is levied on the profit made by companies as per the rates

given in the finance act passed by parliament annually.

 All profit companies are required to make advance payment

annually.

 Corporation tax forms the major chunk of income tax in

India.

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 DIVIDEND TAX

 Limited companies in India are required to pay

dividend tax at10%on the dividend paid by them to
their shareholders.

 This tax is in addition to the corporation income tax.

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 CAPITAL GAIN TAX

 Capital gain tax was introduced in 1947 by finance

minister Liquat Ali Khan.

 It was abolished in1950 and reintroduced again

in1956.

 This tax is applicable to individual as well as

companies.

 It is payable on gain realised from capital assets.

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 WEALTH TAX

 It was introduced by Prof.Kaldor in1957.

 Wealth tax is imposed on the wealth or assets held by

individuals.

 It is levied every year on the total value of a person‟s

property or wealth or capital.

 It is payable at 1%on the net wealth exceeding

rupees15 lakhs.
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 GIFT TAX

 It was introduced in 1956.

 With effect from 1November 1998 gift tax was

abolished due to its low yield to the union government.

 To complement estate duty and also to prevent large

scale avoidance of estate duty.

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 ESTATE DUTY OR INHERITANCE TAX OR
DEATH DUTY

 Estate duty was introduced in India from October1953.

 Death taxes assume two major forms.

 One is called Estate Duty which is levied upon the entire

estate left by a decreased person.

 The other form is Inheritance tax which is levied on the

separate shares of the estate transferred to the beneficiaries.

 It was abolished from 16th march 1985.

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 DIRECT TAXES AT STATE LEVEL

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 LAND REVENUE

 Land Revenue was the most important source of

revenue to the government.

 Land Revenue is purported to be the state‟s share in the

output from land.

 Land Revenue is abolished in some states and others

the rate varies from state to state.

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 AGRICULTURAL INCOME TAX

 Agricultural Income Tax is defined as a tax on income

earned from Agriculture or other related activities.

 Indian constitution specifically provide for levy of

Agricultural Income Tax by the state government

 No, state government has actually passed legislation to

tax Agricultural Incomes.

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 PROFESSIONAL TAX

 This is a tax on Professionals, payable annually.

 State government fixes a specified amount to be paid

by each category of Professionals.

 It may be paid in two instalments.

 In case of Professionals working as salaried

employees, the employer deducts the amount of tax in
two instalments from the salary of the employees.
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 DIRECT TAXES AT LOCAL GOVERNMENT
LEVEL

 Local governments like municipalities, corporations,

panchayats levy some direct taxes like house property
tax.

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 EQUITY

 Direct taxes based on the principle of “ability of the

tax payer to pay”.

 They are comparatively just and equitable because

people with large income usually have to pay more
direct taxes than those with lower incomes.

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 ECONOMY

 Direct taxes are mostly progressive, the tax revenue

rises without any corresponding addition to cost of
collection.

 The administrative cost of collecting direct taxes is

low because the same tax officials who assess small
income or properties can assess large income and
properties.

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 CERTAINTY

 There is an element of certainty in the case of direct

taxes.

 The tax payer knows the amount of tax to be paid and

the time of payment.

 The government is also fairly certain how much it can

receive as tax

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 CONVENIENCE

 Most of direct tax are collected at the source itself, it is

convenient for tax payer s to pay.

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 ELASTICTY AND PRODUCTIVITY

 Increase of rates of tax can bring in more revenue .

 Tax also will be more when incomes of tax payers

increase .

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 LESS POSSIBILITY OF LEAKAGE

 The possibility of leakage in the amount collected as

direct taxes is rare.

 The whole amount collected reaches the state treasury.

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 REDUCTION IN INEQUALITIES

 Direct taxes affect the rich and take away a significant

portion of their income and wealth.

 Such collection can be used to rise the income levels of

poor citizens.

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 CIVIC CONSCIOUSNESS

 Direct taxes arise civic consciousness and they

educative value .

 Tax payers who pay direct tax naturally take interest in

the usage of funds by the government.

 Such interest in the methods of public expenditure can

lead to protests if the public funds are misused or
misappropriated.

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 TRACING EFFECT OF DIRECT TAXES

 It is possible to trace the effect of direct taxes easily.

 If necessary, the adverse effect can be minimized.

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 DEMERITS OF DIRECT TAXES

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 UNPOPULAR

 Direct taxes are generally not shifted and are paid in

lumpsum for the whole year.

 As a result, they are painful to the tax payers.

 Hence they are unpopular and resisted.

 They are opposed sometimes with political

disturbances.

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 POSSIBILITY OF EVASION

 “A direct tax is a tax on honesty”.

 It is not evaded only when the tax payer is honest.

 It can be evaded through fraudulent practices.

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 INCONVENIENCE

 Tax payers have to submit statement of income along

with sources of income, thus revealing their private
affairs.

 Moreover, payment of lumpsum amount at a time may

also be inconvenient.

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 ARBITRARINESS

 Tax rates are generally arbitrary because there are no

scientific principle to determine them.

 Whims and fancies of tax authorities may cause

overestimation or underestimation of taxable capacity
of the people.

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 COMPLEXITY

 Direct tax laws are usually complex with a lot of

exemptions, procedures and provisions which are not
understandable by common citizens.

 Producing necessary „returns‟ and preparing required

accounts may necessitate assistance of professional
accountants or auditors.

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 POSSIBILITIES OF INJUSTICE

 It is difficult to assess the income of all classes

accurately.

 So ,direct taxes may not fall with equal weight on all

classes.

 Injustice may be done to different sections of citizens,

leading to protests.

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 UNSUITABLE TO UNDER DEVELOPED
COUNTRIES

 Rich people are in an insignificant minority compared

to mass of poor in under developed countries.

 So, revenue collection from direct taxes may not be

productive and economical.

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