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INDIAN TAX SYSTEM

In India central governments and local bodies collect
about 25 lakhs crores from various taxes. Before the
study of indian tax system we should know about
the term 'Tax' and it's features ~
Owing to certain historical reasons during British
rule our tax system continued for long to be in
unorganised -unregulated and unplanned .No
attention was paid for the uniformity in the tax
system. there existed a vast different between the
tax polices in uniformity in the state and provinces .



INDIAN TAX SYSTEM
The main aim of the ruler was to get as much money as
possible and hence no principle of taxation of
considered .There was nothing like the elements of
equity certainty and economy is the tax system .Tax
evasion occurred to a great extent .The tax system was
mainly regressive and its main aim was to finance the
administration .The aims of social welfare -social justice
and economics growth are only of post independence
origin in India .After independence every aspect of the
tax system was properly studied and every attempts
was made to make the tax system equitable -
economical just and production .

Merits And Demerits of Indian Tax
system

Indian tax system is base of Indian public
revenue comes through various taxes . The
merits and demerits of Indian tax system are
as under--
#Merits of Indian tax system :
In general Indian tax system is a good system
of taxation system .The merits of Indian tax
system are as following--

1.Based on equity : Indian tax system is based on the principle of
equity .The government leives various taxes on various section
of the Society considering their taxable capacity .Rich class may
pay more taxes so the govt. of India imposes Income Tax wealth
tax expenditure tax etc.on them while poor and lower middle
class are exempt form such taxes.
2.Various types of taxes: The government of India state
government and local bodies ( municipal corporation
municipalty gram panchayats etc.)impose various type of
taxes on production selling distribution of commodities and
income wealth and properties of person .Excise duty customs
duty income tax wealth tax service tax etc. are imposed by
the central govt. While value added tax sale tax Land revenue
entertainment tax professional tax stamp duty road tax are
imposed by state . Octori property tax Entry tax etc.are main
taxes which are levied by local bodies.
3.Elasticity : The feature of elasticity is found in the
Indian tax system .Excise duty customs duty sales tax
and income tax are such taxes from which the
governments can collect required revenue from little
alteration of tax rates or imposing surcharge .
4.Productive tax system : Indian tax system contains so
taxes which are productive nature. Income from excise
duty are increasing rapidly due to increase in
production from quantity and price point of view .
Revenue from Income tax increasing fast due to
prosperity and higher income of the persons . The state
governments earns more sales tax because turnover
of the dealers is increasing day by day.

5.A good combination : Indian tax system is a good
combination of direct and indirect taxes. Their is a clear
division of source between central and provincial
government The central govt. levies and collects some
important direct taxes like income tax and wealth tax
while Excise duty and customs duty are such indirect
taxes which pays sufficient revenue to central
government 2/3 parts of tax revenue comes through
direct taxes while remaining 1/3 part comes through
indirect taxes .It is good combination from developing
country point of view .On the contrary the state
governments mostly depends upon Indirect taxes -like
VAT State Excise duty etc.



6.Follow up the maximum welfare theory : Indian tax
system follows the principles of maximum welfare of
society in respect of public finance . The government
collect taxes from rich and higher income group and
spends on poors and weaker section of the society
.Heavy excise duty customs duty and sales tax are
imposed on Luxury good and essential goods are
exempt from tax or very low tax rates applied.
7.Rapidly reduction in tax rates : After liberalisation the
government has reduce tax rate rapidly .specially rates
of income Tax Excise duty and customs are reduced at
handsome levels .Once upon a time maximum rates of
income tax was 80% which is now 30% customs duty
was levied at 200% to 500% which is now only 10% .

8.Simplification : A parts from reduction of rates the
government of India has also simplified the tax Laws
and procedure for assessment . Now assessment of
income tax payers become more eaiser and quick . The
different rates of excise duty has been abolished and a
general rare applied .These steps have been proved
convenient for tax payers.
9.Wide scope of taxation : Indian tax system has a wide
scope of taxation .In this system mostly goods service
and person covered under various types of taxes
.Though the number of income tax payer is increasing
rapidly but still it is lower in term of percentage .Only
5% of total population is covered under income tax.

Notax system in the entire globe can claim perfection
but our tax's systems has more than the ordinary share
of shortcoming or defect may be noted-
1. Traditional and Conservative : The Indian tax system is
traditional and conservative so that taxes like land
revenue and excise duties continue in spite almost
universal criticism .Death duty gift tax wealth tax which
serve a useful purpose by reducing inequalities of
wealthhad not been introduced till recently.
2.Inefficient to check tax evasion : Our tax system is also
inefficient to check tax evasion .There is large Scale
evasion of taxes .
* Demerits of Indian tax system

3.Narrow coverage : As the planning Commission has
pointed out another unsatisfactor feature of the
Indian tax structure as at present is that it affects only
a narrow range of population to any appreciable extent
.Direct taxes for example affect about 2% of the
working force in the country .Similarly excise duties
on cloth and Tobacco are paid by a limited number of
consumers who use better varieties.

The percent level of the evasion of excise duty Sales
tax and income tax is around 2lacs crores per year
.It is about 25% of tax .This leads to the cutting
down of much potential revenue .
4.High Rate of Taxation : Another criticism against the
Indian taxation system is that the rates of the taxes
are heavy . Sometimes the rate are so heavy that
people cannot pay them.
5.Resources inadequate and Inelastic : Our resources
are also inadequate and inelastic .The revenue of both
the centre and the state are hopelessly small.
According to the estimates of planning commission
India 's total tax revenue formed about 11%of its
national income a very low figure as compared to other
relatively advance d countries . Thus the total tax
revenue formed 35% of the national income in the
U.K. 27% in Japan 23% in the USA and 22% in
Australia .

6.Uncertainty: Indirect taxes are often rather
uncertain. Taxes on commodities with elastic
demand are particularly uncertain, since quantity
demanded will greatly affect as prices go up
due to the imposition of tax. In fact a higher rate of
tax on a particular commodity may not bring in more
revenue.
7.Inflationary: The indirect taxes are inflationary in
nature. The tax charged on goods and services increase
their prices. Therefore, to reduce inflationary pressure,
the government may reduce the tax rates, especially,
on essential items
8.Possibility of tax evasion: There is a possibility of
evasion of indirect taxes as some customers may
not pay indirect taxes with the support of
sellers. For instance, individuals may purchase
items without a bill, and therefore, may not pay
Sales tax or VAT (Value Added Tax), or may obtain
the services without a bill, and therefore, may
evade the service tax.

CONCLUSION

Elaborate analysis of merits and demerits of
direct and indirect taxes makes it clear that
whereas the direct taxes are generally
progressive, and the nature of most indirect taxes
is regressive. The scope of raising revenue
through direct taxation is however limited and
there is no escape from indirect taxation in spite
of attendant problems. There is common
agreement amongst economists that direct
&indirect taxes are complementary and therefore
in any rational tax structure both types of taxes
must find a place.