GST & Tax System in India

Tax System in India

Meaning of Tax

A compulsory contribution given by a citizen or organisation to the Government is called Tax, which is used for meeting expenses on welfare work.

Levels of Tax Imposing and Collecting

Tax imposing and Tax collecting are at three levels in India:

• Central level

• State level

• Local level

The distribution of tax between the Centre and State has been clearly mentioned in the provisions of Indian Constitution. For rationalising it from time to time Finance Commission has been constituted.

Division of Tax System

Tax by Central Government

• Custom Duty

• Income Tax

• Corporate Tax etc.

Tax by State Government

The state government has right to collect all the taxes in this category and to spend them.

Types of Taxes

There are two types of taxes:

1. Direct Taxes

2. Indirect Taxes

Direct Taxes

The taxes levied by the central government on incomes and wealth are important direct taxes. The important taxes levied on incomes are - corporation tax and income tax. Taxes levied on wealth are wealth tax, gift tax etc.

Indirect Taxes

This type of tax is not paid directly to the authorities and it is actually passed on to the other in the form of increased cost. They are levied on goods and services produced or purchased. Excise Tax, Sales Tax, VAT, Entertainment Tax are indirect taxes.

The main forms of indirect taxes are customs and excise duties and sales tax. The central government is empowered to levy customs and excise duties (except on alcoholic liquors and narcotics) whereas sales tax is the exclusive jurisdiction of the state governments.

However, the union excise duties form the most significant part of central taxes. The major tax revenue sources for states are their shares in union excise duties and income tax, commercial taxes, land revenue, stamp duty, registration fees, state excise duties on alcohol and narcotics etc. Sales tax forms the most important component of commercial taxes.

Progressive Tax

A tax that takes away a higher proportion of one's income as the income rises is known as progressive tax. Indian Income Tax is a progressive and direct tax.

Important Committees on Tax Reforms

R. Chelliah Committee (1991)

Constituted in August, 1991 for suggesting reforms in Tax Structure.

• Recommended Income Tax for agricultural income of more than ₹ 25,000 p.a.

• Recommended lowering down the tax rates and reducing the tax slabs.

K.L. Rekhi Committee (1992)

Constituted in 1992 for suggesting uniform regulations for indirect taxation (Custom Duty and Excise Duty).

Types of Taxes (Detailed List)

Direct Tax

• Income Tax

• Property Tax

• Gift Tax etc.

Indirect Tax

• Sales Tax

• Excise Duty

• Custom Duty etc.

Taxes imposed by the Central Government

• Income Tax

• Corporate Tax

• Property Tax

• Succession Tax

• Wealth Tax

• Gift Tax

• Custom Duty

• Tax on agricultural wealth etc.

Taxes Imposed by the State Government

• Land revenue tax

• Agricultural income tax

• Agricultural Land Revenue

• State Excise Duty

• Entertainment Tax

• Stamp duty

• Road Tax

• Motor Vehicle Tax etc.

Central Board of Direct Tax (CBDT)

The Central Board of Direct Taxes (CBDT), created by the Central Board of Revenue Act 1963, is the apex body entrusted with the responsibility of administering direct tax laws in India.

CBDT is the cadre controlling authority for the Income Tax.

Direct Tax Collection

India's direct tax collections for the fiscal year 2023-24 have demonstrated robust growth, with provisional figures revealing a 20.66% increase in net collections (up to December 17, 2023) compared to the corresponding period of the previous fiscal.

• The net direct tax collections stand at ₹13,70,388 crore, a significant rise from ₹11,35,754 crore during the same period in FY 2022-23.

• Includes Corporation Tax (CIT) at ₹6,94,798 crore (net of refund) and Personal Income Tax (PIT) including Securities Transaction Tax (STT) at ₹6,72,962 crore (net of refund).

