3pains T e r e n c e between

Tax and other Paymentts

Payments
Tax any service
Tax is compulsory to government without getting Eee is the payment ror gettin8
any direct benefits
or a
fee 1 a paynent specific
F the element of revenue for general purpose of the While a
nefit
to the primary
6state predominates,the levy becomes atax privilege although the special
in public interest.
of regulation
Tax is a compulsory payment Fee is a voluntary payment.
x 1S imposed on a person, he has to pav it: On the other hand fee is not paid it the person do
onot
otherwise he has to be penalised want to get the service
case, tax payer does direct Fee payer can fe
get direct Denent ror payingfee,
is not expect any

benefit Examples: stamp fee, driving license fee, governmo

registration fee
xample: ncome tax, gift box, wealth tax, VAT etc.
SUMMARY
Direct lax is a tax paid directly to the Union government or to state or localgovernments, such
asincome tax and property tax.
ncome lax is a tax paid by individuals and businesses based on earned and unearned income
Local Tax is a tax charged by a local government, such as a city or country.

A-7 GLOSSARY
Levied To impose taxes u (l8iuLL)
Fluctuation To change SDD Bpéaib
Defray Meet the expenses 6&6060 FbBLL
Proponents Person who advocates theory
616T6TG6 6DmGainyi
Progressive Tax Happening or developing gradually or in stages
Taking a proportionally greater amount from those
Regressive Tax
on lowerincomes.
(of a variable quantity) having a constant ratio to0
Proportionate Tax
another quantity
Evasionn The action of evading something TULL

2. In India, taxes are including

EXERCISE a) Direct taxes
b) Indirect taxes.
I Choose the correct
VBoth (a) and (b))
answer
H28QP d) None of these
1. The three levels of 3. Which is the role of government aand

governments in India are

aUnion, state and local

development policies?
a) Defence
b) Central, state and village b) Foreign policy
c)Union, municipality and panchayat
cRegulate the economy
d) None of the above
tall of above
Government and Taxes 326
 T h e most common and important tax india.
(iv) It will unified the tax structure in
an individual in India is
levied on a) i) and (ii) are correct
a) Service tax b) Excise duty.
d) Central sales tax
b) (i), (ii) and (iv) are correct
Income tax ( i ) , (ii) and (iv) are correct
Tnder which tax one nation, one uniform
5. d) All are correct
tax is ensured
IV Match the following
a) Value
added tax (VAT) 3
1. Income Tax Value added tax
b) Income tax

and service tax 2 Excise duty July 2017 4

1
Goods Smuggling 5
3. VAT
d) Sales tax
4. GST Direct tax
in india for Indirect tax 2
6. Income tax was introduced 5. Black money
the first time in the year
Give Short Answers
.

V
1870 c) 1880 d) 1850 322-
1860 b) 1. Define tax. P 323
7.
tax is charged on the benefits
2. Why we paytax to the government? G
Give examples. 323,3
derived from property ownership. 3. What are the types of tax?
Service Tax. 324
a) Income tax Wealth tax 4. Write short note on Goods and
tax? Pg 324
5. What is progressive
c) Corporate tax d) Excise duty black money?
6. What is meant by
of black
8. What are identified as causes
7. What is tax
evasion? Pe 32> anda
between tax
two differeHce
money? 8. write any

b) High tax rate payments? Pg 3246

a) Shortage of goods
c)Smuggling
dAll of above VI Brief Answer Page 324
direct and indirect
taxs.323,
1. Explain s o m e
II Fill in the blanks
Write the
s t r u c t u r e of
GST. Pg 24
the 2.
Write the
of
by government for
causes

ax is levied 3. What is black money?

1.
the state's economy. black money.
development of
from the word
the word 'tax' is and Projects
2. The origin of VII Activity
taxes
t a x a r ON
information about the local
Collect

The burden of the n et tax cannot 1.

