The Overview on Indian Taxation system

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Keerthan.K.K

Master in Business Administration, REVA Business School, REVA University, Bangalore, India.

E-mail: keerthankeeru2001@gamil.com

Abstract:-

Objectives / purpose of study :-

This small study’s aim is to understand the Indian taxation system from 18^th century and direct, indirect tax policy framework. And also this study covers detailed discussion on Income tax slab rate of 2022-23, 2023-24 with the overview on tax evasion tactics uses by tax payers to evade the tax which effects the country economic growth and create imbalance among citizen.

Area cover :-

This study broadly and briefly covers the Indian tax system frameworks (Direct and Indirect tax), Acts from 18^th century to till now.

Methodology / Approach:-

This study / research is based on the detailed literature review of various articles published on Indian tax system (find attached links), from 2020-2022. Also I used descriptive research and brainstorming approach to detail analyze and interpretation of information I gained from sources.

Findings:-

This study explored the reforms of tax systems from british system to present democratic system in India, with that this study finding includes,

- Indian tax role on India economy.

- Impact of tax on individual person life.

- What are the reason behind the lower collection of Income tax in India.

Keywords:-

Indirect tax, Direct tax, Goods and Service tax Act-2017, Financial bill, Income-tax Act 1961, Slab rates.

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Indian tax system was mentioned in an ancient date back of king called Manu Smriti, he organized tax collection system in such a manner that, it should not burden of paying tax to taxpayers with the aim of dynasty development and equal distribution of resources among all.

Later during the british reign in India, James Wilson developed a modern taxation system in 1860. Finally that taxation was modified in 1922 and in 1961 made as tax Act and brought into effect. Still now IT Act 1961 is using with some minor changes by the Government of India.

The present taxation system in India works in a three-tier framework and well-defined power between the Central government and State government as well as Local Municipal entities.

Central Government Charges

Income tax
Customs and Duties
Central Goods and Service Tax (CGST)
Integrated Goods and Service Tax (IGST). Etc.

State Government Charges

State Goods and Service Tax (SGST)
Stamp duty
State excise
Land revenue tax
Professional tax. Etc.

Local Government Authority Charges

Property tax
Octroi
Road and parking changes
Water and Drainage charges. Etc.

All the above rights to Central, State and Local Government given by Indian Constitution under Schedule-VII, Article-265.

In this research paper analysis I focused on mainly two tax systems.

I.Goods and Service Tax Act-2017(GST)
II. Income Tax Act– 1961(IT)

I. Goods and Service Tax Act -2017(GST)

Goods and Service Tax is form of Indirect tax levied on goods and services in the hand of final consumer or customer.

GST came into force on 1^st July 2017 by merging of many state and central indirect taxes levied on goods and services before.

The following are the Central level taxes before GST:-

1) Additional Excise Duty
2) Service Tax

3) Central Excise Duty

4) Additional Customs Duty commonly known as countervailing duty and

5) Special Additional Duty on Custom.

The following are the state-level taxes before GST:-

1) Subsuming of State Value Added Tax/Sales Tax

2) Entertainment Tax

3) Octroi and Entry Tax

4) Purchase Tax

5) Luxury Tax, and

6) Taxes on lottery, betting, and gambling.

Note:- Person means- Individual, Hindu Undivided Family(HUF), Corporations, Firm, Organization, and or any other body of individuals.

II. Income Tax Act- 1961(IT)

Income tax is a direct tax, levied on a person's entire earing over the previous year of the current assessment or fiscal year.

Note:- Person means- Individual, Hindu Undivided Family(HUF), Corporations, Firm, Organisation, and or any other body of individuals.

Role of Indian Income Tax on Indian Economy:-

In India, direct tax is levied only when the income of a person exceeds the specified limit.

The following chart shows the tax slab rate fixed by the Government of India for the year 2022-23 & 2023-24. For the purpose of ascertainment of the applicable tax slab, an individual can be classified as follows:

i. Resident individual below the age of 60 years.

ii. Resident individual of the age of 60 years or above at any time during the year but below the age of 80 years.

iii. Resident individual of the age of 80 years or above at any time during the year

iv. Non-resident individual irrespective of the age.

Source:- Income tax Department-2022 data

As I mentioned earlier, Income Tax is going to levied on only when Income exceeds the limit, so Income Tax contribution to total tax as compared with Indirect tax is less, because of the majority of the Indian population earns less than the stated limit, hence their income exempt form IT framework.

Note:- Over the last 6years Income Tax revenue has accounted for 40.24% of total income / revenue generated to Government of India by direct tax.

Impact of taxation on individual person’s life:-

When on a person imposed of direct tax through Income Tax, Property Tax, Wealth Tax, and Indirect Tax. Etc., it definitely reduces the person’s disposable income, and leads to,

-It affects his / her psychology when paying hard-earned money
- Person not able to earn and plan for saving & investment
-Taxes in different direction reduces the willingness to work because tax is not charge once, it imposes continuously year on year
-Finally this decision not to work longer time impact down-side to country income.

This is how the effect of Tax on the individual is founded by the study of researched papers.

Reason behind lower collection of Tax In India.

Taxation is the government's primary source of revenue & it helps to invest in country development projects.

Here I noticed that lot of loopholes in the Indian tax system (Both in Indirect and Direct tax) result in tax evasion by tactics such as,

-Financial statement manipulation Receipt book, sales book alteration

-Un-discloser of income sources

-Invest on tax-free agricultural land

-Duplication of Invoice to get Input Tax Credit facility(ITC)

-Lower the Valuation of property to save registration fee. And so on.

Like the above-mentioned points are very few to make common man can easily understand, though lot of tactics are used while filing tax which are very securely did by someone who are very well known of taxation system to save their money.

Note:- According to some research 60% of Indian inhabitants own agricultural land by wealthy people and politicians.

Conclusion on study:

Even though Indian taxes have undergone numerous revisions, but it is still a long way from being an ideal taxation system. Many issues, such as tax evasion, reliance on indirect taxes, black money, and the development of economy getting slow, which indicate that the Indian tax system will require considerable adjustments in the future to address all of these issues.

Bibliography / Sources:-

- Anjali Tyagi, BBA LL.B. (Hons.), Alliance University, Bangalore. (2021) https://ssrn.com/abstract=3980513

- Income Tax department, Yearly report -Income Tax structure and slab rate, amendment by Finance Act-2022 https://www.incometaxindia.gov.in/Tutorials/2%20Tax%20Rates.pdf

- https://en.wikipedia.org/wiki/Income_tax

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