India has a well developed India Government Tax structure with a three-tier federal structure, comprising of the Union Government, the State Governments, and the urban/rural local bodies. The power to levy taxes and duties is distributed among the three tiers of governments, in accordance with the provisions of the Indian Constitution.
The main taxes/duties that the Union Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax, and Service Tax.
The principal taxes levied by the State Governments are Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue, Duty on Entertainment and Tax on professions and callings.
Local bodies are empowered to levy tax on properties, Octroi, Tax on Markets, and tax/user charges for utilities like water supply, drainage, etc.
Since 1991 India Government Tax system in India has under gone a radical change, in line with liberal economic policy and WTO commitments of the country. Some of the changes are:
- Reduction in customs and excise duties
- Lowering of Corporate Tax
- Widening of the tax base
Direct Taxes
Personal Income Tax:
Individual income slabs are 0%, 10%, 20%, 30% for annual incomes upto Rs 50,000, 50,000 - 60,000, 60,000 - 1,50,000, and above 1,50,000 respectively.
Corporate Income Tax:
For domestic companies, this is levied @ 35% plus surcharge of 5%, and for foreign companies, it is @ 40% plus surcharge of 5%. An Indian registered company, which is a subsidiary of a foreign company, is also considered an Indian company for this purpose.
Sales Tax
Central Sales Tax (CST):
CST is 4% on manufactured goods.
Local Sales Tax (LST):
Where a sale takes place within a state,
LST would be levied. Such a tax would be governed by the relevant state tax legislation. This is normally up to 15%.
Excise Duty
Excise duty on most commodities ranges between 0% to 16%. Only on 7 items, a duty is imposed at 32% - motor cars, tyres, aerated soft drinks, air conditioners, polyester filament yarn, pan masala, and chewing tobacco. Duty is charged at 30% on petrol with additional excise duty at Rs. 7 per liter. The said rates are subject to exemptions and deductions thereon as may be notified from time to time.
Central VAT (CENVAT) is applicable to practically all manufactured goods, so as to avoid cascading effect on duty.
Customs Duty
The rates of basic duties vary from 0 to 30%.