(water, electricity
and house tax etc).
on the shop.
3 be shifted to
others.
into 2. Students purchase
s o m e goods
those
Service Tax
act came
students discuss
The Goods and The teacher and
4. 2ot7 m a x i m u m retail price,
purchasing
effect o n
Juy. concealed
goods,
that is price or GST.
unaccounted money
5 The is called

the tax,
administrator
REFERENCE BOOKS
from
Blacie oney E

in
of Taxation
statement Aklani, Role
correct 1. Gaurav
Choose the
III in India.
statement is Developing Country
Which of the following 2. Sankaran, Fiscal
Economics.
Dr.H.
.1.
correct about GST?
Dr.U.K. Sudha Nayak,
B.P. Tygai, and
3.
tax.
'one point Girija, Public Finance.
GST is the taxes
i) all direct
to replace
This aims
INTERNET REsOURCES
the
ii) and
services by E
levied on goods
governments
and State in 2018
Central
from 1 July 2017 1 World Bank Report
implemented
It will be
(ii) throughout the country. 2. www.GST.in

Government and Taxes

327
 n

expenditure by
ending for the their
corporate
entities. The main
me

and
citizens
of taxation is to
accumulate
unds, efor
funds
The Union purpose machiner
the functioning of the government, inery.
serve Bank of
into forefront on
account of the
and controls Tax has come

"welfare state.
new concept of
and foreign
payments to
compulsory
jective is to Taxes are

without expectation of direct

tion in these government

also controls return (or) benefit to the tax payer./Prof.

rious other Seligman also defined a tax as "a compulsory
contribution froma person to the government
hange Board
to defray the expenses incurred in the
Commission
nts in India common interest of all, without reference to
to provide special benefits conferred] Y.I
Tax system
dvantages and some disadvantages. So we have a tax system, that
rom Adam Smith, many economists have given lists of canons of
Ose common among them for discussion here.

ment, all economists agree that equity is the cardinal principle in

hould pay more tax revenue to government than the poor, because
to pay the tax.

ein advance the tax system so that

every tax payer will be able to
e may have to pay during a to
year the government.
nience
ost of collecting taxes
(tax payer cost +
tax collector cost) will D
ected from a person at the time he
ence. A convenient tax reduces gets enough money to
the cost pay u
af collantim
Why Taxes? Income tax
States and their functional equivalents and most
Income tax is the most common
roughout history have used money provided individual in India.
througho
important tax levied on an

out the income of a

to many functions. Some charged directly based
on
taxation
b y tas
hy
carry It is
varies,
inclu which it is charged
of
these expenditures on economic person. The rate at
infrastructure transportation, sanitation,
i n f r a s t r u c t u r e
depending on the level income of
1blic safety, education, healthcare systems,
public
asked to search
a Income
tor
Tax
few), military, scientific research, Students are
Income Tax slab
to
ame a and know the
website
and the arts, public works and public
elture current year

incitrance and the operation of government

ins
to raise taxes is Corporate tax
itself.\A government's ability levied on companies
that exist

its fiscal capacity This tax is shareholders. It

called revenue, a
entities
from their
from sale
exceed tax as separate gains
When expenditures royalties,
interest

debt. A portionof fees for

taxes on a
is charged and
governmentaccumulates located in India
Governments assets
service past debts. of capital
and dividends.
be used to
technicalservices
services. income
may welfare and public taxed on
taxes to fund companies
are

also use education systems,

include Foreign
can
services benefits India.
These arises in
unemployment that it
for the eldery, water and For Foreign
pensions Energy, ForIndian
transportation. Companies

and public
c o m m o n

are also Income Companies

systems
management
waste 40%
public utilities.
Less than 50 25%

roots
India
has its crore 40%
Taxation
in Smriti More than 5 0 30%
theperiod
ofManupresent
V O U f r o m
The crore
A r t h a s a s t r a .

on
and is
based
benefits

tax system Wealth tax the

on
Indian
is charged
same

taxsystem tax The

ancient Wealth ownership.
this on
its
property
from year
derived taxed
every
on
the
be levied
tax is
will
Taxes property The
value.
of market
alike.
4.3
Types
Haua i V c u r r e n t

i n d i v i d u a l s
and
companies

the three
i n d i v i d u a l
or
c o l l e c t e d byall can
Direct Taxes are that
an direct taxes taxes
on India are
is a In here
g o v e r n m e n t .

imposed directly, shited g o v e r n m e n t .