• Gross collection encompasses CIT at ₹7,90,049 crore and PIT including STT at ₹8,02,902 crore.
  [Source: INDIA 2024]

Revenue Collection

The Government of India has received ₹15,90,712 crore (58.6% of corresponding BE 2023-24 of Total Receipts) upto October 2023 comprising:

• ₹13,01957 crore Tax Revenue (Net of Centre)

• ₹2,65,765 crore Non-Tax Revenue

• ₹22,990 crore Non-Debt Capital Receipts

Non-Debt Capital Receipts consist of:

• Recovery of Loans ₹14,990 crore

• Miscellaneous Capital Receipts ₹8000 crore
  [Source: INDIA 2024]

Important Taxes Imposed in India

Tax on Income and Wealth

The central government imposes different types of tax on income and wealth, viz. income tax, corporate tax, wealth tax and gift tax. Out of them income tax and corporate tax are more important from the revenue point of view.

Personal Income Tax

• Imposed on individuals, combined Hindu families and communities.

• Sometimes surcharges are also imposed.

• Agricultural income in India is free from income tax.

Corporate Tax

• Imposed on Registered Companies and Corporations.

• Equal rate for all companies, but rebates and exemptions provided.

Custom Duties

As per Constitutional provisions, the central government imposes import duty and export duty.

• Import Duties: Generally ad-valorem (percentage based).

• Export Duties: More important compared to Import Duties for revenue and foreign trade regulation.

Excise Duties

• Commodity tax imposed on production of an item (not sale).

• Largest source of revenue for the Central Government.

• Except liquor, opium and drugs, all production is taxable.

Indian Currency and Symbols

• On July 15, 2010, the Indian Rupee got its symbol.

• Symbol is an amalgamation of Devanagari 'Ra' and Roman 'R'.

• Announced in March 5, 2009 contest.

• Designed by D. Udaya Kumar (IIT Bombay).

Legal Tender Money

• One Coin and One Rupee note belong to this category.

Money Supply

• M1 = Narrow Money

• M3 = Broad Money

Goods and Services Tax (GST)

Legislative Development

• Proposal mooted in 2006-07.

• GST Council constituted in 2016.

• GST Constitutional Amendment Bill received assent on September 8, 2016.

• GST Council constituted on September 12, 2016.

• Launched on July 1, 2017 (midnight).

Implementation of GST

GST subsumed multiple taxes like Excise Duty, Service Tax, Additional Customs Duty, Special Additional Duty of Customs etc.

• IGST ensures seamless flow of input tax credit across states.

• Alcoholic liquor excluded.

• Petroleum products excluded until notified by GST Council.

Taxes Submerged into GST

Central Level

• Central Excise Duty

• Additional Excise Duty

• Service Tax

• Countervailing Duty (CVD)

• Special Additional Duty of Customs (SAD)

State Level

• VAT/Sales Tax

• Entertainment Tax

• Central Sales Tax (CST)

• Octroi and Entry tax

• Purchase Tax

• Luxury Tax

• Taxes on lottery, betting and gambling

GST Collections

According to INDIA 2024, during April-December 2023, gross GST collection witnessed 12% growth, reaching ₹14.7 lakh crore (vs ₹13.40 lakh crore last year).

• States compensated for revenue loss.

• GST replaced complex indirect tax structure with a transparent, technology-driven system.

• Integrated India into a single common market.

Final Thoughts

Taxes are a compulsory contribution made by citizens and organisations to the government for meeting expenses on welfare and development. In India, taxes are collected at three levels – Central, State and Local, as defined by the Constitution, with the Finance Commission ensuring fair distribution. Broadly, taxes are of two types – Direct and Indirect.

Direct taxes like income tax and corporate tax are paid directly on income and wealth, while indirect taxes such as excise duty, customs and sales tax are included in the price of goods and services. Over time, various committees like R. Chelliah (1991) and K.L. Rekhi (1992) suggested reforms to simplify and rationalise the system.

The Goods and Services Tax (GST), launched on July 1, 2017, replaced many indirect taxes, making the system more transparent and unified. Today, direct taxes and GST form the backbone of India’s revenue, ensuring resources for public services and national growth.