TAXATION COUNTINUES CL-30
Taxes are general tribute given by society to the Govt.
Taxes are Government's rightful receipts which it collects from
society to perform its essential function.
➜Taxes are classified in several ways such as the following:-
1. On the basis of redistributive features
(i) Progressive taxes-:Taxes rates increase with an increase in income
i.e. the rate of tax to be paid on marginal income increases.
(ii) Regressive taxes-:The rate of tax on marginal income decreases
with an increase in income i.e. the rich pay less proportion of their
income as tax.
(iii) Proportional tax-:The rate of tax is the same for all
2. On the basis of the bearer of burden-As a rule, the entity on whom
the tax is levied will be the one who pays taxes to the government. There
may be some exceptions in the law to this rule such as the reverse charge
mechanism in GST, however, the general rule is the same.
However for some taxes the entity on whom the tax was levied is
allowed to charge the tax from someone else i.e. to shift the burden
from itself to other. The bearer of burden, is therefore not the entity
which pays tax to the government (i.e the entity on whom the tax was
levied), such taxes are Indirect taxes For Ex- excise, customs, GST,
etc.
The taxes for which the burden cannot be shifted are called Direct
taxes For Ex-Income tax
3. On the basis of the manner of levying
(i) Ad Valorem tax: According to the value. The tax is levied on the
basis of the value of the transaction/item.
(ii) Specific tax: The basis of the tax is some other factor apart from
value Ex- length, weight, engine capacity, polluting nature, health
effects, etc.
4. On the basis of the event
Some event occurs which forms the basis for taxation
The tax is always paid by the entity on whom the tax is levied, but the
entity may have the right to collect the amount from others
Direct Tax: Bearer of the tax is the same entity on whom tax is levied
Income Tax is the tax levied on the income. It is levied by the Central
government in accordance with Income Tax Act, 1961.Income is
broadly defined under the act.
Six sources of income defined under the act are salary/ wages, capital
gains (or capital gains tax), professional income, business income or
profits (or corporate tax), agricultural activities, rental activities
Income tax generally means the tax on Salary/wages, professional
income, and rental activities
The act also provides for some exemptions to reduce the taxable
income
Agriculture, being a subject under the state list only the state can levy
tax, even though it is mentioned in Income Tax Act
Capital Gains Tax is levied on the realized capital gains upon the
sale of some assets
Minimum Alternate Tax (MAT)is applicable only to corporations
and not individuals. It is a way to tax those companies which book
high profit but pay negligent tax on their income.
Wealth tax is levied on wealth (the sum of the value of all assets)It
promotes benami transactions and is highly unfair and undesirable
Professional Tax is a tax levied on a professional. It is levied by the
states. IT Act defines six professionals i.e. doctor, CA, lawyer, model,
architect, and interior designer
The state can also define profession through a notification
Not all states levy professional tax
Indirect tax -It is levied by some authority at one entity but
collected from another entity
Event Tax Levied by Levied Ultimate
upon burde
n
Production Excise Center Producer Buyer
duty
Change of Custom Center Changer Buyer
international duty of
boundary bound
ary
Change in Entry tax State or Changer Buyer
domestic for local of
boundary state bodies bound
and e.g. ary
Octroi Chungi
for in Delhi
local
bodies
Sale of service Service State Service Buyer
tax provid
er
Sale of goods Sales tax State Seller Buyer
(intra-state)
Sale of Central Levied by Seller Buyer
goods(interstat Sales the
e) Tax center
(CST) but
appropri
ated to
the state
where
the sale
occurre
d
Value Added Tax
It is similar to sales tax but differs in the manner it is levied
Like sales tax, it is levied on the value of the transaction
The idea is whenever a tax is levied it shall only be upon the value
added in the process
The cascading effect of tax
THE CASCADING EFFECT of a tax is a kind of tax on tax and is
commonly called double taxation
It occurs when tax is levied upon the value of goods after every stage
of production
It leads to taxation on every successive transfer of goods and results in
an increased tax burden on the consumer
INPUT TAX CREDIT (ITC)
It is a method of offsetting taxable income on behalf of tax paid on
earlier input costs
ITC is the backbone of the VATing system (VAT taxation system)
It is aimed towards benefitting consumers by lowering the final value
To ensure the benefits get transferred to the customers, the anti-
profiteering concept was introduced in GST (Goods and Service Tax)
The concept prohibits the middleman from benefiting from the input
tax credit and ensures such benefit gets transferred to the consumers
The same tax is vatable against the same tax if done by the same
authority
GST is a comprehensive tax aimed at one nation one tax
GST subsumes all other events of taxation into one event which is the
sales