Union
tax
A is paid be of the
taxes are
which
tax
c a n n o t

"one
tiers
c o l l e c t e d by direct

all the Taxes

as
be easily
direct
organisation,
tax
ofa direct almost governments.
burden
a who
The
defines
persons
In
India Union
c o l l e c t e d byboth
tax by the
Mill
taxeson
J.S. t h e very it"|Some are
from c o l l e c t e d
s e r v i c e s
others.

pay The
to demanded should

tax
and
goods
and governments.
bylocalgovernments
which
is d e s i r e d
wealth on State
or and
intended
tax, Union
c o l l e c t e d

revenue
income tax
it is are T are
m o r e

direct
direct
taxes

y 3 was
p r o p e r t i e s

we
collect

through
are
tax. Tax
In
India
than India
c o r p o r a t i o n
i n c o m e

first
time
i n d i r e c t
taxes
taxes
in
India,
the through
indirect

YOUntroduced In for W i l s o n

major
The GST
James
Sir l o s s e s taxes.

duty
and
1860
by m e e t
the
Customs
G o v e r n m e n t a n dT a x e s

in to
Government
o r d e r

the
in
sustained by
t i n y o f 1857
 Indirect Taxes France was the first count
the burden of the tax can be shifted to YOU country to
others, it is an indirect HOWP implement GST in 1954
tax.(The impact
person while the incidence is on the anotner one is on

person. Therefore, in the case of indirect taxes, How Are axes

the tax
payer is not the tax bearer. 4.4 evied?
Taxisleviedbythe government progresi
Some indirect taxes are
entertainment tax, excise duty and goods and
stamp duty,
proportionately as
well as
regressively. ressively,
service tax (GST)|A Progressive tax
Progressive tax rate 1s one in which
Stamp duty increases (multiplier)
Stamp duty is a tax that is paid on official
rate oftaxation ac ,

base increases (multiplicand). In the case of

documents like marriage registration or
documents related progressive tax, When inçome increases
to a
property and in some
ratealso increases.
contractual agreements.
Entertainment tax Example:
Entertainment tax is a duty that is Tax Base Tax Rate Amount of
charged by the government on any source Tax
of entertainment provided. This tax can be 10,000 10% 1000
charged on movie tickets, tickets to amusement 20,000 15% 3000
parks, exhibitions and even sports events. 30,000 25% 7500
Excise duty
Proportionate taxes
An excise tax is
any duty on manufactured
goods levied at the movement of wO. Tax levied on goods and service in afixed
rather than
manufactures portion is known as proportionate taxes. All
at sale. Excise is typically imposed
Lin addition to an indirect tax such as a sales
tax payers contribute the same
proportion of
tax. GST is delined as the tax leviedtheir incom
when a tonsumer Buy a g0od o
Goods and service tax (GST) ite Example:
The goods and service tax (GST) is one Tax BaseTax Rate Amount of Tax
of the indirect taxes. The GST was 10,000 10% T1000
in passed
Parliament on 29 March 2017. The act came
20,000 10% T2000
into effect on 1 July 2017. The mptto is one
nation, one
market, one tax. V . 30,000 10% 3000

Structure of Goods and Service Tax (GST)

State Goods and Service Tax (SGST): Intra state (within the state)
Pasa
VAT/sales tax, purchase tax, entertainment tax, luxury tax,
cesses
tax and state lottery surcharge and
Central Goods and Service Tax (CGST): Intra state (within the
state)
Central Excise Duty, service tax, countervailing duty, additional
education and secondary/higher secondary cess
duty of customs, surcharg
Integrated Goods and Service 1lax (IGST): Inter state (integrated GST)
There are four major GST rates: (5%, 12%, 18% and 28%) Almost all the
necessities oflre
ike vegetables and food grainsare excempted from this
tax. J2-eNO
Government and Taxes 324
TncomeincreasencomeIncrease Income change
Taxalso Tax Same The role of taxation in develc
Increase Decrease Tax always economies is as follows.
E.g E.g E.g 1. Resource mobilisation: Taxation er
Income 1ax
Corporate Tax Sales Tax the government to mobilise a subst
amount of revenue. The tax reve

4.5 Black Money generated by imposing direct taxes s

personal income tax and corporate

indirect taxes such as customs duty-
Black Money
duty, etc.
Black money is funds earned on the black
market on which income and other taxes have 2. Reduction inequalities
of i
not been paid. The unaccounted money that Taxation follows the principle of
The direct taxes progressive in
is concealed from the tax administrator is are

called black money. Also certain indirect taxes, such

s on luxury goods, is also progre-
Causes of Black Money nature.

