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TAX STRUCTURE IN INDIA

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Mukt Shabd Journal ISSN NO : 2347-3150

TAX STRUCTURE IN INDIA

NAZNEEN. A,
Doctoral Research Scholar, Department of Commerce, Karpagam academy of higher education,
Coimbatore.
&
Dr. R. SAROJA DEVI,
Assistant Professor, Department of Commerce, Karpagam academy of higher education,
Coimbatore.
Abstract

Every country's tax structure significantly impacts how prosperous its economy. The
majority of the government's revenue comes from taxes. A country’s economic gains from a tax
system that facilitates company operations and discourages tax avoidance. There are some
taxation systems that make tax evasion possible, and there are other taxation systems that make
tax evasion challenging. Even though India's tax system has undergone numerous changes, it is
still far from ideal.Numerous problems, including tax evasion, reliance on indirect taxes, black
money, and the emergence of a parallel economy, suggest that the Indian tax system will need to
undergo significant changes in the future in order to solve all of these problems.The following
study attempts to examine the formation of India's taxation system.

Keywords: Indian Tax Structure, Direct Tax, Indirect Tax, GST

Introduction

Evolution of the Indian Tax Structure

India's tax structure has experienced numerous changes since declaring independence.
Inquiries on the necessary modifications to the current tax system were being conducted by a
record number of committees. One cannot assert that the Indian tax system is perfect or that
everything is currently well-systematized. Since the dawn of time, there has been the concept of
taxation. The ancient Indian books "Manu Smriti" and "Arthasastra" contain in-depth debates on
taxation. James Wilson established the current tax structure in 1860 while the country of India
was ruled by the British. In 1922, new codification laws were passed. A new attempt was made
in 1961 with the approval and implementation of the Income Tax Act of 1961, which is still in
place today with a few minor modifications made by the government. The Indian Constitution
gives the government the legal power to collect taxes. In addition, the Finance Bill, a law

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approved annually by the Parliament or the State Legislature, must be attached to any tax
imposed within the boundaries of India. The Board was established by the Central Board of
Revenue Act of 1924 as a governmental body entrusted with handling income tax administration.
There have been numerous amendments since then. As the tax base grew, professional bodies
were established to offer recommendations, such as the Indian Taxation Enquiry Committee
(1924–25) and the Taxation Enquiry Commission (1955–34).Here are the committees' only
objectives:

 Simplification of tax laws.

 Widening tax base.

 Reorganizing the income tax department to increase efficiency and effectiveness.

Statement of the problem

As early as 1917, Prof.Seligman remarked, “the tax reform is everywhere in air’. In India also,
the need for reforming tax system was realized early and a number of committees were
appointed at various times to examine different aspects of taxation. GST has brought in a
structural change in the indirect tax system in India. What is needed now is a similar reform on
the direct tax front. The tax system in India has undergone numerous changes, yet it is still far
from ideal. In order to address a number of issues, including as tax evasion, reliance on indirect
taxes, the development of a parallel economy, and the usage of black money, like multiplicity of
taxes, dominance of indirect taxes, adhocism, bias in incidence of taxes, complexity and
corruption, imbalance in tax system, lack of coordination, lack of built-in-elasticity, squandering
away of resourcesit is likely that the Indian tax system may need to be considerably altered in the
future.

LiteratureReview

Jha, A. (2013).1In the present paper an attempt has been made to study the impact of old and
reformed tax structure as per FRBMA Road Map. Their impact is analyzed on the mode of
financing of companies and different types of investments. It would be worthwhile to see if the

1
Jha, A. (2013). Tax Structure in India and effect on corporates. International Journal of Management and
Social Sciences research (IJMSSR), 2(10), 80-82.

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reformed tax system would lead the companies to more carefully link their mode of financing
with their investments or not.

