Historical Tax Changes in India
Over the years, India has undergone significant changes in its taxation system, reflecting the evolving economic environment and policy needs of the country. A series of taxes, such as the inheritance tax, interest tax, gift tax, and wealth tax, have been introduced and subsequently abolished, illustrating the dynamic nature of fiscal policy. One notable example is the Wealth Tax Act of 1957, which was put in place to levy taxes on individuals’ net wealth but was repealed in 2015. This repeal marked a significant shift in the government’s approach towards taxing wealth, as it aimed to simplify the tax structure and relieve individuals of the burden posed by wealth-related taxes.
Direct taxes in India had traditionally been governed by two major pieces of legislation: the Income Tax Act of 1961, which outlines the framework for income taxation, and the Wealth Tax Act of 1957, which, prior to its repeal, regulated the taxation of wealth accumulation. While these acts served their purpose for several decades, they also became increasingly complex and outdated in the face of modern economic realities. A reform initiative was proposed in the form of the Direct Taxes Code (DTC), intended to replace both the Income Tax Act and the Wealth Tax Act with a more streamlined and coherent tax framework. This proposal, however, did not materialize, as the idea of the DTC was eventually dropped, indicating a pivot in legislative focus.
The repeal of wealth tax and the cessation of the DTC proposal raise significant discussions regarding the future of direct taxation in India. The Indian government has since focused on enhancing compliance with existing tax laws and promoting taxpayer-friendly practices. Additionally, the Goods and Services Tax (GST) has emerged as a major reform in indirect taxation, further reshaping the landscape of revenue collection in the country. The impacts of these changes continue to influence tax policy discussions, as stakeholders seek to balance revenue generation with equitable taxation measures that foster economic growth and development.
Distribution of Taxation Powers
The Indian Constitution establishes a clear framework for the distribution of legislative powers, which includes taxation, through Article 246. This article delineates the responsibilities of the Parliament of India and the State Legislature, ensuring that different levels of government can legislate on matters that are pertinent to their respective jurisdictions. This legislative division is further clarified in Schedule VII of the Constitution, which categorizes various subjects into three distinct lists, thereby facilitating an organized approach to governance.
List - I, known as the Union List, comprises subjects on which only the Parliament has the authority to legislate. This includes critical national matters such as defense, foreign affairs, and atomic energy. As such, taxation on these matters is exclusively managed by the central government, making it crucial for revenue generation that supports national infrastructure and defense initiatives.
List - II, also referred to as the State List, consists of subjects on which only the state legislatures have the prerogative to enact laws. This list covers local matters that directly affect the lives of citizens within the state, such as police, public health, and agriculture. Additionally, it includes specific heads of taxation that the states can levy, which helps them generate revenue tailored to their unique needs and circumstances.
List - III is known as the Concurrent List, which comprises subjects that can be legislated by both Parliament and State Legislatures. However, it is important to note that this list does not include any heads of taxation, indicating that there is no concurrent power of taxation between the Union and the States over any subject matter. The absence of concurrent taxation powers ensures that either the Union or the State is definitively responsible for taxation issues, preventing conflicts and fostering clear governance.
Understanding the structure of taxation as laid out in these lists is vital for grasping how India's federal system functions. The Union government has a list of thirteen specified heads of taxation, which includes income tax, customs duties, and service tax, while the State governments have their set of nineteen heads of taxation, such as sales tax, state excise, and property tax. This structured approach allows for a blend of centralized and decentralized fiscal responsibilities, promoting both national unity and regional autonomy in financial matters.
Income Tax Overview
Income tax is a crucial component of the tax system in many countries, including India, where it is levied on the income or profit of individuals and entities, collectively referred to as taxpayers. The calculation of income tax generally involves multiplying taxable income by an applicable tax rate. However, unlike corporate taxation, individual income tax is structured using a system of slab rates, meaning that different portions of an individual’s income may be taxed at differing rates. This tiered approach aims to ensure a fairer taxation system, where individuals with lower incomes pay a smaller percentage of their income as tax compared to those in higher income brackets.
In India, the Finance Act of 2020 introduced a significant change by presenting taxpayers with the option to choose between the old tax regime, which allows for various deductions and exemptions, and a new tax regime featuring lower tax rates but fewer exemptions. This flexibility in tax planning enhances individual taxpayers' ability to optimize their tax liability based on their specific financial situations and preferences.
