INTRODUCTION OF

TAXATION
BACKGROUND OF TAXATION SYSTEM IN
INDIA
The taxation system in India traces its roots to ancient texts like
Manusmriti and Arthashastra. As prescribed by these texts, artisans,
farmers, and traders hundreds of years ago would pay taxes in the form
of silver, gold and agricultural produces. Taking clues from these texts
and with some added tweaks, the basis for the modern tax system in
India was laid by the British when Sir James Wilson introduced income
tax in 1860. At the time of independence, the newly-formed Indian
Government cemented the system to catalyze the economic progress of
the country and also to eradicate income and wealth disparity. After
independence the Indian Income Tax Act 1961 came into existence after
consultation with the Ministry of Law effective from 1st April 1962. This
Act was amended from time to time through Union Budgets and
amendments Acts.
Meaning of TAX:
Tax is a compulsory payment to be made by every
resident of India. It is a charge or burden laid
upon persons or the property for the support of a
Government. Government decided the rates and
the items on which tax will be charged, like
income tax, GST, etc
TYPES OF TAXES:
There are four ways to classify different types of
taxes in India:
1. Taxes Levied by the Central Government and
State Governments
2. On the Basis of Relationship between Tax Base
and Tax Rates
3. On the Basis of Method of Assessment
4. On the Basis of Incidence and Impact of Taxes
 1) Land Revenue Tax
Direct and Indirect 2) Property Tax
Taxes Indirect Taxes
Taxes can be broadly categorized In contrast to Direct Taxes, Indirect
into Direct Taxes and Indirect Taxes. Taxes are levied on transactions relating
Direct Taxes are mainly those taxes to Goods and Services.
which are paid by the people to the Goods and Services tax (GST) was
authority which imposes the tax and introduced w.e.f. 1st of July 2017.
are based on income or spending
power.
Direct Taxes are currently levied by the
Centre and State separately.
Central Direct Taxes
1) Personal Income Tax
2) Corporate Income Tax
The Central Board of Direct Taxes
(CBDT) is the statutory body which
deals with the levy and collection
of Direct Taxes under the Ministry of
Finance.
State Direct Taxes
DIRECT TAX VS. INDIRECT TAX
Particulars Direct Tax Indirect Tax
1. Meaning
2. Nature of tax
3. Taxable Event
4. Levy & Collection
5. Shifting of Burden
6. Tax Collection
7. Tax Evasion
8. Administered by
Customs (CBEC)
Commissioner HR & CE V. Lakshmindra
“It is a compulsory exaction of money by public
authority for public purpose enforceable by law and is
not payment for services rendered”
Compulsion
Quid pro quo
Quantum based on capacity
FEES
‘Fee is defined by Prof. seligman as payment to defray
the cost of each recurring service undertaken by the
Government , primarily in public interest , but
conferring a measurable special advantage on the fee –
payer’
Fees means the charge or rate levied by the
government from people who use such services
provided by the government. Eg. Toll on roads and
bridges, registration fee, court fee etc
Difference between Tax and Fee
INITIAL VIEW
Commissioner HR & CE V. Lakshmindra
a) For special services
b) Uniform collection
c) Based on expenses

The case was considered till 1990s as it brings difference

between tax and fee for legislative purpose
FEES TAX

 Voluntary  Obligation

 Quid pro quo  No Quid pro quo

 Expenses for which it is collected  Consolidated fund

 Uniform  Capacity to pay

 For benefits or previledge  To raise funds or revenue

Present Perspective
“No generic difference between a tax and a fee which
are both compulsory exaction of money by Public
authorities”
C.I.T Vs McDowell and Co.Ltd,
i. It was held that tax, duty, cess, fee indicate
different kinds of impost by the authorized
Government.
ii. Law referred under article 265 means act of
legislature not an executive without statutory
authority.
Cess
Cess is charged generally by Central government for
any specific purpose and payable to central
government only. There is no share of state in Cess
collected.
Cess is also a tax levied by the government from its
subjects to meet specified expenses or for specific
purposes. Eg. Education cess , petroleum cess, cess on
Income tax etc
A cess imposed by the central government is a tax
on tax, levied by the government for a specific
purpose
Article 270 of the Constitution describes a cess.
Cess are named after the identified purpose; the
purpose itself must be certain and for public good.
At present, the main cess are: education cess, road
cess or (fuel cess), infrastructure cess,clean energy
cess, krishi kalyan cess and swachh bharat cess.
TAX EVASION, TAX PLANNING
& TAX AVOIDANCE
Tax Evasion: Tax Evasion is an illegal way to minimize
tax liability through fraudulent techniques like
deliberate under-statement of taxable income or
inflating expenses. It is an unlawful attempt to reduce
one’s tax burden. Tax Evasion is done with a motive of
showing fewer profits in order to avoid tax burden.
 Tax Planning
Tax planning is process of analyzing one’s financial
situation in the most efficient manner. Through tax
planning one can reduce one’s tax liability.
Tax Avoidance: Tax avoidance is an act of using legal
methods to minimize tax liability. In other words, it is
an act of using tax regime in a single territory for one’s
personal benefits to decrease one’s tax burden.
Although Tax avoidance is a legal method, it is not
advisable as it could be used for one’s own advantage
to reduce the amount of tax that is payable.
Features and differences between Tax evasion, Tax
avoidance and Tax Planning:
1. Nature: Tax planning and Tax avoidance is legal whereas Tax
evasion is illegal
2. Attributes: Tax planning is moral. Tax avoidance is immoral.
Tax evasion is illegal and objectionable.
3. Motive: Tax planning is the method of saving tax .However
tax avoidance is dodging of tax. Tax evasion is an act of
concealing tax.
4. Consequences: Tax avoidance leads to the deferment of tax
liability. Tax evasion leads to penalty or imprisonment.
5. Objective: The objective of Tax avoidance is to
reduce tax liability by applying the script
of law whereas Tax evasion is done to reduce tax
liability by exercising unfair means. Tax
planning is done to reduce the liability of tax by
applying the provision and moral of law.

6. Permissible: Tax planning and Tax avoidance are

permissible whereas Tax evasion is not
permissible.
Methods Of Tax Planning
Various methods of Tax Planning may be classified as
follows :
Short Term Tax Planning
Long Term Tax Planning
Permissive Tax Planning
Purposive Tax Planning