TAX STRUCTURE IN INDIA

The tax system in India mainly, is a three tier system which is based between the Central
government, State Governments and the Local government organizations. India has a welldeveloped tax structure with clearly separated authority between Central and State Governments
and local bodies. Central Government levies taxes on income, customs duties, central excise and
service tax. According to the Constitution of India, the government has the right to levy taxes on
organizations and individuals. However, the constitution states that no one has the right to levy
taxes except the authority of law or the parliament. The main body, which is responsible for the
collection of taxes, is the Central Board of Direct Taxes, which is a part of the Department of
Revenue under the Ministry of Finance of the Indian government. The CBDT functions as per
the Central Board of Revenue Act of 1963. In last 10- 15 years, Indian taxation system has
undergone wonderful reforms. The tax laws have been simplified and the tax rates have been
rationalized resulting in better compliance, ease of tax payment ad better enforcement.
Indian Tax Structure after Independence: The period after Independence was quite
challenging for the tax planners. An enormous black economy set in both due to Second World
War and increases in economic activity after independence. Savings and investment were
encouraged through the different taxation laws by the way of incentives. There was a
requirement for generating huge amount of revenues to fund the economic growth of the country.
The tax department took great care to plan the tax structure not only with the aspect to widen the
income tax base but also to look for alternate taxes and to eliminate tax avoidance. The
department was harshly tested due to the high volumes of work.
Income earned by individual.
Income to be considered while computing total income of individuals

Income from salaries,

Income from house property,
Profits and gains of business or profession,
capital gains and
Income from other sources.

INCOME TAX IN INDIA

The Central Government has been empowered by Entry 82 of the Union List of Schedule VII of
the Constitution to levy tax on all income other than agricultural income (subject to Section
10(1)). The Income Tax Law comprises The Income Tax Act 1961, Income Tax Rules 1962,
Notifications and Circulars issued by Central Board of Direct Taxes (CBDT), Annual Finance
Acts and Judicial pronouncements by Supreme Court and High Courts.
The government of on taxable income of all persons including individuals, Hindu Undivided
Families(HUFs), companies, firms, association of persons, body of individuals, local authority
and any other artificial judicial person. Levy of tax is separate on each of the persons. The levy is
governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed
by CBDT and is part of the Department of Revenue under the Ministry of Finance, Govt. of
India. Income tax is a key source of funds that the government uses to fund its activities and
serve the public.
The Income Tax Department is the biggest revenue mobilizer for the Government. The total tax
revenues of the Central Government increased from 1392.26 billion in 1997-98 to
5889.09 billion in 2007-08.

History of income tax

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. India's history of
taxation suggests existence of a large and composite taxable
population. With the advent of the moguls in India the country
witnessed a sea of change in the taxation system of India. Although,
they also practiced the same norm of taxation but it was more
homogeneous in structure 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 1922, 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

and

the

present.

The history of taxation dates back to time immemorial and it is not a

recent development by any account. A thorough research on the
history of taxation system shows that taxes were levied on either on
the sale and purchase of merchandise or livestock.
Further, the history of taxation suggests that the process of levying
and the manner of tax collection were unorganized. But it suggests
that all historical leaders and head countrymen collected taxes to
run its authority. In other words taxes on income, sale, purchase and
properties were collected to run the ruling Government machineries.
Further, these taxes were collected to meet their military and civil
expenditure and also to meet the common needs of the subjects like

maintenance of roads, drainage system, government buildings,

administration of justice and other functions of the region. day India
tax machinery is very much based on that laid down foundation.
Although, there were no homogeneous tax rate structures but it
depended on the production capacity and commodity of that
particular country and/or region. Moreover, the tax rates and
quantum varied according to the annual production. These taxes
were collected in cash or in kind and it entirely depended on the
type of commodity or service on which it was levied upon. For
example, there was a very common practice of selling food crops
and cash crops to government machineries against no money. The
history of taxation suggests these were done to store government
buffer stocks to meet emergencies. Taxes were levied on all classes
of citizens, like actors, dancers, singers and even dancing girls.
Taxes were paid in the form of gold-coins, cattle, grains, rawmaterials and even by rendering personal service.