TAXATION LAWS

TAXATION
The word Tax was derived from the latin word Taxore. The meaning of taxo is to estimate, appreciate or value.

Definitions
---Tax is the amount paid by persons staying within a territorial limit of a sovereign state and is levied on individuals, goods, property, business, services etc. Tax constitutes government revenue. ---Tax may also be defined as compulsory/exaction of money by public authorities for public purposes enforceable by law and doesnt mean payment for services rendered. Taxes are compulsory contributions imposed by the government on its citizens to meet its general expenses incurred for the common good, without any corresponding benefits to the tax payer.

Tax is levied by the state by virtue of its sovereign powers. Both the Union Parliament and the State legislatures are empowered under the constitution to make laws for the levy and collection of taxes.

Tax Revenue: A fund raised through the various taxes is referred to as tax revenues
FEATURES OF A TAX Compulsory payment. Refusal to pay a tax is offence No direct relation b/w tax payer & public authority. Tax payer cannot claim reciprocal benefits against the taxes paid .Reciprocation is towards the society in terms of public interest not towards the individual interest as such . Tax is a payment for an indirect service made by the government to the community as a whole Tax is payable periodically & regularly determined by the taxing

Tax Vs Fees Tax is a compulsory charge or payment levied or imposed by a public authority on an individual. Fees are charged for rendering services to the beneficiaries. Generally the amount of the fee depends upon the cost of services rendered e.g. court fees, license fees etc. Taxes Vs Penalties: A tax is compulsory contribution made by a tax payer. Fines and penalties are the payments made for the contravention of law. A public authority impose taxes mainly to obtain revenue and imposes penalties mainly to punish people for violating certain laws.

Principles of Taxation:

Canons or principles of taxation relate to the administrative aspects of a tax i.e. rate, amount, method of levy and collection of Tax. A good tax system must have a proper combination of all kinds of taxes having cannons like canon of equality, economy, convenience, certainty, productivity etc.
Good tax system should ensure maximum social advantage and the allocation of taxes among tax payers is to made according to the ability to pay. Taxes should be universally applicable in the sense that persons with same ability to pay are treated in the same way without any discrimination whatsoever. A good tax system should have built in flexibility, so that changes are possible according to the changing conditions of a dynamic economy.

Requisite Features of Good Tax System:

Last not the least is that a good tax system should be simple implying the absence of any unnecessary and avoidable complexities. It should also help in the rapid economic development of the country TYPES OF TAXATION
Taxes

have been classified in various ways on different bases such as the form, nature, aim and method of taxation. The most important classifications are:1. 2.

Progressive,Taxes. Direct and Indirect taxes

DIRECT TAXES

Direct tax is a tax which is paid by a person on whom it is legally imposed and the burden of which cannot be shifted to any person. ---- Dalton

Thus, impact, i.e., the initial or first burden, and the incidence, the ultimate burden of a direct tax- is on the same person. The tax payer is the tax bearer.

A TAX WHICH CANNOT BE SHIFTED IS DIRECT AND ONE WHICH CAN B SHIFTED IS INDIRECT Ex. Income tax, wealth tax,

Advantages of Direct Tax

1. Justifiable:- based on the taxable capacity and burden is justifiably distributed

2.
3.

Progressive :- as higher rate of taxes on higher income groups and vice-versa. Poor people are exempted from direct tax.
Certain:- Assesses is certain about the amount of income tax

4.
5.

Elastic: Higher proceeds are possible by increasing the rate of these taxes
Distributive justice;- as they help in reducing the glaring inequalities of income & wealth.

Disadvantages

Arbitrary:- fixed by the govt. as it depends upon the political will.

Evasion:- conceal their income by maintaining the bogus accounts.

Reduce saving:- as major chunk is taken away in the form of taxes. It effects the capital formation. Limited tax base:- reach only salaried people, businessman avoid and evade tax

INDIRECT TAXES
An indirect tax is imposed on one person but is paid partly or wholly by another.

Indirect taxes are those taxes the burden of which by nature is shifted & which are paid by the tax payer indirectly i.e. while purchasing goods & commodities, paying for services etc. 1. Taxes are paid only when goods are purchased, so tax payer does not feel the burden of tax
2. This tax is convenient as govt. collects it directly from producers or importers.

Ex. sales tax,

FEATURES OF INDIRECT TAXATION

Shifting of tax burden
Tax payer doesn't receive a direct pinch Tax evasion is comparatively less in case of organized sector Tax imposed on commodities directly effects the prices of commodities.

MERITS
Convenient:- to pay as tax payer doesn't feel the burden directly

Disguised (hidden):-announcement doesn't provoke resentment as tax payer is in the dark about the amount of tax. Not easily evadable:- as they are merged with the prices. Broad based:- people who are exempted from direct tax, caught in the net of indirect tax according to the ability to pay tax. Social Value;- discourage consumption of some harmful commodities as intoxicants, tobacco, etc

 Forced saving:-moving the saving potential into the hands of govt. who utilises it for public interest. Complementary:- Additional revenue can be generated by introducing an indirect tax rather than a direct tax. Progressive:-Indirect taxes on luxuries and semi- luxuries are progressive

as they fall on rich peoples outlays.

DEMERITS
In equitability;- charged at a proportional rate in case of general commodities, not paid according to the principle of ability to pay. Less productive;- as this tax involves many stages, so cost of collection is high comparative to revenue yielded. Inflationary potentially Disincentive effect on saving;- discourages savings due to high prices of commodities.

Government of every country mobilizes resources through taxes to meet requirements of maintaining law & order, protecting economy from external aggression,.

TAXATION SYSTEM HAS BEEN STRUCTURED WITH FOLLOWING OBJECTIVES IN VIEW: Mobilization of resources for economic development Reduction of inequality in distribution of income & wealth Controlling consumption of particular commodities and consumption pattern

Protecting domestic industries against foreign competition

Encouraging saving & investment and promotion of capital formation

THE INDIAN TAX SYSTEM a) Taxes on income:i) Personal income tax b) Taxes on property and capital transactions:(i) wealth tax c) Taxes on commodities: (i) Excise duties (ii) Customs duties (iii) Sales tax