types of taxes in India with notes.........

Law notes

1. TYPESOFTAXES:TherearefourwaystoclassifydifferenttypesoftaxesinIndia:1.TaxesLeviedbytheCentralGovernmentandStateGovernments2.OntheBasisofRelationshipbetweenTaxBaseandTaxRates3.OntheBasisofMethodofAssessment4.OntheBasisofIncidenceandImpactofTaxesTYPESOFTAXES:1.TaxesLeviedbytheCentralGovernmentandStateGovernments>BytheCentralGovernment:TheseincludeIncometaxes,GST,Customsduties,Corporationtaxes,Exciseduties,Estatedutyandmore>BytheStateGovernment:TheseincludeStateGST,ExciseonLiquor,VAT(valueAddedTax)onPetrol&Diesel,TaxonAgriculturalIncome,landrevenues,tollsandmore.>BytheLocalCivicBodies:Municipalcorporationsandotherlocalgoverningbodiescollecttaxeslikepropertytaxes,WaterTaxes,etc.2.OntheBasisofRelationshipbetweenTaxBaseandTaxRates:OnthisbasistheTaxesareclassifiedintoFourtypes,suchas;>ProportionalTax:Aproportionaltax,alsoreferredtoasaflattax,impactslow-,middle-,andhighincomeearnersrelativelyequally.Theyallpaythesametaxrate,regardlessofincome.TaxeswhichveryindirectproportiontothechangeinTaxBases.TheTaxbasecouldbeincome,ValueofGoodsandValueofWealthorProperty.Example:WealthTaxandSalesTax.>ProgressiveTaxes:Aprogressivetaxhasmoreofafinancialimpactonhigher-incomeindividualsandbusinessesthanonlow-incomeearners.ThatmeansAprogressivetaximposesagreaterpercentageoftaxationonhigherincomelevels,operatingonthetheorythathigh-incomeearnerscanaffordtopaymore.Example:IncomeTaxTYPESOFTAXES:OntheBasisofRelationshipbetweenTaxBaseandTaxRates>RegressiveTaxes:Low-incomeindividualspayahigheramountoftheirincomesintaxescomparedtohigh-incomeearnersunderaregressivetaxsystembecausethegovernmentassessestaxasapercentageofthevalueoftheassetthatataxpayerpurchasesorowns.Thistypeoftaxhasnocorrelationwithanindividual’searningsorincomelevel.Example:TaxesonGoods&Services,SuchasGST,ExciseDuty,etc.>

2. DigressiveTaxes:AtaxiscalledDigressivewhentherateofprogressionintaxationdoesnotincreaseinthesameproportionastheincomeincreases.Inthiscase,therateoftaxincreasesuptocertainlimit,afterthatauniformrateischargedandbecomeconstant.3.OntheBasisofMethodofAssessmentOnthisbasis,taxesareclassifiedintotwotypes,Suchas;>SpecificDuty:TaxesleviedaccordingtosomeunitofaproductiscalledasSpecificDuty.Forexample,ExciseDutyoncigarettesareleviedonthebasisoflengthofthecigarettes.>Ad-ValoremTax:TaxesleviedonthebasisofvalueofthegoodsiscalledasAd-ValoremDuty.Itisgenerallyexpressedinpercentageform.4.OntheBasisofIncidenceandImpactofTaxes:Beforediscussiononthetypesoftaxesinthisbasis,youhavetounderstandthemeaningoftwoimportantterms,i.e.‘Incidence’and‘Impact’ofTaxareasfollows;IncidenceofTax:IncidenceofTaxmeansthefirstburdenoftax.Incidenceoftaxfallsonapersononwhomthetaxleviedforthefirsttime.Incidenceoftaxcanbeshiftedtoanotherperson.ImpactofTax:Impactoftaxmeanstheultimate/finalburdenoftax.Impactoftaxfallsonthepersonwhoultimatelybearstheburdenoftax,i.e.theConsumer.Onthebasisofincidenceandimpactoftax,ataxcanbeeither,‘DirectTax’or‘IndirectTax’OntheBasisofIncidenceandImpactofTaxes>DirectTaxes:Theindividualsdirectlypaythesetaxestotherespectivegovernments.InthiscasethebothIncidenceandImpactwillfallinasingleperson,i.e.anassesse.ThemostnotableexamplesincludeIncometax,Capitalgainstax,Corporatetax,WealthTaxandSecuritiestransactiontax.>IndirectTaxes:Thesetaxesarenotdirectlypaidtothegovernmentsbutarecollectedbytheintermediarieswhosellorarrangeproductsandservices.Inthiscase,theIncidenceandimpactoftaxeswillfallontwodifferentpersons.GST(GoodsandServiceTax),Servicetax,salestax,octroi,customsduty,value-addedtax,andexciseduty,customsduty,aresomeofthetopexamples