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Public finance
This article is part of the series: Finance and Taxation
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Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such the Municipality or the Local Council. The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Center and the State. An important restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law."^[1] Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.

Constitutionally established scheme of Taxation

Schedule VII of the Constitution distributes the power of taxation between the Parliament and the State Legislature. This Schedule VII carries three lists;

• List - I entailing the areas on which only the parliament is competent to makes laws,
• List - II entailing the areas on which only the state legislature can make laws, and
• List - III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.

In terms of these three lists of Schedule VII, the distribution of taxing powers is as under;

Any tax levied by the government which is not backed by law or is beyond the powers of the legislating authority and may be struck down as unconstitutional.

Taxation laws in India

The major tax enactment in India is the Income Tax Act of 1961 passed by the Parliament, which imposes a tax on income of individuals and corporations. This Act of 1961 imposes a tax on income under the following five heads;

• Income from house and property,
• Income from business and profession,
• Employment Income,
• Income in form of Capital gains, and
• Other income

In essence, the Act of 1961 imposes tax in the nature of the following;

• Income Tax
• Corporation Tax
• Capital gains tax
• Fringe Benefit Tax
• Inheritance tax

Other major taxation laws enacted by the Parliament are;

1. Wealth Tax Act, which has a regular history of being passed and repealed;
2. Service Tax, imposed under Finance Act, 1994, which taxes the provision of services provided by service providers within India or services imported by Indian from outside India;
3. Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India;
4. Customs Act, 1962, which imposes duties of customs, counterveiling duties and anti-dumping duties on goods imported in India;
5. Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in India;
6. Transaction Tax, which taxes transactions of sale of securities and other specified transactions;

The major taxation enactments passed by the State Legislatures are in the nature of the following;

1. Excise duties on tobacco, alcohol and narcotics;
2. Sales tax, on sale of goods within the State;
3. Stamp duties, on sale of property situated within the State;
4. Entertainment taxes

Income tax rates

In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons. The rate of taxes are prescribed every year by the Parliament in the Finance Act, popularly called the Budget. In terms of the Finance Act, 2008, the rate of tax for individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI) is as under;

For the Assessment Year 2009-10 Taxable income slab (Rs.)

• Up to 1,50,000 - NIL
• Up to 1,80,000 (for women) - NIL
• Up to 2,25,000 (for resident individual of 65 years or above) NIL
• 1,50,000 – 3,00,000 - 10%
• 3,00,001 – 5,00,000 - 20%
• 5,00,000 Above - 30%

• A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

Note : -

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount. For details Income Tax Rates for Financial Year 2008-09

See also

• Union budget of India
• Tax law

Reference List

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