Tax System in India

About Tax System in India



The taxation system in the Republic of India is quite well structured. The Department of Revenue of the Finance Ministry of the Government of India is responsible for the computation; levy as well as collection of most the taxes in the country. However, some of the taxes are even levied solely by the Local State Bodies or the respective governments of the different states in the nation.

Recent Changes in the Indian Taxation System



Over a period of 10 years to 15 years, the tax system in the nation has undergone some significant changes. The entire system has been tremendously reformed. The slabs for the imposition of taxes have been modified. Besides that, the rates at which any particular tax is being levied have been restructured as well as the various laws that govern the levying of taxes were being simplified. All of these reformations have resulted in the following:
  • Better compliance
  • Better enforcement
  • Easy payment of the levied taxes
The date of 1st April of the year 2005 is marked as the date of the implementation of the V. A. T. or the Value Added Tax by almost all the State Governments as a replacement of the earlier Sales Tax. Some of the states in the Indian Republic, where V. A. T. has not been implemented yet, still levy Sales Tax though. Apart from these, the process of rationalization of the tax laws is still in progress.

Taxes Levied by the Central Government of India


The Central Indian Government that is officially named as the "Union Government" is responsible for the imposition of both direct taxes as well indirect taxes. Listed below are some of the taxes that are levied by the India Government:

Direct Taxes
  • Banking Cash Transaction Tax
  • Capital Gains Tax
  • Corporate Income Tax
  • Fringe Benefit Tax
  • Personal Income Tax
  • Securities Transaction Tax
Indirect Taxes
  • Customs Duty
  • Excise Duty
  • Service Tax

Taxes Imposed by the State Governments


Though the majority of the taxes are levied by the Central Government of the country, there are some taxes, which can not be levied by them. These kinds of taxes are the one of the sole responsibilities of the governments of the individual states. To name a few of such taxes in India are:

  • Dividend Tax
  • Endowment Tax
  • Estate Tax
  • Gift Tax
  • Flat Rate Tax or Flat Tax
  • Fuel Tax
  • Inheritance Tax
  • Transfer Tax
  • Payroll Tax
  • Poll Tax
  • S. E. T. or Self Employment Tax
  • Social Security Tax
  • Usage Tax
  • Value Added Tax or Sales Tax
  • Wealth Tax

Taxes Levied by the Local Bodies


The Octori Tax or Entry Tax is the most famous tax, which is being imposed by the local bodies or the municipal jurisdictions on the goods' entry.

Tax Incentives in India


The India Government offers tax incentives that are subject to some specified conditions. Such incentives are provided for the following:

  • Allowance for accelerated depreciation
  • Corporate profit
  • Certain expense deduction on the basis of some particular conditions
A tax incentive is available for any fresh investment in any of the below mentioned sectors:

  • Companies involved in Research and Development
  • Development of housing projects
  • Development by undertakings
  • Food processing industry
  • Infrastructure
  • Mineral oil production and refining
  • Operating industrial places
  • Organisations handling food grains
  • Power distribution
  • Hospitals located in the rural areas
  • Specialised economic zones
  • Telecom services (For some specified services)
  • Undertakings based in some specified hill states
Last Updated on 2/16/2012

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