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What is taxation ?

A tax may be defined as a pecuniary (financial) burden laid upon individuals or property to support the Government, payment exacted by legislative authority. A tax is not a voluntary payment or donation, but enforced contribution, exacted pursuant to legislative authority and is any contribution imposed by government. Tax is a compulsory payment made to government, whether union, state or local. In other words, taxation is the imposition by a government of a compulsory contribution on its citizens for meeting all or part of its expenditure. Imposition of any tax requires two things: 1. One, the tax base,i.e., the object that will invite tax, such as, income, whether sales, production of goods, services, employment, etc., 2. Two, the rate structure, i.e., whether the tax rate will be uniform on the entire tax base or different on different slabs of the tax base. It does not entitle the tax payer to any preferential treatment in the matter of Govt.services or benefits. Use of the tax revenue is to provide benefits and services to the public, without discrimination in favor of taxpayers. Tax payment may be in cash or kind. Ordinarily, tax payment is in cash. However, it may also be in kind , for example, when the Government acquires any asset or purchases goods below the market price, or uses its monopolistic position to charge excess price for goods or services provided by it.

What are the four R s of Taxation?


Taxation has four main purposes or effects:1. 2. 3. 4. The main purpose is revenue Redistribution Taxation is Reprising Consequential

Revenue:
Taxes raise money to spend on roads, schools and hospitals, and no more indirect Government functions like market regulation or legal systems. This is the most widely known function.

Redistribution: Normally, this means transferring wealth from the richer sections of
society to poorer sections.

Reprising:
Taxes are levied to address externalities: tobacco is taxed, for example , to discourage smoking, and many people advocate policies such as implementing a carbon tax.( It is an example of a pollution tax).

Representation:
Several studies have shown that direct taxation(such as income taxes) generates the greatest degree of accountability and better governance, while indirect taxation tends to have smaller effects.

Explain the History of taxation:


In India, the tradition of taxation has been in force from ancient times. It finds its references in many ancient books like Manu Smriti and Arthasastra. There was a perfect admixture of direct taxes with indirect taxes and they were varied in nature. Indias history of taxation suggests existence of a large and composite taxable population. With the advent of the moguls in India the country witnessed sea of charge in the taxation system. Although, they also practiced the same norm of taxation but it was more homogeneous instructure and collection. The period of British rule in India witnessed some remarkable change in the whole taxation system of India. Although, it was highly in favor of the British government and its exchequer but it incorporated modern and scientific method of taxation tools and systems. In 1992, the Country witnessed a paradigm shift in the overall Indian taxation system. Setting up of administrative system and taxation system was first done in the history of taxation system in India. The period thereafter witnessed rapid growth and modernization of the Indian taxation system.

Explain the taxation system in India


India has a well developed tax structure with a three tier federal structure , comprising the Union Government , the State Government and the Urban/Rural Local Bodies. The power to levy taxes and duties is distributed among the three tiers of governments, in accordance with the provisions of the Indian Constitution. The main taxes /duties that the Union Government is empowered to levy are Income Tax (except tax on agricultural Income,

which the State governments can levy), Custom duties, Central Excise and Sales Tax (tax on intra-state sale of goods ), Stamp duty ( duty on transfe of property), State Excise ( duty on manufacture of alcohol), Land Revenue(levy on land used for agricultural /non-agricultural purposes),Duty on Entertainment and Tax on Professions. The goods for use / consumption within areas of the Local bodies ), tax on markets and Tax/user charges for utilities like water supply , drainage, etc. Since 1991 tax system in india has undergone a radical change , in line with liberal economic policy and WTO commitments of the country. Some of the changes are: Reduction in customs and excise duties Lowering corporate tax

Explain the different types of Taxes


Duty : It is the tax on production/ export of goods. Production of goods invites excise duty,
import or export of goods invites import or export duty . Imposition of duty may be to raise revenue or to regulate production, import or export of goods.

Cess:
It is an additional charge computed with reference to the amount of tax. Toll Tax: It is the tax on using a bridge , road, or selling goods in a market.

Rates :
They are tax on occupiers / owners of property within the area of a local government.They may include fare, charge or other payment for carriage of passengers, animals or goods.

Octroi :
It is the tax on goods brought for sale or consumption within the area of a local government. They may include fare , charge or other payment for carriage of passengers, animals or goods. Fee: Charge of any fee is to compensate the Government for expenses incurred by it to render services of a specific nature to the payers of the fee. Levy and collection of fee does not need authority of statutory law passed by legislature, as in case of income

tax(parliament) or General sales tax (state legislature) . Moreover, payment of fee involves a quid pro quo. The payer receives a specific service or benefit in return for payment.

What are the two incidences of tax ?


A tax payer pays tax, or bears the initial legal impact of it, because he has caused the taxable event. Taxable event means anything done by a person that makes him liable to tax. It may be production of income or goods , or consumption of goods. However, the basic point is whether the person who initially bears the impact of tax is also the person who finally bears its incidence or burden. Impact and incidence of tax are the two important criteria to decide whether any tax is direct or indirect.

What is direct Tax ?


A Direct Tax is a kind of charge , which is imposed directly on the tax payer.The examples of direct tax include Income tax , Property tax (or)Wealth tax and Gift tax. Alternatively, it can be said that a direct tax is one that is taken away from ones salary or wages or any other personal belongings of one person. When the tax government upon the property , then it is called property tax, which is also a direct tax.

Explain the Direct Tax in India


In India , all the direct tax related matters are taken care by the Central Board of Direct Taxes(CBDT),which is a significant division of the department of Revenue, ministry of finance,Government of India. CBDT is functioning under the central board of revenue Act 1963. CBDT is responsible for formulating and enforcing direct taxes in India. One of the vital functions of CBDT is to administer direct taxes law followed by Income Tax department.

What is Indirect Tax ?


Indirect taxes are the charges that are levied on goods and services. Some of the significant indirect taxes include VAT (value Added Tax), Sales tax, Excise duty, Customs duty and Service tax. The indirect tax can be alternatively defined as the charge that is paid by one individual at the beginning, but the burden of which will be passed over to some other individual, who actually holds the burden.