Tax Collection and Compliance
The collection of income tax in India is administered by the Income Tax Department, which operates under the jurisdiction of the central government. An important aspect of this tax regime is the exemption of farmers, who represent approximately 70% of the Indian workforce, from paying income tax. This policy recognizes the unique economic challenges faced by those in agriculture and aims to support the livelihood of a substantial portion of the population.
Tax compliance is also an important aspect of the income tax system in India, with specific deadlines established for filing income tax returns. Generally, these due dates fall on July 31, September 30, or November 30, depending on the taxpayer's classification, such as individual, corporate, or partnership firms. It is important for all individuals and entities earning income in India to adhere to these deadlines to avoid penalties and ensure compliance with tax laws.
Categories of Income
Income in India is classified into five distinct categories, which include Income from Salary, Income from Other Sources, Income from House Property, Income from Capital Gains, and Income from Business and Profession. Each category comes with specific rules and considerations for taxation, influencing how taxpayers report and manage their income. Understanding these categories can help taxpayers effectively navigate their financial obligations and potentially minimize their tax liabilities through careful planning and strategy.
For anyone looking to optimize their tax filing and management strategies, various resources and tools are available, including tax advisory services that provide insights and planning strategies tailored to individual circumstances. Accessing reliable financial advice can be invaluable for taxpayers seeking to maximize their tax benefits while remaining fully compliant with the law.
Goods and Services Tax
Goods and Services Tax (GST) is an indirect tax regime implemented in many countries, including India, aimed at streamlining the process of taxation on the supply of goods and services. By eliminating the cascading effect of taxes, GST ensures that taxpayers only pay tax on the value addition at each step of the supply chain. This system fosters transparency and efficiency while boosting the economy.
In India, GST is divided into three segments: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST). The CGST is the portion of the tax collected by the central government on intrastate sales, meaning transactions that occur within a single state. Conversely, the SGST is the portion that the respective state government collects on the same intrastate sales. For interstate transactions, where the goods or services are supplied across state borders, the GST is applied as IGST. This system ensures that both the center and the states receive equitable revenue from transactions occurring within their jurisdictions.
GST further classifies goods and services into five distinct tax slabs: 0%, 5%, 12%, 18%, and 28%. This differentiation helps cater to various categories of products and services, with essential goods typically falling under lower tax rates to make them more affordable for consumers. Items like food grains and life-saving medicines often attract the 0% slab, while luxury goods might fall under the higher 28% bracket. It is important to note, however, that certain products, such as petroleum, alcoholic beverages, and electricity, are excluded from GST. These commodities are still governed by the previous tax framework, allowing individual states to impose their own taxes separately, thus retaining significant chunks of revenue at the state level.
Understanding GST and its structure is critical for both consumers and businesses alike. For businesses, compliance with GST regulations is essential to avoid penalties and ensure smooth operations. Moreover, GST encourages businesses to maintain accurate records and promotes seamless tax credit mechanisms, thereby enhancing business operations. For consumers, GST has the potential to lower prices on many goods and services, providing a better framework for consumption. The overall objective of GST is not only revenue generation but also the simplification of the tax structure, making the tax landscape more straightforward and user-friendly.
Understanding Customs Duty
Customs duty is a significant component of India's taxation system, imposed on the import and export of goods. This tax is levied at specific rates that vary depending on the type of goods being traded. The primary role of customs authorities is to ensure the transparency and accuracy of the details related to goods that cross the borders. They meticulously verify the origin, value, and tax rates applicable to each item, which is vital for maintaining regulatory compliance.
The measure of customs duty hinges on the value of the imported or exported items. It is particularly noteworthy that customs duty rates tend to be much higher for certain categories of goods, including what are often referred to as "sin goods." These include products like liquor and imported cigars, which not only contribute to tax revenue but are also subject to additional restrictions due to their potential societal impact.
This indirect tax is categorized into two primary forms: import custom duty, applicable when goods are brought into India, and export custom duty, applied to goods leaving the country. The collection and management of customs duties fall under the jurisdiction of the Central Board of Indirect Taxes and Customs (CBIC). This agency is responsible for ensuring the effective implementation of customs laws and regulations.
In recent years, especially as of February 2020, the Indian government has made concerted efforts to promote local manufacturing. As part of this initiative, import duties on various goods, such as electronic devices, furniture, and toys, were raised. This move aims not only to protect domestic industries from foreign competition but also to encourage the consumption of locally produced goods, thereby supporting economic growth and job creation within the country.