Alagappan, S. M. (2019).2Tax payment is mandatory for every citizen of the country. Taxation
is an instrumental tool to procure resources for the government to enable it to formulate policy
schemes for the overall development of the economy. Income tax plays an important role as a
source of revenue and an effective measure of removal of economic disparity. Different
objectives of taxation, each one of them desirable by itself, can pull in different directions. The
state should formulate a comprehensive and cohesive tax system which can balance the different
objectives in view of its own requirements and goals. The present paper is an attempt to study the
present tax structure in India and the recent reforms undertaken

Khurana, A., & Sharma, A. (2016).3The Good and services tax (GST) is the biggest and
substantial indirect tax reform since 1947. The main idea of GST is to replace existing taxes like
value-added tax, excise duty, service tax and sales tax. It will be levied on manufacture sale and
consumption of goods and services. GST is expected to address the cascading effect of the
existing tax structure and result in uniting the country economically. The paper highlights the
background, objectives of the proposed GST and the impact of GST in the present tax scenario in
India. The paper further explores various benefits and opportunities of GST. Finally, the paper
examines and draws out a conclusion.

Objectives of the study

1. To Study the Tax Structure of India

2. To Identify the different taxes Collected in India.
3. To Identify the problems in the existing taxation structure in India.

Research Methodology

The researcher was gathered through secondary sources like as books, papers, media
reports, journals, blogs, case laws, and various websites.
Taxation System of India

2
Alagappan, S. M. (2019). Indian Tax Structure–An Analytical Perspective. International Journal of
Management, 10(3).
3
Khurana, A., & Sharma, A. (2016). Goods and Services Tax in India-A positive reform for indirect tax
system. International Journal of Advanced Research, 4(3), 500-505.

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India currently has a three-tiered federal tax system that is well-established and has
distinct power dynamics between the Central and State Governments as well as municipal
organisations. The Central Government levies income taxes, customs charges, the Central Goods
and Services Tax (CGST), and the Integrated Goods and Services Tax, with the exception of
agriculture revenue, which is collected by the State Governments (IGST). The State Goods and
Services Tax (SGST), stamp duty, state excise, land revenue, and profession tax are just a few of
the taxes that state governments levy. Local governments have the right to tax property, octroi,
and facilities like water and drainage. The government of India collects taxes from its citizens to
fund public works initiatives and to advance the country's economic impact.

Types of taxes: Direct taxes & Indirect taxes

1. Direct Tax:

Direct taxes are levied on individuals and corporate entities. These taxes cannot be borne or
transferred to another individual or corporate entity than on which it is levied. A few of these
taxes are income tax, capital gains tax and wealth tax. The most well-known tax among all
these is the income tax.

Every assesse whose total income exceeds the maximum exempted limited has to bear Income
Tax. The Union Budget annually prescribes the structure and the rates for the tax. The income is
calculated based on various factors such as house property, salaries, capital gains, business and
profession and other sources. The income levels are categorized into different slabs. This
includes Individuals, Hindu Undivided Families, Companies, Firms, Trusts and Co-operative
Societies.

Indirect Tax:

Indirect taxes do not involve direct payment to government authorities. These taxes are levied
on goods and services and are collected by intermediate bodies who sell these goods or offer
services. Some of these are listed below:

1. Customs Duty- This tax is levied on imports from foreign countries into India.

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2. Service Tax: This tax is levied on service providers.

3. Octroi Tax- This tax is levied on goods which move from one state to another, and it
differs from one state to another depending on the state government.
4. Value Added Tax- This tax is levied on the goods sold in a particular state.

Difference between Direct Tax and Indirect Taxes in India

1. The taxpayer experiences the effects of direct taxation immediately. Indirect taxes were
initially assessed on producers or dealers, but eventually they were also assessed against
consumers of goods or services.
2. Taxes negatively affect taxpayers' ability to save and invest. Indirect taxes may lead to
greater savings and investment if you buy fewer non-essential products and services.
3. Indirect taxes have lower administrative costs due to convenient and reliable collections,
whereas direct taxes often have greater administrative costs because of the numerous
exemptions, procedures, and conditions that may require the assistance of professional
accountants and auditors.
4. Taxes, which are solely levied against those who fall under specific tax brackets, indirect
taxes have a wider scope because they are levied against every member of society
through the sale of products and services
5. Shifting the burden in the case of direct taxes is challenging because the taxpayer is
responsible for paying the tax. There is a chance that the indirect tax will be transferred to
others.
6. While indirect taxes are regressive and increase inequality, direct taxes are progressive
and reduce it.

