INTRODUCTION:

Tax is a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc. In general, tax can be defined as a levy or other type of a financial charge or fee imposed by state or central governments on legal entities or individuals. Local authorities like local governments, provincial governments, counties and municipal corporations also have the right to impose taxes. The rates, rules, and regulations of taxation differ from one country to another and they are complex in character. Tax is a principal source of revenue for a country's government. Governments use taxes to fund welfare and public services. These services can include education systems, health care systems, and pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. PURPOSE FOR TAXATION

Taxation has four main purposes or effects: a) Revenue, b) Redistribution, c) Reprising, and d) Representation.

The main purpose is Revenue: taxes raise money to spend on armies, roads, schools and hospitals, and on more indirect government functions like market regulation or legal systems. A second is Redistribution. Normally, this means transferring wealth from the richer sections of society to poorer sections. A third purpose of taxation is Reprising. Taxes are levied to address externalities: tobacco is taxed, for example, to discourage smoking, and a carbon tax discourages use of carbon-based fuels. A fourth, consequential effect of taxation in its historical setting has
1

been Representation. Rulers tax citizens and citizens demand accountability from their rulers as the other part of this The American revolutionary slogan "no taxation without representation" implied this: bargain. 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. TAX CLASSIFICATION Direct tax A direct tax is a form of tax is collected directly by the government from the persons who bear the tax burden. Taxable individuals file tax returns directly to the government. Examples of direct taxes are corporate taxes, income taxes, and transfer taxes. Indirect tax An indirect tax is a form of tax collected by mediators who transfer the taxes to the government, and also perform functions associated with filing tax returns. The customers bear the final tax burden. As a result these taxes are an important part of the total cost. As a result these taxes are an important part of the total cost. There are other types of taxes, which may either be direct tax or indirect taxes, including capital gains tax, corporation tax, consumption tax, inheritance tax, property tax, excise duty, retirement tax, tariffs, wealth tax or net worth tax, toll tax, and poll tax. TYPES OF TAXES IN INDIA DIRECT TAXES Income tax,Property tax, gift tax . INDIRECT TAXES Sales tax ,Vat, Excise duty, Custom duty, Sat, Service tax .

1. Income Tax:Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided families or firms or co-operative societies (other than companies) and trusts (identified as bodies of individuals associations of persons) or every artificial juridical person. 2. Property Tax: Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on owners 3. Gift Tax: Income Tax Act 1961 under section 56 (2). According to it, the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be taxable. 4. Customs Duty: Duties of customs are levied on goods imported or exported from India at the rate specified under the customs Tariff Act, 1975 as amended from time to time or any other law for the time being in force. 5. Central Excise Duty: Central excise duty is tax which is charged on such excisable goods that are manufactured in India and are meant for domestic consumption. The Central Government levies excise duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985. 6. Service Tax: The service providers in India except those in the state of Jammu and Kashmir are required to pay a Service Tax under the provisions of the Finance Act of 1994. The provisions related to Service Tax came into effect on 1st July, 1994. Under Section 67 of this Act, the Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. 7. Sales Tax: Sales Tax in India is a form of tax that is imposed by the Government on the sale or purchase of a particular commodity within the country. Sales Tax is imposed under both, Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation

LITRATURE REVIEW ARTICLE- Price Elasticity and Imposing a Specific Tax on the Buyers of Cigarettes Article considers the effect of a tax imposed by government upon cigarette. The demand curve is inelastic because consumers are addicted to cigarettes and will pay the extra burden to continue to smoke them .When prices increase due to tax (when demand is inelastic, the producer is able to pass all of an indirect tax to the consumer by increasing the market price) the quantity demanded decreases a very small amount. Government wanted to correct the negative externalities which smoking has with it by imposing a tax, the tax would have to be very large. The bigger the tax the more effect it will have on demand. Cigarettes have an inelastic demand curve, are income inelastic, and have no close substitutes therefore imposing a tax will only increase their government revenue and will not decrease the quantity demanded for cigarettes enough to solve all the costs that cigarettes bring. ARTICLE- The Final Incidence of Indian Indirect Taxes The Indian Bureau of Statistics provides a breakdown by industry of the revenue collected from each of the major indirect taxes in India. This information does not show who bears the ultimate burden of indirect tax as each industry may pass on its initial burden to others. Thus, the burden of the tax may be passed on round by round to indirect business purchases and final demand until the total burden of the tax is passed onto the final consumer. Using a method to derive final indirect tax incidence developed from earlier studies, the final incidence of a selection of indirect taxes in India is presented. The major innovation is to include the use of margin industries in the initial flows of the input-output matrix ensuring that taxes on inputs to margin services are fully passed forward onto the good or service that the consumer purchases. It is found that many goods and services that are initially exempt from the main indirect taxes, such as the wholesale sales tax, have significant effective tax rates once taxes on inputs to industry are taken into account.

