Economics Notes on Indian Tax Structure

Economics covers a good number of questions making it an important topic to cover in SSC/RRB Exams. Here are all about Indian Tax Structure which you should not ignore for various competitive exams.

Notes on Indian Tax Structure

When a country or a state legislature enacts a new tax, the debate usually includes some opinions about who should pay for running the government or for the particular program being supported by the tax. A means by which government finance their expenditure by imposing charges on citizens and corporate entities.

Economists distinguish between those who bear the burden of a tax and those on whom a tax is imposed. Taxes in India are imposed by the Central Government and the state governments. Some minor taxes are also imposed by the local authorities such as Municipality.

According to Indian Constitution, Article 246 distributes legislative powers including taxation, between the Parliament of India and the State Legislature. The Central Board of Revenue or Department of Revenue is the apex body charged with the administration of taxes. It is a part of Ministry of Finance which came into existence as a result of the Central Board of Revenue Act, 1924.

Central Government levies taxes on income (except the tax on agricultural income, which the State Governments can levy), customs duties, and central excise and service tax.

State Government levies taxes - Value Added Tax (VAT), Stamp Duty, State Excise, Land Revenue and Profession Tax.

Local bodies are empowered to levy the tax on Properties, Octroi and for utilization like water supply, drainage etc.

In Indian taxation system, the system is divided into two taxes - Direct Taxation and Indirect Taxation.

Direct Taxes - In Direct Taxes, the burden directly falls on the taxpayer.

• Income Tax - According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate prescribed in the Financial Act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year.
• Wealth Tax - Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value. Chargeability to tax also depends upon the residential status of the assessee same as the residential status for the purpose of the Income Tax Act.

Introduction of GST

The GST (Goods and Services Tax) is a unified indirect tax across the country on goods and services.

Before GST- Tax is levied at each stage separately by the Central government and the State government at varying rates.

After GST- the Single tax levied on the supply of goods and services, right from the manufacturer to the end consumer.

Example

Taxes that will be subsumed in GST

GST replaced almost all the indirect taxes which are-

At Central level-

• Central Excise Duty
• Service Tax
• Additional Customs Duty (Countervailing Duty)
• Special Additional Duty of Customs (SAD) etc

At State level-

• VAT/Sales tax
• Entertainment tax
• Luxury Tax
• Taxes on lottery, betting and gambling etc

History of GST

• The first country to introduce GST system was France.
• In the year 1999, NDA government constituted a committee headed by then finance minister West Bengal, Asim Dasgupta to design a GST model.
• In the year 2003, NDA government formed a task force under Vijay Kelkar to recommend tax reforms and Kelkar committee recommended rolling out GST as suggested by the 12th Finance Commission.

GST Legislation

• The Constitution (122 Amend.) Bill, 2014 seeks to amend the Constitution to introduce the Goods and Services Tax (GST).
• The GST Constitutional (122nd Amend.) Bill, 2014 became the GST Constitutional (101st Amendment) Act’ 2016 when the president asserted the provisions of the bill on 8th Sept 2016.
• Due to Introduction GST act, following major changes took place in Indian constitution-
  (a) Changes in 6^th and 7^th schedules of the constitution
  (b) Introduction to Articles 246A and 269A.
• Major Components of GST ACT-
  (a) Central Goods and Services Tax (CGST)- to be levied by centre
  (b) State Goods and Services Tax (SGST)- to be levied by state
  (c) Integrated Goods and Services Tax (IGST)- On inter-state supply of goods and services. It is levied and collected by the Centre and will be shared amongst the Centre and the States.
  (d) The Union Territories Goods and Services Tax (UT-GST)
  (e) GST (Compensation to States) ACT, 2017.
• In GST ACT, Highest tax slab is pegged at 40%.

Implementation of GST-

• The GST is governed by a GST Council, chaired by the Finance Minister of India.
  Composition of GST council
  1. Union minister of Finance
  2. Union minister of state in charge of finance
  3. Finance ministers of each state governments
• GST council determined different Tax rate slab for different commodities. These rates will be reviewed by the council from time to time.
• These rates are Zero (No tax) %, 5 %, 12 %, 18 %, 28 %.
  Zero percent-Mostly food items like curd, milk, Butter, Milk, flour etc, Newspaper, handloom etc.
  Five Percent- Packaged food items, Fertilizers, Coffee, Tea, Spices, Coal, Medicines, Transport services, Postage and Revenue stamps, Restaurant bills, E-Waste etc.
  Twelve Percent-Butter, Ghee, Namkeen in packaged forms, Cell phones will be under 12 % tax slab, Non-AC Hotels, Business class air ticket etc.
  Eighteen Percent- (Most items will come in this slab), Ice cream, Biscuits, Mineral water, steel products, Telecom services, IT services etc.
  Twenty Eight Percent-Pan Masala, Paints, shaving creams, ATM, Automobiles, Chocolate not containing cocoa, automobiles, motorcycles, Five-star hotels, cinemas etc.
• There is a special rate of 0.25% on precious stones (Diamonds) and 3% on gold.

GSTN (GST Network)

• A special GST Network (GSTN) was created for GST implementation.
• The GSTN will provide a shared IT infrastructure and services to Central and State Governments, taxpayers and other stakeholders for the implementation of GST.
• Current Chairman of GSTN- Ajay Bhushan Pandey

Advantages of GST-

The benefits of GST can be summarized as-

(1) Easy compliance
(2) Uniformity of tax rates and structures
(3) Removal of cascading- (Removal of inevitable and sometimes unforeseen chain)
(4) Higher revenue efficiency- (Due to increase in tax base)
(5) Transparency in tax system 

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