GST as Indirect Tax

The Goods and Services Tax, or GST, resulted in numerous positive changes to India's
fiscal system. Several taxes that were formerly imposed no longer exist. One Nation, One Tax,
and One Market becomes a reality in our nation thanks to GST, not just a lofty concept. A
condition known as the cascading impact of tax occurs when the final consumer of any good or
service faces the burden of the tax that must be paid on the tax that has already been determined,
resulting in an elevated or inflated price. Sales Tax, Central Excise Duty, Entertainment Tax,

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Octroi, and Excise Duty were all replaced by GST. Purchase Tax, Service Tax, and so forth. The
government agencies in India benefit greatly from the ease of taxing. GST rollout on 1st July
2017 in India.

Taxes Subsumed into GST

A. State Taxes Subsumed

1. Value Added Tax
2. Purchase Tax
3. Entry Tax, Octroi, Local Body Tax
4. Entertainment Tax
5. Luxury Tax
6. Betting, Gambling and Lottery Tax
B. Central Taxes Subsumed
1. Central Excise Duty
2. Additional Duties of Excise
3. Excise on Medical and Toiletries Preparation Act
4. Additional Customs Duty
5. Special Additional Duty
6. Service Tax
7. Central Sales Tax

Potentially increasing India's GDP is the Goods and Services Tax (GST). Because they
won't have to fill out several compliances for various states after the GST is implemented,
taxpayers will be able to breathe easier. Under the GST scheme, only one registration and one
return are necessary. Additionally, it significantly strengthens the Government of India's MAKE
IN INDIA initiative by luring additional foreign investment and bringing down manufacturing
costs via reduced compliance costs and taxes.

Legislation Governing Income Tax

1. The Income Tax Act, 1961

India passed the Income Tax Act in 1961. The major goal of this extensive statute is to
control the nation's taxation through a variety of rules and regulations. According to the law, the

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Indian government must administer, levy, reclaim, and collect income tax in India.

Over the course of a fiscal year, income tax is applied to a person's whole earnings.
According to the Income Tax Act, a person can be an individual, a Hindu Undivided Family, a
corporation, a firm, an association of people, or a group of people, whether or not it is
incorporated.

A taxpayer who is assessed must pay taxes or other financial obligations under the
Income Tax Act. Assessee is defined in Section 2(7) of the Income Tax Act of 1961. The phrase
"any other sum of money" shall include, among other things, interest, fines, penalties, and other
taxes. An "assessment year" is a 12-month period starting on April 1 and ending on March 31 of
the following year, according to Section 2(9) of the Income Tax Act of 1961. The assessment
year, to put it simply, is the year that taxes are levied on revenue from the prior year.

2. Finance Act

India's finance minister presents the nation's budget to the legislature each year. Any
adjustments to income tax rates and slabs that take place annually are specified in the finance act.
The financial act is created once the president and parliament have both accepted the financial
bill. Frequently, certain portions of the act do not express their meaning in a way that is clear, so
clarification of that particular provision is necessary in order to explain the meaning of such
provisions. In addition to helping people better comprehend the meaning of laws, the Central
Board of Direct Taxes regularly issues notifications and circulars to remedy loopholes in the
law's provisions.

The effect of income tax in the Indian economy

The direct tax, also known as income tax, contributes less to the Indian economy than the
indirect tax. Because there is a set income ceiling and the income tax is levied according to the
income that people produce. The majority of people in India make less money than the declared
threshold, hence their income is not subject to income tax. Only a small portion of India's total
population earns more than the stated amount, and only this income is subject to income tax. In
India, there is a progressive income tax system, which implies that the rich pay a greater rate of
tax while the poor pay a lesser rate. The direct tax or income tax contributes very little to the
Indian economy because very little revenue is generated from it. Of the small portion of the
population whose income exceeds the established limit, a very small number of people fall into

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the richer section group on whom a high rate of income tax is imposed. On the other hand, since
indirect taxes are collected on products and services rather than on income, they have a greater
economic impact on India. In the case of indirect taxes, the cost of goods and services is fixed,
and the tax is included in the price. There is no difference between affluent and poor people
because everyone pays the same prices for goods and services. As a result, because both the rich
and the poor pay the same price for goods and services, the same amount of tax is collected from
both groups, which ultimately increases revenue from indirect taxes, India's largest source of tax
revenue and a crucial component of the Indian economy.