RESEARCH METHODELOGY I use secondary sources as research methodology to find out the hidden truth and research the problems related to Perception and Decision Making. I collected the data through the various sources to make my research effective. Data is collected through various publications of books, journals, magazines and newspaper & internet websites to complete the research in a good track. IMPACT OF DIRECT TAX Direct Taxation in India Direct taxation in India is taken care by the Central Board of Direct Taxes (CBDT); it is a division of Department of revenue under Ministry of Finance. CBDT is governed by the revenue act 1963.CBDT is given the authority to create and control direct taxes in India. The most important function of CBDT is to manage direct tax law followed by Income Tax department.

In India the tax structure is divided amongst the central government and state government. The central government levies taxes on income, custom duties, central excise and service tax. While the state government levies tax like state excise, stamp duty, VAT (Value Added Tax), land revenue.

Direct taxes are charged on the basis of residential status and not on the basis of citizenship. The assessee are charged based upon the following factors

Resident Resident but not ordinary resident. Nonresident.

Direct Taxes Before Reform They had a major impact on economic policies, creation of savings and the trend of investment. There was no proportion in terms of the impact of direct taxes on the economy and there relative share in total tax revenues. The system of direct taxes was very much complex and inefficient because of the combination of high marginal rates of personal income and wealth taxation and
5

high rates of corporate profits. The corporate tax was pretty high. It leads to large scale evasion. Members Of Parliament and Central Government Ministers get comparatively low salaries, but they are given a sitting allowance which is not taxable. Ministers, MP's and other high ranking government officials get government allocated accommodation, where the charges are pretty less in comparison to the prevailing market rate.

Growth in Direct Tax collection during the Financial Year 2008-09 Net direct tax collection during the fiscal 2008-09 stands at Rs.338, 212 crore, up from Rs.312, 202 crore during 2007-08, registering a growth of 8.33 percent. Growth in Corporate Taxes was 10.84 per cent, while Personal Income Tax (including FBT, STT and BCTT) grew at 9.09%. Despite economic slow-down and substantial relief to non-corporate taxpayers, direct tax collections exceeded the previous year's collection by about Rs.26, 000 crore.

Growth In Direct Tax Collection During The Financial Year 2009-2010 The net direct tax collections grew by 5.77 per cent during the first two months of the current fiscal (2009-2010).It was Rs 24,158 crore compared to Rs 22,840 crore at the same time last year. Corporate tax grew at5.56 per cent (Rs 8578 crore against Rs 8126 crore), while personal income tax (including FBT, STT and BCTT) grew at 5.92 per cent (Rs 15,559 crore as against Rs 14,690 crore0.Overall refund outgo during the period increased by 26.19 per cent (Rs 11,375 crore as against Rs 9014 crore)while refunds to non corporate taxpayers grew by 61.7 per cent (Rs 2,149 crore against Rs 1,329 crore).

MERITS AND DEMERITS OF DIRECT TAX 1. Equitable. The burden of direct taxes cannot be shifted. Hence, equality of sacrifice can be attained through progression. Of course, the very low incomes can be exempted. This cannot be achieved by taxes on commodities which fall with equal force on the rich and the poor. The tax raises the price of the commodity and the price of a commodity is the same for every person, rich or poor.