Several sources of black money are

3. Socialwelfare: Taxation generat
identified as causes. welfare. Social welfare is generate
1. Shortage of goods higher taxes on certain undesirable
2. Licensing proceeding like alcoholic products.
3. Contribution of the 4. Foreign exchange: Taxation e
industrial sector
exports and restricts imports,
HVKUX6
4. Smuggling developing countries and
5. Tax structure developed countries do not im
on export items.
4.6 Tax Evasion
5. Regional development: Taxati
.1Tax evasion is the illegal evasion of taxes by important role in regional de
individuals, corporations and trusts. Tax evasion
Tax incentives such as tax h
activities included
setting up industries in backwa
Underreporting income which induces business firmns
Inflating deductions or expenses
industries in such regions.
Hiding money 6. Control
Hiding interest in offshore accounts
of inflation: Taxation
as an instrument for controllii
Tax evasion penalties Through taxation the gover
I f a person wilfully commits the act of tax control inflation by reducing
evasion, he may face telony charges. Tax the commodities.
 Ldx, Somne

stamp duty : Stamp

ses of Black ALSCIENCI
money an Mone
paid on official duty is a tax that is identified as caus veral sourcescofblack
or documents like
Tegistration marriage
Shortage of goods:
a
property and documents
in some related to
(1) Shortage of
goods, whether
the root natural
or
agreements. contractual artificial,
black money.
is
cause of
Entertainment tax : (2) Controls are
(1) Entertainment tax is a often introduced
check black money. to
charged by the duty that is
source of government on any
entertainment
Licensingproceeding:
that the
system of
It is
firmly believed
controls permits,
can be charged provided.
(2) This tax quotes and licences are associated with
tickets, tickets to on movie maldistribution of commodities in short
amusement parks,
exhibitions and even supply, which results in the
sports events. black money. generation of
Excise duty:
(1) An excise tax Contribution of the
industrial sector:
is any
duty on
(1) Industrial sector has been the
manufactured goods levied at the contributor to black money. major
movement of manufacture, rather (1) For
than at sale. example, the Controller of
Public Limited
(2) Excise is Companies tries to
typically imposed in buy commodities at low prices and
addition to an get them billed at high amounts and
a sales tax. indirect tax such as
pockets the difference personally.
rite the structure of GST. oSmuggling:
ructureof Goods and Service Tax (GST): (1) Smuggling is one of the major
sources of
State Goods and Service black money.
Tax (SGST):
Intra state (within the (2) When India had rigid system of
state) VAT/sales
tax, purchase tax, entertainment tax, exchange controls, precious metals
like gold and silver, textiles and
luxury tax, lottery tax and state surcharge electronics goods were levied a
and cesses.
heavy excise duty.
i) Central Goods and Service
Tax (CGST):
Intra state (within the state) Central Excise
Tax structure: When the tax rate is high,
more black
money is generated.
Duty, service tax, countervailing duty,5
Explain the role of taxation in economic
additional duty of customs, surcharge,
education and secondary/higherAns development. [PTA-41
Ans. The role of taxation in developing economics is
secondary cess. as follows.
Integrated Goods and Service Tax
ii) There
() Resource mobilisation:
(IGST): Inter state (integrated GST) (1) Taxation enables the government
18%
are four major GST rates: 5%, 12%,
to mobilise a substantial amount of
necessities of
and 28%. Almost all the revenue.
life like vegetables and food grains
are

(2) The tax revenue is generated by

exempted from this tax.
imposing direct taxes such as
of black:
What is black money? Write the
causes personal income tax and corporate

money. W [PTA-3 tax and indirect taxes such as

funds earnedon the customs duty, excise duty, etc.
Blackmoneyis
Black Money:
which income and other taxes
Reduction in equalities of income:
(ii)
Dlack market on
been paid. The unaccounted money (1) Taxation follows the principle of
ave not
the tax administrator is equity.
nat is concealed from
Called black money. 375