Income Tax's Impact on Individual Life

In many different ways, taxes have a big impact on people's lives. Because poor people's
incomes are already low, adding taxes to them has a substantial impact on their earnings. In
contrast, rich people's incomes are higher, therefore adding taxes to them has less of an impact
on their income. The imposition of taxes has a detrimental effect on an individual's willingness
to work because the taxes levied on an individual's earnings are continuous, which means that
the individual must pay taxes on his earnings not just once a year but every year. This has an
effect on the individual's psychology because he feels that there is no benefit in working more
hours because he must give up a portion of his earnings. Also, if people start to think they won't
be able to work longer hours, the standard of living in the country will decline. Moreover, not
working longer hours has a severe influence on people's saving and investment plans, which will
have a significant negative effect on the nation's income in addition to having an adverse effect
on people's living standards.

Reasons for India's reduced Income Tax Collection

The government can fall short of meeting its fiscal deficit target if lower income is
collected as a result of tax evasion. Tax evasion happens when a person hides his taxable income
through unethical methods such falsifying financial statements, keeping secret receipts and sales
records, and manipulating account books. The principal source of money for the government is
taxes, and tax evasion prevents the economy of the nation from expanding. Tax evasion is illegal,
even though it is legal to get around paying taxes by maintaining a low income and taking
advantage of deductions. A high tax rate is the primary driver of tax evasion, which can be
mitigated by lowering the tax rate. Regular audits of public party accounts are required. A

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straightforward way to avoid paying taxes is to purchase agricultural land and declare the income
under that category. Agricultural income is free from taxation. A person is not required to pay
any taxes on the unlimited quantity of agricultural income they own. If any head is exempt from
taxation, it means that not only the farmer benefits from this, but also anyone else who wants to
hide their money and avoid being held accountable. All affluent individuals and politicians own
the money from agriculture. The majority of illegal funds are converted to legal ones by proving
agricultural exemption. This is now a well-liked technique for hiding money from the dark side
and avoiding taxes. The exploitation of this tax-free status is well known to the authorities. Tax
evasion can be stopped if a suitable legislative framework is created to keep track of these issues.

Conclusions and Suggestions

Although the tax department has cutting-edge technology, adjustments to the

administrative and procedural aspects might be needed. The facts and figures used by the tax
authorities must be made available to the public. The statute should prohibit the use of
information in foreign tax transactions collected by departmental officials and assessing officers
from unsupported, private sources. Foreign corporate enterprises must exercise caution before
establishing a presence in India because it is a high-tax country. Selecting a suitable sales
channel, figuring out the nature of the business and its operations, and selecting distributors.

In order to encourage taxpayers to work more and put in longer hours at the office, the
government may potentially try to offer them specific tax perks. In addition to advancing the
economy, this will enhance people's quality of life. The state of the nation's economy is
significantly impacted by taxpayers' financial circumstances. To enhance employment prospects
for people from diverse backgrounds, the government should make an effort. Due to the fact that
the bulk of the population only pays a small percentage of taxes, a small proportion of people
escape their tax obligations by filing false income statements. All revenues, including
agricultural income, should be digitalized in order to address the problem of black money and tax
evasion. For the goal of exemption, a proper method for calculating actual agricultural revenue
should be developed.

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References

1. NehaKanojia, A Study on Goods and services Tax in India, TIJ's Research Journal of
Social Science & Management – RJSSM (2014)

2. Pratap Singh, Tax Revenue in India, Trends & Issues, ISBN 978-81-940398-4-6 (2019)

3. DrGeetanjali Sharma, Mrs.Miriam George, GST- A game changer in Indian Taxation

System, IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X,
p-ISSN: 2319-7668. Volume 19 (2017)

4. NishantGhuge, Indian Tax Structure: An Analytical Perspective, International Journal in

Management and Social Science, Vol.03 Issue-09 ISSN: 2321-1784 (2015)

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