|





"It was only for the good of his subjects that
he collected taxes from them, just as the Sun
draws moisture from the Earth to give it back
a thousand foldơ

-- Kalidas in Raghuvansh
þ


Ä o tax is to impose a financial charge or other
levy upon a taxpayer (an individual or legal
entity) by a state or the functional equivalent
of a state such that failure to pay is
punishable by law.

Ä
tax may be defined as a "pecuniary burden

laid upon individuals or property owners to
support the government a payment exacted
by legislative authority.ơ
Ä
tax "is not a voluntary payment or
donation, but an enforced contribution,
exacted pursuant to legislative authority" and
is "any contribution imposed by government
whether under the name of toll, duty,
custom, excise, subsidy, aid, supply, or other
name."
6
 



Ä he main purpose is revenue: taxes raise money

to spend on armies, roads, schools and
hospitals, and on more indirect government
functions like market regulation or legal
systems.
Ä
second is redistribution. Normally, this means
transferring wealth from the richer sections of
society to poorer sections.
Ä
third purpose of taxation is repricing. axes
are levied to address externalities: tobacco is
taxed, for example, to discourage smoking, and
a carbon tax discourages use of carbon-based
fuels.
Ä
fourth, consequential effect of taxation in its
historical setting has been representation. he

merican revolutionary slogan "no taxation
without representation" implied this: rulers tax
citizens, and citizens demand accountability from
their rulers as the other part of this bargain.
§



Ä ax can be classified into two types:
Ä irect ax ƛ
direct tax is one paid directly
to the government by the persons on whom it
is imposed.
Ä Indirect ax ƛ
n indirect tax is the charge
that is collected by intermediary from the
individual who holds the actual economic
burden of the tax.
|


 
Ä he main types of irect taxes are:
(i) Income ax
(ii) Wealth ax
(iii) Professional ax
à
 

Ä Income ax is the direct tax charged by the
Government on the income of an individual or
a group of individuals.
Ä his income maybe a fixed and periodic
monetary return from definite sources.
Ä he Income tax rules and regulations are
governed by the Income ax
ct,1961.
þ
 

Ä he concept of Wealth-tax originates from
the Wealth ax
ct of 1957.
Ä Wealth tax is tax on the benefits derived from
property ownership.
Ä he tax is to be paid year after year on the
same property on its market value, whether
or not such property yield any income.
6
 


Ä Professional ax is a State level ax in India
which is levied on professions, trading
practices and other types of employments.
Ä he Indian states levying this tax includes the
states of West Bengal, Karnataka,
Maharashtra,
ndhra Pradesh, Gujarat, amil
Nadu and Madhya Pradesh.
irect tax advantages
Ä Economy- he tax payer makes the payment
to the state directly and deducting the cost of
collection, which directly adds up to Stateƞs
income.
Ä ertainty- Proper provision for the payment
of taxes on times, easy for the State to make
financial plans.
Ä Elasticity- he yield from direct taxes
increases with an increase in wealth and
population.
Ä Social effects and distributive justice
È Redistributes the fruits of developments,
develop civic consciousness among tax
payers
È Reduce the glaring inequalities in the
distribution of wealth and income
È Income tax and inheritance taxes are
useful in this direction.
à


 
Ä he main types of Indirect taxes are:
(i) Sales ax
(ii) Excise uty
(iii) ustoms uty
(iv) Service ax
(v) Entertainment ax
(vi) Entry ax



Ä Sales tax is levied on the sale of movable
goods.
Ä Most of the Indian States have replaced Sales
tax with a new Value
dded ax (V
) from

pril 01, 2005.
Ä V
is imposed on goods only and not
services and it has replaced sales tax.
Ä V
is implemented at the State level by
State Governments.
Ä V
is applied on each stage of sale with a
mechanism of credit for the input V
paid.
r
 | 
Ä It is the Indirect tax levied on the
manufacture of products. Only the
manufacturer as such is liable to pay it as
such.
Ä Manufacture of goods in India attracts Excise
uty under the entral Excise act 1944 and
the entral Excise ariff
ct 1985.
Ä Newspapers and electricity are some of the
manufacturers exempted to pay the tax.
§ | 
Ä It is the indirect tax collected and retained by
the Government of India on the importing or
exporting of goods.
Ä he levy and the rates of ustom uty in
India is governed by the ustoms
ct 1962
and the ustoms ariff
ct 1975.
Ä he exemptions from ustoms uty in India
are given to Free- rade zones, Special
Economic Zones [SEZs] and 100% Export-
Oriented Units [EOUs].




Ä Service tax on taxable services rendered in
India are exempt, if payment for such
services is received in convertible foreign
exchange in India and the same is not
repatriated outside India.
Ä It is levied and collected by the entral
Government and a percentage of it is given to
the respective State Governments.
r

 

Ä It is a tax levied by the State Government
and acts as a source of revenue for it.
Ä It is levied on the various types of
amusement activities.
Ä Movie tickets, large-scale music concerts or
commercial shows and private festival or
other celebrations are levied for
entertainment tax.
r


Ä his is a type of indirect tax levied by the
State government on vehicles undergoing
inter-state travel.
Indirect ax isadvantages
Ä onvenient- indirect taxes are convenient to
the tax payers and the State both. he tax
payer makes the payment when he purchases
commodities in small amount and he does
not feel them. he State can collect them in
bulk from importers, exporters and
producers.
Ä Elasticity ƛ with proper adjustments indirect
taxes are elastic sources of revenue. If they
are imposed on commodities of wide
consumption, the revenue from them can
increase to great extent.
Ä ifficulty of evasion- ordinarily, indirect taxes
cannot be easily evaded. hey are included in
the prices of commodities and every time a
commodity is purchased, the purchaser pays
the tax.
Ä he contribution of direct taxes to the
GP is 6.1%.

Ä he contribution of indirect taxes to the

GP is 10.57%.