Written By: - Manthani Medha Reddy
The taxation laws in India play a significant role in India’s economy, which ensures to keep the revenue stable. It also ensures and manages the growth of the economy and maintains industrial activity.
India is a three-tier federal structure, which consists of the Union government, the state government and local self-government. These governments are empowered with different taxes and duties. The local self-government also consists of municipal councils and municipalities, which are also empowered with the responsibility of many taxes.
The definition of the tax is given as the monetary burden for the property owners and also individuals, just as a contribution to the revenue of the government. So, therefore, the tax is a compulsory payment rather than a voluntary contribution or donation. This payment is imposed by any legislative body. Tax is divided into two- direct tax and indirect tax. Tax can be paid by any means i.e., direct, or indirect tax. There can be revenue growth in the economy with an effective tax system and laws. This can be faster than the GDP (Gross Domestic Product).
The taxation system in India
7th schedule of the Constitution of India consists of 3 lists-
Union list- This list contains the matters like the power, the central government has to make laws in India, which is mentioned in Article 246(1).
State list- This list consists of the power the state government has to make laws, as mentioned in article 246(3).
Concurrent list- This list consists of the power of both central and state governments to make laws, as mentioned in Article 246(2).
Types of taxes in India
There are two types of taxes- Direct and Indirect tax. GST is considered the biggest tax reform in India. This is an indirect tax.
This tax is imposed both on property owners and individuals. This kind of tax cannot be accepted or transferred to any other. This type of tax includes wealth tax, gift tax, income tax, etc. The ministry of finance has a board called the Central Board of Direct Tax (CBDT) for revenue development. This board serves a dual purpose, which provides essential ideas, major planning ideas, and any other policies to be executed regarding direct taxes in India. For managing these direct taxes, the Income Tax department plays a major role with the help of the Central Board of Direct Taxes (CBDT).
This tax is imposed indirectly on the public through goods and services. For instance, when an item or product or good is sold in any state, then for this product, the government imposes a sales tax and the rate for the item is also given by the government. This is known as the Value Added Tax (VAT).
The Central Board of Excise and Customs (CEBC) is in charge of formulating duty policies, gathering custom excise duties and gathering service tax.
After GST, this board has been renamed the Central Board of Indirect Tax and Customs (CBIC). This board’s main objective is to assist the government in establishing policies related to GST.
India's Taxation Laws in the Constitution
Every Indian law has its origins in the Constitution, hence knowing the articles of the Constitution is essential to have a comprehensive knowledge of any law. The following are the types of constitutional provisions concerning taxation in India:
This article simply states that no taxes could be levied without the 'power of law.' The term "law" refers only to statute law or a legislative act. The law must not be applied in a way that violates any other article of the Constitution. This article serves as a barrier against arbitrary tax collection.
In the case of Tangkhul v. Simirei Shailei , many of the people in a village were paying the village head Rs 50 per day instead of a tradition of giving free labour. Annually, this was done, and the tradition had been passed down through the years. In this instance, the Court concluded that the sum of Rs. 50 was similar to a collection of taxes, however, no law had allowed it, so it violates Art 265. Whenever the legislation does not authorise the tax levied, Article 265 is violatated.
The Consolidated Funds and Government Finance of India and the States are covered under this article. The law says that under the regulations of Article 267 and Chapter 1 (part XII), the entire or a portion of the net revenues of specific taxation to States, all loan payments issued by the Government through the issuance of Treasury bills, all finances earned by the Government in loan repayment, all receipts collected by the Government of India, and debts or other ways and means of developments shall establish one consolidated fund, which is to be recognised as the Consolidated Fund of India.
Article 269 lists the different taxes imposed and received by the Union, as well as the method by which they are distributed and assigned to states. In the case of Kalpana Glass Fibre Pvt. Ltd. Maharashtra v. State of Orissa and Others , the counsel for the claimant side argued that to reach a Taxable Revenue, revenue relating to inter- State money transfers, export, and import under the CST Act should be eliminated. As a result, Sections 3 and 5 of the CST Act usually apply to the rules of the State Sales Tax Act.
Yearly, this fund is levied to the Consolidated Fund of India in lieu of any percentage of the net revenue from the jute export taxes to the states of Assam, Bihar, Orissa, and West Bengal. This fund shall operate and be paid to the Consolidated Fund of India for as long as the Union government maintains to impose an export tariff on jute or jute items, or until it expires, which would be 10 years after it began.
These funds are authorised by law to be given to those states that are in urgent need of finances and help in obtaining those funds.
This article discusses the state government's taxation, which is imposed by the state government, administered by the state government, and received by the state government. However, the taxes collected are not standard throughout states and may change. To mention a few, there is sales tax and VAT, as well as professional tax and stamp tax.
Except for cesses, service charges, duties, or taxation imposed directly just before the beginning of the constitution through any municipal council or other local self-government for the activities of the State, which, amidst being noted in the Union List, can proceed to be imposed and utilised for the very same activities till new legislation conflicting it is enacted.
The difference between taxation and fees was defined in the case of Hyderabad Chemical and Pharmaceutical Works Ltd. v. State of Andhra Pradesh . Tax revenue is paid for the good of all citizens, but a fee is received for a specific reason.
It is generally used for one-time, transitory, or ad hoc programs, and the right to impose a penalty is unrestricted. The Supreme Court stated in the case Bhim Singh v. Union of India & Ors , that welfare programs have existed since the Constitution of India's application, with funds distributed by the Union Government to improve social welfare and for public benefit.
There are also many other taxation laws, which are Articles 268, 270, 271, 279, 286, 289, 301, 302, 303, 304, and 366.
India is a large country with population from various groups, wealth levels, and income levels. Taxation cannot be the same for everyone. This is the reason why India's tax structure has been so difficult for so long. India has been dealing with the issue of evading taxes, which appears to be hollowing out our taxation structure. India's tax rate is high, but its direct tax yield is minimal. As a result, the government has attempted to lower taxes throughout time. Furthermore, for a country to succeed, its tax collecting system must be reliable and effective, even if tax levels are not high, or else the country's funds will be emptied, and economic programmes will be reduced.
One of the most serious issues with India's taxation system is the government's ability to make brief changes to tax laws. The practise began with the Supreme Court's decision in the case of Chhotabhai Jethamal Patel & Co v. UOI & Others , which was followed by the passage of an amendment bill allowing for the review charges.
Tangkhul v. Simirei Shailei, 1958, available at: https://www.casemine.com/judgement/in/5767b11be691cb22da6d384b
Kalpana Glass Fibre Pvt. Ltd. Maharashtra v. State of Orissa and Others, 2012, available at: https://indiankanoon.org/doc/81708224/
AIR 1964 SC 1870, 1964 7 SCR 376, available at: https://indiankanoon.org/doc/64368306/
Bhim Singh v. Union of India & Ors, 2010, available at: https://indiankanoon.org/doc/976795/
1962 AIR 1006, 1962 SCR Supl. (2) 1, available at: https://indiankanoon.org/doc/1404351/