2. Economical. Their cost of collection is low. They are mostly collected "at the source". For instance, the income tax is deducted from an officer's pay every month. This saves expense. The employer acts as an honorary tax collector. This means great economy. 3. Certain. In the case of a direct tax, the payers know how much is due from them and when. The authorities also know the amount of revenue they can expect. There is certainty on both sides. Certainty minimizes corruption on the part of the collecting officials. 4. Elastic. If the State suddenly stands in need of more funds in an emergency, direct taxes can well serve the purpose. The yield from income tax or death duties can be easily increased by raising their rate. People cannot stop dying for fear of paying death duties. 5. Productive. Another virtue of direct taxes is that they are very productive. As a community grows in numbers and prosperity, the return from direct taxes expands automatically. The direct taxes yield large revenue to the State. 6. A Means of Developing Civic Sense. In the case of a direct tax, a person knows that he is paying a tax; he feels conscious of his rights. He claims the right to know how the Government uses his money and approves or criticizes it. Civic sense is thus developed. He behaves as a responsible citizen Disadvantages of Direct Taxes 1 .Inconvenient. The great disadvantage of a direct tax is that it pinches the payer. He 'squeaks' when a lump sum is taken out of his pocket. The direct taxes are thus very inconvenient to pay. Nobody can help feeling the pinch. 2. Evadable. The assessee can submit a false return of income and thus evade the tax. That is why a direct tax is "a tax on honesty". There is a lot of evasion. Many of those who should be paying taxes go scot-free by concealing their incomes. 3.Arbitrary. If taxes are progressive, the rate of progression has to be fixed arbitrarily; and if proportional, 4hey fall more heavily on the poor. Thus, both are bad. The rate of taxes depends upon the whim of the Finance Minister. This is arbitrary.

4. If the taxes are too heavy, they discourage saving and investment. In that, case the country will suffer economically. IMPACT OF INDIRECT TAX Indirect taxes are imposed by the government on producers - but the burden of the tax can be passed onto consumers depending on the price elasticity of demand and elasticity of supply for the product. Therefore in most cases, consumers end up paying some or all of any indirect tax introduced into a market. An example of this is the air passenger duty per flight for domestic flights. Most airlines pass this straight onto the consumer when the final price is published and customer pay the all weight. A marginal tax on the sellers of a good will shift the supply curve to the left until the vertical distance between the two supply curves is equal to the per unit tax; when other things remain equal, this will increase the price paid by the consumers (which is equal to the new market price), and decrease the price received by the sellers. Alternatively, a marginal tax on consumption will shift the demand curve to the left; when other things remain equal, this will increase the price paid by consumers and decrease the price received by sellers by the same amount as if the tax had been imposed on the sellers, although in this case, the price received by the sellers would be the new market price. The end result is that no matter who is taxed, the price sellers receive will decrease and the price consumers pay will increase.

Taxation And Government Revenue The Government would rather place indirect taxes on inelastic commodities because the tax causes a small fall in the quantity consumed and as a result the total revenue from the tax will be greater. A good example of this is the high level of duty on cigarettes and petrol. Demand for both products changes little when a few extra pence are added to the price of a packet of cigarettes or a litre of fuel. Rising prices and higher taxes leads to a sharp rise in total government tax revenue. Cigarette and alcohol taxes provide some of the largest sources of tax revenue for the government every year.

Merits of Indirect Taxes

Indirect taxes are easy to implement as these are not related directly to the taxpayer income and depends on levied if the purchase or that particular transaction take place for which tax will due. Tax payer feels comfortable to pay tax on individual transaction. Usually taxpayer even doesnt know that if he is paying any type of tax. It is easy to make changing in the tax pattern and rates as compare to direct taxes. Policy makers normally balance their deficit budget through indirect taxes. Collection of indirect tax is certain as when there will be a sale of finish product the government generates revenue. Indirect taxes are used to change the buying behaviour of consumers. Like tobacco and liquor have the high tax rates.

Demerits of Indirect Taxes

Fixed Income Class suffers from these taxes as prices of the products increase and their purchasing power shrinks. Prices of commodities increase with indirect taxes. The upward trend of prices of the product cause cost push inflation. This increasing inflation disturbs the economy and balance of payment. There is always a fluctuation in people buying behaviour which disturbs the government budgeted income. The government forecasted cash flow is not certain if there is recession in the economy or the people buying pattern will change. Difficulty in tax calculation and collection are the drawbacks of indirect taxes. As these taxes start form raw material and the burden keep passing on to the final consumer but if any intermediary manipulate his transaction statistics there will be loss of revenue

BUDGET FOR DIRECT & INDIRECT TAX 2013 The budget presented proposes to mobilise Rs18,000 crore in which new proposals in indirect taxes would yield Rs4,700 crore and direct taxes of Rs13,300 crore.

