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11 views

Taxation notes

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achalapandey35
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© © All Rights Reserved
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TAXATION NOTES

DEFINITION

Taxation is a system in which money is paid as a premium as a subscription that


we buy from the Indian state with the idea of citizenship being renewed every
year.

To run a nation judiciously, the government needs to collect tax from the
eligible citizens; paying taxes to the local government is an integral part of
everyone’s life, no matter where we live in the world.

Now, taxes can be collected in any form such as state taxes, central government
taxes, direct taxes, indirect taxes, and much more. For your ease, let’s divide the
types of taxation in India into two categories, viz. direct taxes and indirect taxes.
This segregation is based on how the tax is being paid to the government.

Types of taxes

Be it an individual or any business/organization, all have to pay the respective


taxes in various forms. These taxes are further subcategorized into direct and
indirect taxes depending on the manner in which they are paid to the taxation
authorities.

1. DIRECT TAX

The definition of direct tax is hidden in its name which implies that this tax is paid
directly to the government by the individual or entity. The general examples of this
type of tax in India are income tax, capital gain tax, security transaction tax,
corporate tax, perquisite tax, salaries, wealth tax, etc. From the govt. perspective,
estimating tax earnings from direct taxes is relatively easy as it bears a direct
correlation to the income or wealth of the registered taxpayers.

2. INDIRECT TAXES

Indirect taxes are slightly different from direct taxes and the collection method is
also a bit different. These taxes are consumption-based that are applied to goods or
services when they are bought and sold.
The indirect tax payment is received by the government from the seller of
goods/services.

The seller, in turn, passes the tax on to the end-user i.e. buyer of the good/service.

Thus the name indirect tax as the end-user of the good/service does not pay the tax
directly to the government.

Some general examples of indirect tax include sale tax, Goods and Services Tax
(GST), value-added tax (VAT), etc.

TAX SLABS

As mentioned earlier, not all individuals shall pay the same amount of tax; the
general rule is – the higher your income, the higher amount of tax you will have to
pay.

In order to ensure that tax rates and rules are fair rather than uniform, the
government uses income tax slabs to determine the rate at which each individual
tax assessee is liable to pay income tax.

Slabs Income tax rates

Up to rs. 3 lakhs Nil

Rs. 3 lakhs to 6 lakhs 5%

Rs. 6 lakhs to 9 lakhs 10%

Rs. 9 lakhs to 12 lakhs 15%

Rs. 12 lakhs to 15 lakhs 20%


Rs. 15 lakhs and above 30%

Tax slabs on goods: -

0% - food grains

5% - mass consumption items like spices and oil (mustard)

12% - processes foods

18% - soaps, oil, toothpaste, smartphone, refrigerators

28% - white goods, cars

28%+ cess – luxury cars, pan masala, tobacco, A rated drinks

GENERAL PRINCIPLES OF TAX LAW

Here are some general principles of tax law:


1. Legality: Taxes should be imposed only through laws enacted by the legislative authority.
Taxation must be authorized by law, and individuals and businesses have the right to know the
basis and rates of taxation.
2. Equity and Fairness: Tax systems should aim for fairness and equity, distributing the tax
burden in a way that reflects taxpayers' ability to pay. Progressive taxation, where higher-
income individuals pay a higher percentage of their income in taxes, is an example of this
principle.
3. Certainty: Tax laws should be clear and certain so that taxpayers can understand their
obligations. This principle helps avoid arbitrary or capricious actions by tax authorities.
4. Convenience of Payment: Tax laws should be designed to be convenient for taxpayers to
comply with. This involves considering the timing, manner, and method of tax payment.
5. Economy in Collection: Tax authorities should aim to collect taxes in a cost-effective
manner, minimizing administrative and compliance costs. Efficient tax collection processes
benefit both taxpayers and the government.
6. Flexibility: Tax laws should be adaptable to changing economic and social conditions. This
allows tax systems to respond to evolving circumstances without constant legislative changes.
7. Non-Retroactivity: In general, tax laws should not apply retroactively. Taxpayers have the
right to know the rules in advance and plan their financial affairs accordingly.
8. Privacy: Tax laws often include provisions to protect the privacy of taxpayer information.
Confidentiality is crucial to maintaining public trust and protecting sensitive financial
information.
9. Neutrality: Tax systems should aim to be neutral and not distort economic decision-making.
This means that tax laws should not unduly favor or disfavor particular industries, activities,
or individuals.
10. Enforceability: Tax laws need to be enforceable, and authorities should have the necessary
tools to ensure compliance. Penalties and enforcement mechanisms are typically included in
tax laws to encourage compliance.

INCOME TAX ACT

Defined u/s 2(24): - of the Income Tax Act defines income as including the following:
Salaries: Any salary, wages, annuity, pension, gratuity, or other payment received by an
individual from his employer is considered as income for taxation purposes.

FUNDAMENTAL PRINCIPLES OF TAX LAW


Principles of the taxation system
Legal foundation/power to make tax law: - much of the history of Indian political movement
have been based on opposition to arbitrary taxation. In light of this history, there are basic
constitutional principles that any act of taxation must have a legal basis. This principle means
that no tax can be levied except under the authority of a law. In India, this principle is written
into the constitution. In a colloquial sense, the phrase that can be used is not taxation without
legislation.
1. Principle of equality: -
The principle of equal treatment under the law applies not only to taxation but to all laws by virtue of
article 14 of the constitution of India 1950. It can be viewed as an application of the concept of
legality under which the law must be applied without exception to all those in the same circumstances.
The principle of equality has two meanings: - 1. Essentially procedural
2. Substantive
The procedural meaning is that the law must be applied completely & impartially regardless of the
status of the person involved. This means that no one may receive either preferential or
discriminatory treatment in the application of the law or may be denied procedural rights to challenge
application of the law to him or her.
The substantive meaning of the principles of equal treatment starts from the position that persons in
equal circumstances should be treated equally.
{Likes should be treated alike, unlike should be treated different}  principle of article 14
2. principle of Neutrality: -
Taxation should seek to be neutral between forms of business activity.
A neutral tax will contribute to efficiency by ensuring that optimal allocation of the means of
production can be achieved in this sence neutrality also entails that the tax system raise revenue while
minimising discrimination in favour of or against any particular economic choice

3. Efficiency: -
Tax collection efforts should not cost an inordinately high percentage of tax revenue.
e.g. ops vs. nps, idea of demonetisation

4. Earmarking – budgeting: -
Tax revenue from a specific source should be dedicated to a specific purpose only when there is a
direct cost and benefit link b/w the tax source and the expenditure.

5. Adequacy: -
Taxes should be just enough to generate revenue required for provision of essential public services.

6. Broad – Basing: -
Taxation should be spread over wide as possible section of the population, or sector of economy, to
minimise individual tax burden.

7. Compatibility: -
Taxes should be coordinated to ensure tax neutrality and overall objectives of good governance.

TAXING POWER AND CONSTITUTIONAL LIMITATION

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