Overall, customs duty plays a crucial role in international trade and economic policy in India. It safeguards the interests of local producers while generating revenue for the government. Understanding this framework is essential for businesses engaging in international trade, as it impacts pricing, competitiveness, and compliance requirements in a global market.
Overview of Service Tax in India
Service tax was a form of indirect tax imposed by the Government of India on various services provided by firms and service-oriented companies in exchange for monetary compensation. This tax was ultimately passed on to consumers, resulting in a multi-level collection process involving various authorities before reaching the central government. The effectiveness of the service tax system depended on compliance and the explicit agreement between service providers and consumers regarding the services rendered. As such, service tax was applicable only to those services classified under taxable categories as defined by legislation.
Implemented as a principal mechanism for generating revenue, the service tax was initially managed by the Central Board of Excise and Customs (CBEC). The tax model underwent significant evolution over the years. In 2012, it became mandatory for all services, unless specific exemptions were outlined in the law. Notably, this encompassed services excluded under the Negative List, and exemptions outlined under the Mega Exemption Notification (MEN). During the budget presentation of 2008-2009, the government introduced a provision whereby small service providers, whose gross turnover did not exceed ₹10 lakh (approximately USD 12,000), were exempt from service tax obligations.
Rate Adjustments and Additional Levies
In 2015, the service tax rate was set at 14 percent, inclusive of the Education Cess (EC) and Secondary and Higher Education Cess (SHEC), effective from June 1, 2015. The introduction of the Swachh Bharat Cess on November 15, 2015, added an additional 0.5% to the total, bringing the effective service tax rate to 14.5%. This initiative aimed to fund cleanliness campaigns and improve sanitary conditions across the country. Subsequently, on February 29, 2016, the then Finance Minister Arun Jaitley announced the introduction of the Krishi Kalyan Cess, which imposed an additional 0.5% on all taxable services starting June 1, 2016. This particular cess was dedicated to enhancing agricultural activities and improving the welfare of farmers in India. Consequently, the total service tax rate reached 15%, incorporating all existing cesses.
Economic Impact and Transition to GST
Between 2015 and the time of its cessation, the service tax regime contributed significantly to the Indian economy, with gross tax collections exceeding ₹2.10 trillion (around USD 25 billion). These revenues were crucial for government finances and were utilized for various developmental and welfare initiatives. Despite its earlier importance, the service tax framework has been phased out and replaced by the Goods and Services Tax (GST) system, which was introduced in July 2017. The transition to GST marked a comprehensive restructuring of indirect taxation in India, streamlining processes and creating a unified framework for both goods and services. Service tax is no longer applicable, as the GST aims to create standardized tax rates across the country, thereby simplifying compliance for businesses and improving the overall efficiency of tax collection.
Overview of Central Excise
Central excise is a vital component of India's taxation framework, contributing significantly to the government's revenue. In the fiscal year 2015–2016, the gross tax collection from central excise duties reached an impressive ₹2.80 trillion (equivalent to approximately US$34 billion). It is a direct tax levied on the manufacture of goods within India, and the legal basis for this levy is primarily established under the Central Excise Act of 1944. This legislation not only delineates the scope of excise duty but also sets forth the specific goods that are liable for taxation.
Legislative Framework
The Central Excise Act, 1944, stands central to the governance of the excise duty system in India. It empowers the government to impose duties on goods produced or manufactured within the country. Complementing this act is the Central Sales Tax Act of 1956, which imposes tax on the sale of goods in inter-state trade or commerce. This two-pronged approach helps streamline taxation on goods throughout the supply chain while ensuring compliance across state lines.
Another important legislation impacting excise duty is the Central Excise Tariff Act of 1985, which categorizes goods for easy determination of applicable rates. To further elaborate on the valuation of excise goods, the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, were enacted. These rules provide a structured methodology for determining the assessable value of goods subject to excise duty, ultimately influencing the tax liability.
Impact on Industries
An illustrative case of the central excise duty's impact is highlighted in the Union Budget of 2016, wherein a duty of 1% was imposed on articles of jewellery without the input tax credit and escalated to 12.5% when such credit was applicable—excluding silver jewellery from this burden. This move was a significant shift in policy, reflecting the government's intention to widen the tax base in the jewellery sector amidst ongoing efforts for tax reform. Notably, an earlier attempt to impose an excise duty on jewellery during the Budget 2011–12 faced substantial backlash from jewellers, leading to its withdrawal. Such instances underscore the delicate balance that the government must maintain in tax policy implementation to encourage compliance while also safeguarding the interests of various industries.
