Taxes in India are levied by the Central Government and the State Governments by virtue of powers conferred to them from the Constitution of India. Some minor taxes are also levied by the local authorities such as the Municipality and Panchayats.
The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Union Government and the State Governments. An important restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law". Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature. Nonetheless, tax evasion is a massive problem in India, ultimately catalysing various negative effects on the country. In 2023–24, the Direct tax collections reported by CBDT were approximately .
History India has abolished multiple taxes with passage of time and imposed new ones. A few of these taxes include inheritance tax, interest tax, gift tax, wealth tax, etc. The Wealth Tax Act, 1957 was repealed in the year 2015. Direct Taxes in India were governed by two major pieces of legislation, the Income Tax Act, 1961 and the Wealth Tax Act, 1957. A new legislation, Direct Taxes Code (DTC), was proposed to replace the two acts. However, the Wealth Tax Act was repealed in 2015 and the idea of DTC was dropped.
Constitutionally established scheme of taxation Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislature. Schedule VII enumerates these subject matters with the use of three lists: List – I entailing the areas on which only the parliament is competent to make laws, List – II entailing the areas on which only the state legislature can make laws, and List – III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.
Separate heads of taxation are no head of taxation in the Concurrent List (Union and the States have no concurrent power of taxation). The list of thirteen Union heads of taxation and the list of nineteen State heads are given below:
Central government of India SL. No. Taxes as per Union List 82 Income tax: Taxes on income other than agricultural income. 83 Custom Duty: Duties of customs including export duties 84 Excise Duty: Duties of excise on the following goods manufactured or produced in India namely (a)Petroleum crude (b)high speed diesel (c)motor spirit (commonly known as petrol) (d)natural gas (e) aviation turbine fuel and (f)Tobacco and tobacco products 85 Corporation Tax 86 Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies 87 Estate duty in respect of property other than agricultural land 88 Duties in respect of succession to property other than agricultural land 89 Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight. 90 Taxes other than stamp duties on transactions in stock exchanges and futures markets 92A Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce 92B Taxes on the consignment of goods in the course of inter-State trade or commerce 97 All residuary types of taxes not listed in any of the three lists of Seventh Schedule of Indian Constitution
State governments SL. No. Taxes as per State List 45 Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues etc. 46 Taxes on agricultural income 47 Duties in respect of succession to agricultural land. 48 Estate Duty in respect of agricultural land 49 Taxes on lands and buildings. 50 Taxes on mineral rights. 51 Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics. 53 Electricity Duty:Taxes on the consumption or sale of electricity 54 Taxes on sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), Natural gas aviation turbine fuel and alcohol liquor for human consumption but not including sale in the course of inter state or commerce or sale in the source of international trade or commerce such goods. 56 Taxes on goods and passengers carried by roads or on inland waterways. 57 Taxes on vehicles suitable for use on roads. 58 Taxes on animals and boats. 59 Tolls. 60 Taxes on profession, trades, callings and employments. 61 Capitation taxes. 62 Taxes on entertainment and amusements to be extent levied and collected by a panchayat or Municipality or a regional council or a district council. 63 Stamp duty
Income tax
Income Tax is a tax imposed on individuals or entities (taxpayers) that varies with respective income or profits (taxable income). Income tax generally is computed as the product of a tax rate times taxable income. However, for individuals, tax is payable at slab rates. In the Finance Act, 2020 the Government introduced a new tax regime for individuals giving them the option to opt for the new regime or continue with the old regime.
The tax is collected by the Income Tax Department for the central government. Farmers – who constitute 70% of the Indian workforce – are generally excluded from paying income tax in India.
Income tax returns are due in India generally on 31 July, 30 September or 30 November, depending on the category of taxpayer. Everyone who earns or gets an income in India is subject to income tax. Income is divided into five categories: Income from Salary, Income from Other Sources, Income from House Property, Income from Capital Gains, and Income from Business and Profession.
Goods and services tax
Goods and Services Tax is an indirect tax collected on supply of goods or service. Central Goods and Services Tax (CGST): Portion of Tax to central government on intrastate sales. State Goods and Services Tax (SGST): Portion of Tax to state on intrastate sales. Integrated Goods and Services Tax (IGST): tax for interstate sales.
Goods and services are divided into five different tax slabs for collection of tax – 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system.
Custom duty Customs duty is a tax on import & export of goods in India with specific rates on certain types of goods. Customs authorities are rightful in checking accurate details of the items exported or imported along with the origin of the item and duly validated rates & structure. Custom duty measures the value of the items in the context of the tax applicable on such item and is much higher on certain types of items including sin goods i.e. liquor & imported cigars.
Custom duty is an indirect tax levied on import or export of goods in and out of country. When goods are imported from outside, the tax known as import custom duty. when goods are exported outside India, the tax is known as export custom duty. The tax collected by Central Board of Indirect Taxes and Customs. In February 2020, as part of India's attempts to increase and support local production, the government stated that it raised taxes on imports for items such as electronic devices, furniture and toys.
Service tax
The Service tax was imposed by the government on all the services provided by firms and servicing companies in lieu of monetary benefit. The service tax levied on services is actually borne by the customers which in turn goes through multiple channels of levying authorities till back to the government. Service tax will be applicable on the taxable services only which is provided or will be provided by the service provider agreeing upon the concern of actually offering services.
It is a tax levied on services provided in India. The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC). From 2012, service tax is imposed on all services, except those which are specifically exempted under law(e.g. Exempt under Negative List, Exempt as exclusion from Service definition as per Service Tax, Exempt under MEN(Mega exemption notification)). In budget presented for 2008–2009, it was announced that all small service providers whose turnover does not exceed need not pay service tax. Service tax at a rate of 14 per cent(Inclusive of EC & SHEC) will be imposed on all applicable services from 1 June 2015. From 15 November 2015, Swacch Bharat cess of 0.5% has been added to all taxable service leading the new Service Tax rate to be 14.5 per cent (Inclusive of EC, SHEC & Swacch Bharat cess). On 29 February 2016, Current Finance Minister Mr. Arun Jaitley announces a new Cess, Krishi Kalyan Cess that would be levied from 1 June 2016 at the rate of 0.5% on all taxable services. The purpose of introducing Krishi Kalyan Cess is to improve agriculture activities and welfare of Indian farmers. Thus, the new Service Tax rate would be 15% incorporating EC, SHEC, Swachh Bharat Cess and Krishi Kalyan Cess.
From 2015 to currently, the gross tax collection of the centre from service tax has amounted in excess of .
Service tax has been replaced by Goods and Services Tax in India. Service tax no longer applies to services in India.
Central excise
In 2015–2016, the gross tax collection of the centre from excise amounted to . Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India; Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in Indisale of property situated within the state
In the 2016 Union budget of India, an excise of duty of 1% without input tax credit and 12.5% with input tax credit was imposed on articles of jewellery with the exception of silver jewellery. The government had earlier proposed an excise duty in the Budget 2011–12, which had to be rolled back after massive protests by jewellers. Central Excise Tariff Act, 1985 Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000
Local body taxes
"Local body tax", popularly known by its abbreviation as "LBT", is the tax imposed by the local civic bodies of India on the entry of goods into a local area for consumption, use or sale therein. The tax is imposed based on the Entry 52 of the State List from the Schedule VII of the Constitution of India which reads; "Taxes on the entry of goods into a local area for consumption, use or sale therein." The tax is to be paid by the trader to the civic bodies and the rules and regulations of these vary amongst different States in India. The LBT is now partially abolished as of 1 August 2015.
Property tax