Taxation in India
India’s tax collection structure is well divided and the central government, state governments and local bodies are responsible for it. The union governments collect income tax, central excise and service tax while the state governments levy taxes on land revenue, VAT, stamp duty etc. The local bodies are responsible for water tax, octroi and many other taxes.
There are three broad classification of taxes, namely, ad valorem and specific taxes, indirect and direct taxes and progressive and regressive taxes. An ad valorem tax means the tax is imposed on the basis of total value of the commodity whereas the specific tax is the tax imposed on the basis of weight, quantities, size, breadth and width.
Direct tax is imposed on someone and its burden is not shifted to another and borne by the person himself example income tax, corporate tax. Indirect taxes are imposed on someone but whose burden can be shifted to someone else example excise duty, sales tax and customs duty.
A Progressive tax is a tax under which as income goes up, the rate of tax will go up so as those earning higher income ends up paying more. A proportional tax is a tax under which whatever be the income level, the rate of tax remains the same so that differences between higher income and lower income is same before tax as it is after tax.
Every citizen should follow proper tax planning practices. This means that he should pay his taxes as well as makes proper investment and select right tax saving instruments. The tax that is to be paid is deduced on the income earned and the kind of investment made. There are many tax exemptions investment, which is made on the basis on source of income. The investors should have proper tax planning to avail these benefits.
The income tax can be calculated with the help of income tax calculator. It calculate the taxable income by combining the income on the basis of salary, allowances and incentives, capital gains and other sources of income. For the fiscal year 2007-08, income up to Rs 1, 10,000 per annum is exempted from such tax. For the income above this amount, there are various slabs. The additional charge of 10 per cent is levied if the income crosses Rs 8, 50,000. The education cess of 2 per cent is added along with this charge.
In India, the amount of indirect taxes was very high compared to the direct taxes. In 1991, prior to tax reform, just 19 per cent of the taxes came from direct tax while the percentage was 81 per cent from the indirect taxes.
The fact that in a country indirect taxes are predominant against direct taxes suggest that burden of taxation falls more heavily on the poor people because indirect taxes are taxes on commodities.
But after tax reform based on Chelliah and Kelkar committee recommendation, many of these characteristics have been addressed to make the tax structure simple, broad based, reduce the multiplicities of taxes, reduce complexities of taxes and even plug evasion.