Overall, central excise remains a crucial source of revenue for the Indian government, and its regulation and enforcement through a robust legal framework are essential for the overall economic landscape of the country.
Local Body Taxes Overview
Local Body Tax (LBT) is a taxation system implemented by local civic bodies in India, designed to levy charges on the entry of goods into designated local regions for purposes such as consumption, use, or sale. This taxation mechanism finds its foundation in the Indian Constitution, specifically within Entry 52 of the State List in Schedule VII, which empowers state governments to impose taxes on goods entering local jurisdictions. The rationale for such taxation is to facilitate local governmental operations and development projects through revenue generated from commerce conducted within their boundaries.
The LBT structure functions by requiring traders to pay the tax upon the arrival of goods into a local area. In practice, the specifics of LBT—the rate of taxation, the process for collection, and the regulations governing it—vary significantly from one state to another, reflecting regional economic policies and administrative practices. These differences can sometimes create a complex regulatory environment for businesses operating across state lines, as they must navigate the various local tax requirements and compliance issues.
However, the imposition of Local Body Tax faced criticism over the years due to perceived burdens on traders and the administrative complexities involved. As a result, many states considered alternatives to streamline the taxation process. Following these discussions, the Government of India announced a partial abolition of LBT, which came into effect on August 1, 2015. This shift aimed to alleviate some of the tax burdens on businesses while transitioning to other forms of indirect taxation. The move was part of a broader initiative toward improving the ease of doing business in India and ensuring that the taxation system is simpler, more predictable, and business-friendly.
Despite the abolition of LBT in many areas, the legacy of this tax system continues to impact local revenue models and the dynamics of trade within states. As local bodies look for alternative revenue streams, they are increasingly exploring other taxation mechanisms, like the Goods and Services Tax (GST), which was implemented in July 2017. GST aimed to unify the taxation landscape across India and replace several indirect taxes, including LBT, to create a single, consolidated market, thereby enhancing overall economic efficiency. The transition from LBT to more uniform taxation practices marks a significant evolution in India’s approach to local governance and fiscal policy, navigating the challenges of economic growth in a diverse and federated system.
Understanding Property Tax
Property tax, often referred to as 'house tax,' is a local tax levied on buildings and the associated land. This tax is imposed on the possessor of the property, rather than the true custodian, as outlined in the 1978, 44th amendment of the constitution in India. It mirrors a wealth tax model similar to that found in the United States, distinguishing itself from the excise-type tax system employed in the United Kingdom. The authority to levy this tax is primarily vested in the state governments, which then delegate powers to local bodies. These bodies are responsible for determining the method for property valuation, establishing the rate bands, and overseeing the collection of taxes.
The valuation of properties for tax purposes generally hinges on the annual rental value (ARV) or is based on area-based assessments. In cases where properties are owner-occupied or do not generate rental income, the assessment is based on the cost of the property, which is subsequently converted into ARV by applying a typical rate of six percent. It is noteworthy that vacant land is usually exempt from this tax, while properties owned by the central government also enjoy a tax exemption. Instead of property tax, central government properties are permitted to levy a 'service charge' based on directives from executive orders. Furthermore, properties belonging to foreign missions benefit from a tax exemption, granted without the need for reciprocal arrangements.
In addition to property tax, homeowners and property owners often face several service taxes related to municipal services. These may include water tax, drainage tax, conservancy (sanitation) tax, and lighting tax, all of which utilize the same tax base as the property tax. The structure of the property tax rate is relatively flat for properties located in rural areas governed by panchayats. Conversely, urban properties assessed by municipalities generally reflect a mildly progressive model, where approximately 80% of all assessments fall within the initial two slabs of the rate structure. This design aims to ensure that the burden of taxation is equitably distributed among the property owners, taking into account their respective property values and rental income potential.
Tax Evasion in India
Tax evasion remains a pervasive issue in India, significantly impacting the government's ability to fund essential services and infrastructure. The country's income tax structure reveals a troubling reality; income tax contributes only about 5% to India's Gross Domestic Product (GDP). This low percentage is primarily because only 2-3% of the Indian population falls within the purview of income taxation, highlighting a disparity when compared to other developing nations. For instance, in China, 20% of the population is subject to income tax, resulting in a more robust taxation system. The challenges India faces in expanding its tax base stem from a high prevalence of informal employment and a low number of formal wage earners. This situation can be traced back to the historical context of tax administration in India, which was established during British rule in 1922 but has evolved slowly over the decades.
