Roll No : 20134026

Name : Jegatheesh P

MODULE : 4
Topic : Taxation

What is Taxation?
Taxation is the process by which a government or other authority levies taxes
on individuals, businesses, and other entities in order to generate revenue for public
spending.
The revenue collected through taxation is typically used to fund government
programs and services such as education, health care, infrastructure development,
national defense, and social welfare programs.
Taxation is a key element of modern societies, and its design and
implementation have significant impacts on economic growth, income distribution,
and social welfare. Tax policies are often the subject of political debate, as different
stakeholders may have different opinions about the appropriate level and
distribution of taxes.
Taxation in India:
Taxation in India is a complex and multi-layered system, with taxes being
levied by the central government, state governments, and local bodies. The main
types of taxes in India include income tax, corporate tax, goods and services tax
(GST), customs duty, excise duty, and value-added tax (VAT).
The Income Tax Act of 1961 governs the collection of income tax in India,
which is levied on the income of individuals, companies, and other entities. Income
tax rates vary depending on the income bracket and the nature of income.
Corporate tax is levied on the income of companies registered in India, with
rates varying depending on the size of the company and the nature of its income. In
recent years, the government has introduced several reforms to reduce the
corporate tax rate and make it more competitive with other countries.
The GST was introduced in India in 2017, replacing several indirect taxes such
as VAT, excise duty, and service tax. The GST is a consumption-based tax that is
levied on the value of goods and services at each stage of production and
distribution.
Customs duty is a tax levied on goods imported into India, while excise duty is
a tax levied on the manufacture or production of certain goods within the country.
VAT is a tax levied on the sale of goods within the country, with rates varying
depending on the state.
The Indian taxation system is constantly evolving, with frequent changes and
reforms aimed at simplifying the system, reducing tax evasion, and promoting
economic growth.
Why Taxation is important?
Taxation is important for several reasons, including:
1. Generating government revenue: Taxation is a key source of revenue for
governments at all levels, which is used to fund essential public services and
infrastructure, such as education, health care, public transportation, and
national defense.
2. Redistributing income: Taxation can be used to promote greater equality in
society by redistributing income from high earners to low earners through
 progressive taxation. This can help to reduce poverty and improve social
welfare.
3. Promoting economic growth: Taxation policies can be used to incentive
economic growth by providing tax breaks for businesses that invest in research
and development or create jobs. This can help to stimulate economic activity
and create more job opportunities.
4. Encouraging responsible behavior: Taxation can be used to discourage activities
that are harmful to society, such as smoking or excessive consumption of alcohol
or sugary beverages, by imposing higher taxes on these products.
5. Ensuring compliance with the law: Taxation helps to ensure compliance with the
law by requiring individuals and businesses to report their income and pay taxes
on time. This helps to maintain the integrity of the tax system and ensure that
everyone pays their fair share.

Classification of Taxation
Taxation can be classified in various ways based on different criteria. Some of the
common classifications of taxation include:
 Direct and Indirect Taxes: Direct taxes are those that are levied directly on the
income or wealth of individuals and businesses, such as income tax, wealth tax,
and capital gains tax. Indirect taxes, on the other hand, are those that are levied
on goods and services, and are passed on to the end consumer, such as goods
and services tax (GST), sales tax, and excise duty.
 Progressive, Proportional, and Regressive Taxes: Progressive taxes are those in
which the tax rate increases as the income level of the taxpayer increases, while
proportional taxes are those in which the tax rate remains the same regardless
of the income level. Regressive taxes are those in which the tax rate decreases
as the income level of the taxpayer increases. Income tax is an example of a
progressive tax, while GST is an example of a regressive tax.
 Central, State, and Local Taxes: In India, taxes can also be classified as central,
state, and local taxes. Central taxes are levied by the central government, while
 state taxes are levied by state governments. Local taxes are levied by municipal
corporations and other local bodies.
 Specific and Ad Valor-em Taxes: Specific taxes are those that are levied on a per-
unit basis, such as excise duty on cigarettes, while ad valor-em taxes are those
that are levied as a percentage of the value of the product or service, such as
GST on goods and services.
 Direct and Induced Taxes: Direct taxes are those that are paid directly to the
government, while induced taxes are those that are collected by intermediaries
on behalf of the government, such as TDS and TCS.
These are some of the common classifications of taxation, and different countries
may have their own unique classifications based on their tax system and policies.

NEW TAX REGULATION OF INDIA 2023

The above figure explains the new tax regulation of India and the different between
the last regulation. Also shows the amount of tax you pay for the government
regarding your income.
DISTRIBUTION OF TAXATION
The distribution of taxation in India refers to the allocation of tax revenues
among the different levels of government and various sectors of the economy. In
India, taxes are levied by the central government, state governments, and local
bodies, and the revenues collected are distributed among these different entities
based on established principles and formulas.
The distribution of tax revenues in India is governed by the recommendations
of the Finance Commission, which is a statutory body appointed by the President of
India to make recommendations on the sharing of taxes between the central
government and the states. The Finance Commission determines the share of taxes
to be allocated to the states based on factors such as population, per capital income,
and fiscal discipline.
In terms of the sectors of the economy, taxes in India are levied on a wide
range of goods and services, including income, corporate profits, goods and services,
customs duties, and excise duties. The revenue collected from these taxes is used to
fund various sectors of the economy, including health care, education,
infrastructure, and defense.
Overall, the distribution of taxation in India is designed to ensure a fair and
equitable sharing of tax revenues between the central government, state
governments, and local bodies, while also supporting the development of key sectors
of the economy and promoting social welfare.

Effects of Taxation on Economics

Taxation can have significant effects on economics in several ways. Here are a few
key examples:
1. Revenue generation: One of the primary functions of taxation is to generate
revenue for the government. This revenue can then be used to fund public
goods and services, such as infrastructure, education, healthcare, and national
defense. This can have a positive effect on the economy by providing essential
resources for economic growth and development.
2. Income distribution: Taxation policies can also affect income distribution by
redistributing income from high earners to low earners. This can help to reduce
poverty and promote greater social equity, which can have a positive effect on
the economy by reducing inequality and improving social welfare.
3. Incentivizing economic behavior: Taxation policies can be designed to incentivize
certain economic behaviors, such as investing in research and development,
creating jobs, or reducing carbon emissions. By providing tax breaks or imposing
taxes on specific activities, governments can encourage or discourage certain
economic activities and promote economic growth and sustainability.
4. Consumer behavior: Taxation policies can also affect consumer behavior by
making certain products more or less expensive. For example, taxes on tobacco
or sugary drinks can discourage their consumption and promote public health,
while taxes on luxury goods may discourage their purchase and promote savings
or investment.
5. Economic growth and stability: The overall level and structure of taxation can
also have a significant impact on economic growth and stability. High taxes can
reduce economic activity and discourage investment, while low taxes can
stimulate economic growth but also lead to revenue shortfalls and fiscal
instability.
Overall, taxation policies can have complex and far-reaching effects on economics,
and their design and implementation can have significant implications for economic
growth, development, and stability.

Conclusion:
Taxation is the key source of revenue for the government. Indian Economics
reveal on the Tax revenue of India.So Taxation place a major role in Economics.
Taxation is applicable for everyone including the vendor, consumer and the every
individuals. Taxation plays major role in Indian Economics.