Chidambaram fin min underlined the need for increasing the tax-GDP ratio. He said that in 201112, the tax-GDP ratio was 5.5 per cent for direct taxes and 4.4 per cent for indirect taxes. These ratios were among the lowest for any large developing country and would not garner adequate resources for inclusive and sustainable development. In 2007-08, the tax-GDP ratio touched a peak of 11.9 per cent and in the short term, he said adding that that peak needed to be reclaimed. As regarding the direct taxes, a relief of Rs2000 for tax payers in the first bracket of Rs2 lakh to Rs5 lakh had been proposed, while at the top end a surcharge of 10 per cent on the highest tax bracket of 30 per cent for individual assessees whose taxable income exceeds Rs1 crore has been proposed to be levied. The surcharge has been increased from 5 to 10 per cent on domestic companies whose taxable income exceeded Rs10 crore. In case of foreign companies, the surcharge would increase from 2 to 5 per cent, if the taxable income exceeded Rs10 crore. Additional surcharges would be levied for only one year. Chidambaram said, education cess would continue at 3 per cent. The finance minister announced the grant of investment allowance at the rate of 15 per cent to manufacturing companies that invested over Rs100 crore in plant and machinery during the two year period 2013 to 2015. A concessional rate of tax of 15 per cent on dividends received by Indian companies from their foreign subsidiaries will be extended for another year. TDS at the rate of 1 per cent on the value of the transfer of immovable property where the price exceeded Rs50 lakh has been proposed, though agricultural land would be exempt from TDS.

10

Modified provisions of GAAR would come into effect from April 2016, an increase in the tax rate on payments of royalty and fees for technical services to non-residents from 10 per cent to 25 per cent has been sough to to be introduced. It has also been proposed to introduce introduce a Commodities Transaction Tax (CTT) in a limited way. Agricultural commodities would however, be exempted. A number of administrative measures such as extension of "refund banker" system to refund amounts of over Rs50,000, technology based processing, extension of e-payment through more banks and expansion of the scope of annual information returns by Income-tax Department have been proposed. Presenting his Union Budget, the finance minister P Chidambaram reiterated that clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary for greater assurance formed the underlying theme of his tax proposals. Chidambaram has also proposed setting up a Tax Administration Reforms Commission.

FINDINGS The main finding of this research is that indirect tax highly effect the consumers. Most of the indirect tax in paid by the consumers as producer forward taxes to them by increasing the end price. Some of the product have high indirect tax include in its prise such as cigarettes and liquor. These taxes effect the consumers by changing there equilibrium price. The middle fixed salry class suffer mostly by indirect tax. There are also some competitive and highly elastic market where producer take the burden of the tax. Government uses the indirect tax for some other social and economic reason also like the indirect tax like anti-dumping duty help to prevent home product demand tax on the addicted things which reduce there use frequency. So indirect tax are also a useful tool for the government.

11

RECOMMENDATIONS
Direct taxes framework should include:

Increase in deduction for housing loan from Rs 1,50,000 to Rs 3,00,000

Reduce MAT rate for infrastructure companies and SEZ developers/units

Broaden the tax base by requiring the mandatory filing for specified transaction or extending the presumptive tax regime

Omit the retrospective amendments relating to royalty and indirect transfer introduced by last year budget

No tax on short-term capital gains on transfer of listed securities On the indirect tax front:

Keep the Indirect tax rates unchanged, especially the Service tax and Central excise rates

Reduce the rate of SAD to 2% and allow an up-front exemption to the industry having surplus CENVAT credit

All services liable to service tax should qualify as 'input service' and manufacturer should be allowed to take full CENVAT credit of the same

Wherever the payments towards the services rendered are received in foreign currency the benefit of export of services should be available. The conditions relevant to export of services should be liberalised accordingly.

12

Bibliography
Indirect taxes-Law and Practice, Written by V.S.Datey, 30th Edition, TaxmanPublication. Direct Taxes-Law & Practice-A.Y 2013-14-Written by H.C.Mehrothra, Sahitya. http://w-articles.com/web/files/33d91f7075237244e8234691e53102b6-7.html

http://en.wikipedia.org/wiki/Tax

http://onlinelibrary.wiley.com/doi/10.1111/1467-8462.00123/pdf

13