To address the rampant tax avoidance and improve compliance, the Indian government introduced the General Anti-Avoidance Rules (GAAR) effective from April 1, 2017, through amendments to the Income Tax Act of 1961. GAAR aims to combat tax evasion by scrutinizing arrangements or transactions that are perceived to be primarily designed to secure tax benefits, particularly those exceeding INR Three Crores in any financial year. This framework serves to deter tax evasion by allowing tax authorities to disallow treaty benefits if one of the principal purposes of a transaction is to obtain tax advantages. The introduction of these rules aligns with global initiatives like the Base Erosion and Profit Shifting (BEPS) project led by the Organization for Economic Co-operation and Development (OECD) and G20 nations, which seek to protect domestic tax bases from erosion due to aggressive tax-planning strategies.
Moreover, the BEPS Action Plan Report 6 mandates the implementation of the Principal Purpose Test (PPT) as a minimum standard among member countries. This test reinforces the notion that tax treaty benefits cannot be claimed if one of the main purposes of the transaction is tax avoidance. As a result, many bilateral tax treaties that India has established now incorporate this standard, which poses challenges for multinational corporations (MNCs) that have historically utilized structures involving jurisdictions like Mauritius, known for favorable double taxation avoidance agreements (DTAA) with India. The introduction of the PPT has led to increased scrutiny of such arrangements, as the Indian tax authorities can question the substance of these transactions and potentially deny the benefits associated with tax treaties. A recent ruling by the Authority for Advance Rulings in New Delhi regarding Tiger Global International II Holdings underscores the implications of these regulatory changes, emphasizing the complexities that MNCs must navigate in this evolving tax landscape.
Ultimately, the dual challenges of widespread tax evasion and the evolving legislative framework necessitate a more vigorous and transparent approach to taxation in India. By addressing the root causes of tax non-compliance and reinforcing mechanisms like GAAR and PPT, the Indian government can work towards building a more equitable taxation system that contributes effectively to the nation’s development goals while enhancing compliance and accountability.
Historical Context of Tax Evasion
The landscape of income taxation has undergone significant transformations since its inception, with initial tax rates being relatively low compared to current levels. This lower tax burden contributed to minimal rates of tax evasion. However, the outbreak of World War II acted as a crucial turning point. As the war strained supplies and triggered widespread shortages, the government responded by increasing tax rates to fund war efforts. The resultant economic pressures, such as soaring commodity prices, drove the emergence of black markets across the nation. A societal shift began to take place, where tax evasion became more normalized as people sought to navigate increasingly oppressive financial conditions.
Factors Contributing to Tax Evasion
As tax evasion grew more commonplace, the government endeavored to combat the issue by imposing even higher taxes, unfortunately leading to a vicious cycle. In today's context, tax evasion is especially prevalent among self-employed individuals, who possess greater avenues to obscure the true source of their income. A notable example is the exaggeration of income from agriculture, which remains exempt from central income tax, allowing individuals to take advantage of loopholes without scrutiny. Moreover, tactics such as shifting income to spouses or children and establishing fictitious partnerships are commonly employed to evade taxation effectively.
Several systemic issues underpin the rampant tax evasion and generation of black money, particularly in India. A convoluted tax structure, frequent amendments that confuse taxpayers, and a shortage of personnel tasked with enforcement create an environment conducive to evasion. Coupled with high tax rates, the absence of substantial penalties for those caught evading taxes further emboldens noncompliance. Additionally, ineffective prosecution machinery and poorly thought-out regulations exacerbate the problem, as does the existence of sales tax and excise duty evasion.
The Role of Corruption
The interplay of corruption and tax evasion cannot be overlooked; as black income proliferates, bribery becomes a tool for evasion and retention of wealth. Many corrupt businesspersons engage in sponsorship of political parties using illicit funds, which not only augments their financial power but also diminishes their tax responsibilities. This close interplay between business interests and political financing creates a vicious cycle that perpetuates the lack of revenue for essential government functions and public welfare. While individuals often point fingers at government inefficiency and resource shortages, many fail to recognize the importance of personal accountability, particularly concerning tax obligations. This lack of awareness reinforces a culture where tax evasion is rationalized as a viable option rather than an illegal act with far-reaching consequences for society as a whole.
