What is Tax?

1. Tax is - a compulsory exaction of

money- for public purpose- by an authority of law

2. It is appropriated to the general expenses of the state

- without reference to a special benefit conferred on the payer.

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Associated Terms

First Set: Tax is expressed in different terms

- Additional Tax - Duty - Levy

- Cess - Toll - Octroi

- Surcharge - Fee

- Revenue - Fine

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Meaning & Appropriate use of these terms

• Duty is : A tax charged especially on transactions carried out by (i) business establishment; (ii) individual; and (iii) Institutions. Examples:

- Stamp duty

- Excise duty

- Customs duty

- Estate duty

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• Stamp duty: - Acknowledgement of receipts exceeding certain amount

- Transfer of Immovable properties

- Transfer of Shares

- Negotiable Instruments other than, Cheques, Drafts

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- Certain types of documents like

– Agreements

– Power of Attorney

– Proxy appointments

- Court related documents

- Affidavits

- Notary attestations

- and so on

require payment of stamp duty.

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• Excise Duty: is levied on

- certain specified goods.

- at the point of manufacture. [before they leave factory and come into market]

The (1) manufactured goods, (2) the tariff rate and (3) its basis of calculation – are included in the schedule annexed to the Act.

Such goods are called - Excise goods

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• Customs duty:

It is levied on the goods imported from other countries.

• Estate duty:

It is charged upon the principal value of all property - which passes on the death of a person

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• Levy: What has been levied - is Levy.

• Cess: Cess is also a kind of levy only.

There is no much difference in the meaning between these two terms except that - we use the same term which the legislatures used while imposing tax.

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• Natural resources are the property of everyone and they should be used carefully and rationally.

• They should be conserved for the use of future generations.

• Anybody exploiting natural resources for his personal gain or advantage, he must pay for it. - Hence, Cess is levied.

• Cess, levy or surcharge are imposed (i) under special circumstances (ii) for a specified period (iii) to raise certain amount (iv) for meeting a particular contingency – (v) which contingency was - not foreseen and - sufficient provision in the budget was not made, for that purpose.

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• Surcharge: - Charge on Charge is Surcharge. - surcharge is on the rate of charge only.

• Example: If the Original Charge is 10% and the Surcharge imposed now is 10%.Then on a Value of Rs.1,00,000/=

Charge is @ 10% = Rs 10,000Surcharge on charge

of Rs.10,000 is @10% = Rs. 1,000 So, total tax payable is = Rs. 11,000

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• Revenue: This expression is used in case of tax on land - Agricultural or - Non-agricultural

The usual expression is Land revenue.

• Toll: is imposed on - Passengers or

- Vehicles or

- on both

- when they pass a particular path or - enter a particular track or area.

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• Octroi: This is collected at the entry points of a particular local market or area - when goods enter such market or area.

• The difference between Customs duty and Octroi lies in that – Customs duty is imposed when foreign goods enter the territory of another sovereign state, whereas

– Octroi is collected on indigenous goods, when they enter a village, town or district limits or a market yard – though all places are within in the same sovereign territory.

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• The difference between Octroi and Toll lies in this

- Octroi & Toll are both entry taxes

• In general

- Octroi is levied on - Goods

- Toll is levied on - Vehicles and - Passengers

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• Fee: - It is collected as charges for services rendered. - The principle of consideration - quid pro quo operates in this case.

• Fine: It is imposed - as penalty

- on the defaulter

who fails to - pay tax or fee or duties - submit returns in time

- adhere to the rules of law of taxation

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Associated Terms• Second Set:

Taxes are classified and expressed mainly

in terms of

- Direct taxes

- Indirect taxes

We can have a better comprehension of these terms, by distinguishing each term from the other.

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Distinction • Direct Taxes

1. Taxes that are directly paid by the tax-payer to the exchequer - - such taxes are named as direct taxes

• Indirect Taxes

1. Taxes that are not directly paid to the exchequer, but the burden is indirectly borne by the people - - such taxes are named as indirect taxes

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• Direct Taxes

2. The burden of Direct taxes cannot be shifted to others

• Indirect Taxes

2. The burden of Indirect Taxes can

be shifted to others

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• Direct Taxes3. Scope- Income earned- Wealth

accumulated- Gift received- Estate inherited- Profession being

carriedare subject to direct

taxation

• Indirect Taxes3. Scope- Sale – purchase

transactions- Imports from

foreign states- Manufacture of

goods- Services rendered - Entertainment are subject to

indirect taxation

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• Direct Taxes

4. Imposed mainly on

- net income

- net assets

- profession being carried

• Indirect Taxes

4. Imposed mainly on

- transfer of property, other than money

- services

- work contracts

- imports

- manufacture or - such other activities or transactions

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• Direct Taxes

5. Collections: Revenue collected under Direct Taxes is lesser than that from indirect taxes – because a few privileged and well to do people are subject to this kind of tax

• Indirect Taxes

5. Collections:Revenue collected under Indirect Taxes is larger than that from Direct Taxes – for the reason, that almost every consumer is subject to this kind of tax.

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Associated Terms• Third Set:

- Tax Planning which may include

- Evasion or

- Avoidance or

- Saving

• Tax evasion is an offence, punishable with heavy or huge amounts of penalty and even it may lead to imprisonment

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• Fourth Set:

The two key words in law are

- Levy

- Collection.

Levy must indicate - rate of tax

- incidence of tax

Collection requires – Inspection – Assessment and

– Collection system

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Tax System in India• CONSTITUTION OF INDIA

• PART XII - FINANCE,

- PROPERTY

- CONTRACTS AND

- SUITS

• CHAPTER I – FINANCE

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CHAPTER I – FINANCE

• General ...Art.(264-267)

• Distribution of Revenues between the Union and the States ...Art.(268-281)

• Miscellaneous Financial Provisions ...Art.(282-291)

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• Article 265 of Constitution of India.

Taxes not to be imposed, save by authority of law:

- No tax shall be

- levied

or - collected

- Except by authority of law

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Consolidated Fund of India1. All

• revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means

• advances and all moneys received by that Government in repayment of loans

- shall form one consolidated fund to be entitled the Consolidated Fund of India.

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• 2. All other public moneys received by or on behalf of the Government of India

shall be credited to the public account of India.

• 3. No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with

- law and

- this Constitution.

Center-State Financial Relations

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Duties levied by the Union but collected and appropriated by the States. [Art – 268]

Taxes levied and collected by the Union but assigned to the States. [Art – 269]

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Taxes levied and collected by the Union and distributed between the Union and the States. [Art – 270]

Surcharge on certain duties and taxes for purposes of the Union. [Art – 271]

Taxes which are levied and collected by the Union and may be distributed between the Union and the States. [Art – 220]

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• Taxes on professions, trades, callings and employments. [Art – 276]

• Savings. [Art – 277]