Tax System in India is a three tier system, controlled by the central government, the State Governments and the Urban and Rural Local Bodies.
History:
The Indian government introduced a liberal economic policy from 1991 which brought about a massive change in the Tax System in India like the rationalization of the tax rates, simplification of the tax laws, easy tax payment, reduction in customs and excise duties, lowering corporate tax, widening of the tax base and modulating the tax administration. From the year 2005, the sales tax of many Indian states have been replaced with a new tax known as Value Added Tax.
The main taxes levied by the union government:
The union government levies certain taxes as per the rules of the Indian constitution. They are-
Income Tax
Customs duties
Central Excise
Sales Tax
Service Tax
Capital Gains Tax
Securities Transaction Tax
The main taxes levied by the state governments:
The principal taxes levied by the State Governments as per the rules of the Indian constitution are-
- Sales Tax on intra-State sale of goods or Value Added Tax
- Stamp Duty on transfer of assets
- State Excise duty on manufacture of alcohol
- Agriculture income tax
- Duty on Entertainment
- Tax on Professions
The taxes levied by local bodies:
The local bodies levy certain taxes like-
- Tax on properties
- Octroi Duties
- Tax on Markets
- Utility taxes
Reporting Period of the tax system in India:
The Tax System in India gives certain fixed time for the payment of the essential taxes. The financial tax year in India commence on the first day of the month of April and ends with the last day of the month of March. Every business personality should present an annual return by October 31 while those who are wage earners need not submit any annual return.
Deduction within the Tax System in India:
There are certain deductions made by the employer like from the salary of employees to make contributions to a provident fund and insurance on a monthly basis.
The Tax System in India reflects the tremendous dependence of the Indian government on the revenue from the indirect taxes which exceeds more than two-thirds of the total tax intake of the Indian government.
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