Effects of Mass Tax Evasion
The widespread occurrence of tax evasion has led to the emergence of a black market economy, which operates outside the legal and regulatory framework. This parallel economy is characterized by transactions that evade taxation, effectively creating a significant disconnect from the formal economic landscape. The existence of black money not only fuels inflation but also significantly hampers the government's ability to stabilize prices for essential commodities. As a result, the financial burden on ordinary citizens increases, leading to higher living costs and exacerbating the struggle for families to meet their daily needs. Government resources that could be channeled into public services and welfare programs are diverted to combat these illicit activities, which further diminishes the capacity to improve the overall quality of life for citizens.
Moreover, extensive tax evasion has serious implications for national development. It undermines the government's revenue collection, which is crucial for funding infrastructure, healthcare, and education. The understated GDP due to mass tax evasion leads to weaker economic indicators, affecting foreign investment and overall economic growth. Economically disadvantaged groups, including low and middle-class families, experience increased difficulty in achieving upward mobility as public resources become stretched and inaccessible. One of the concerning social byproducts of this phenomenon is the rising cultural expectation for large dowries in marriages, a custom that places a heavy financial burden on families, particularly those from modest backgrounds. This societal pressure reinforces cycles of poverty and reinforces economic disparity.
Furthermore, the normalization of tax evasion sets a troubling precedent that undermines core societal values such as honesty, integrity, and hard work. When individuals observe widespread acceptance of cheating the system, it can lead to a collective erosion of moral standards, where compliance with laws and regulations is seen as optional. This not only perpetuates the cycle of tax evasion but also diminishes public trust in governance and institutions. As ethical values decline, the temptation to bypass rules becomes more pronounced across various aspects of life, resulting in a culture where dishonesty may be tolerated or even celebrated. Ultimately, addressing the issue of tax evasion requires not just stronger enforcement policies but also a concerted effort to foster an environment that values transparency, accountability, and ethical behavior in society.
Government Initiatives Against Tax Evasion
The Indian government has undertaken significant measures to address the pervasive issue of tax evasion, which poses a major challenge to the country's fiscal health. One of the key strategies employed is through rigorous enforcement by the Income Tax Department. This includes conducting searches, seizures, and surveys as well as scrutinizing income tax returns to identify discrepancies and ensure compliance. These actions are complemented by initiatives such as the Voluntary Disclosure of Income Schemes (VDIS), which allows individuals to declare previously undisclosed income and assets without facing penalties or prosecution. Such measures underline the government's approach to encourage transparency and enhance tax compliance among citizens.
In addition to enforcement actions, legislative changes have established a stronger framework to deter tax evasion. The introduction of the Prevention of Money-Laundering Act categorizes all activities related to money laundering as serious offenses, mandating a minimum imprisonment of three years. Such stringent laws emphasize the government’s commitment to combating financial crimes. Moreover, the Finance Act of 2004 targets the falsification of financial records and imposes taxes on gifts exceeding 25,000 Rupees, further tightening regulations around wealth declaration and tax liabilities. This multifaceted approach indicates a comprehensive strategy to tackle the complexities surrounding tax evasion, which has historically been addressed through recommendations from various commissions such as the Taxation Enquiry Commission of 1953 and the Administrative Reforms Commission of 1969.
Despite these efforts, challenges remain, particularly in enforcing compliance in cash transactions which often go unreported. The requirement for an identification number for significant financial dealings was a step towards monitoring such transactions, but cash-based activities continue to pose a significant barrier to effectively combating tax evasion. As a result, the Indian government continues to refine its strategies and explore new technologies and methodologies that could enhance transparency in the financial sector.
Taxation Framework in India
The framework for taxation in India is established through various constitutional provisions that categorize taxes into Union and State Lists. Under the Union List, the government has the authority to levy taxes on income (excluding agricultural income), custom duties, excise duties on specified goods such as petroleum products and tobacco, corporation tax, capital value taxes, and several other types. This systematic categorization allows the central government to efficiently collect revenues that are essential for the planning and execution of national development programs.
Meanwhile, state governments exercise their rights to impose taxes outlined in the State List. These include land revenue taxes, taxes on agricultural income, excise duties on locally manufactured alcoholic beverages, and taxes on goods and passengers transported within the state. Furthermore, the State List also provides for taxes on properties, including lands and buildings, as well as other local levies essential for municipal governance and development. The dual structure of taxation not only ensures a fair distribution of resources between the center and states but also helps tailor tax policies to address regional economic dynamics.
With tax evasion being a shared concern across various levels of governance, both the central and state governments must collaborate effectively to tackle the issue. Continuous efforts to enhance tax collection mechanisms and streamline processes are crucial for building a robust and fair tax system that contributes substantially to India's economic growth and stability.