Indian Tax Structure :: Recommendations of 12th Finance Commission
Tax Structure in India
- Some taxes are levied, collected and retained by the Centre. These include Customs Duty, Corporation Tax, Taxes on Capital ( other than Agricultural Land ) etc.
- Some taxes are levied and collected by the Centre but shared with the States. These include taxes on income other than agricultural income and union excise duties on goods included in Union List, excepting medicinal and toilet preparations.
- Some taxes are levied and collected by the Centre but the proceeds are to be distributed among States.
- These include succession and estate duties in respect of property other than agricultural land, terminal tax on goods and passengers, tax on railway fares and freights, taxes on transaction in stock exchanges and future markets, taxes on sale or purchase of newspapers and ads.
- Some taxes are levied by the Centre but collected and appropriated by the States. These include stamp duties other than included in Union List and excise duties on medicinal and toilet preparations.
- Taxes belonging to States exclusively are land revenue, stamp duty, etc.
Structure of Taxes in India
1. Direct Taxes India
- Include taxes on income and property, the important ones being Personal Income Tax, Corporate Tax, Estate Duty and Wealth Tax.
- Income tax is progressive in India, i.e., the rate of tax is not uniform but rises progressively with the rise in money income.
- During the last two decades, there has been a continuous reduction in the tax rate because high rates of income tax had merely encouraged tax evasion and growth in black money.
2. Indian Indirect Taxes
- Include Sales Tax, Excise Duties, Customs Duties, etc.
- The Government of India earns maximum from Union Excise Duty.
Financial Relations between Centre and States
- India possesses a federal structure in which a clear distinction is made between the Union and the State functions and sources of revenue. Our constitution provides residual powers to the Centre. Article 264 and 293 explain the financial relations between the Union and State Government.
- Although the States have been assigned certain taxes which are levied and collected by them, they also have a share in the revenue of certain union taxes and there are certain other taxes which are levied and collected by the Central Government but whole proceeds are transferred to the States.
- The Constitution provides residuary powers to the Centre. It makes a clear division of fiscal powers between the Centre and the State Governments.
(A) List – I of Seventh Schedule of the Constitution enlists the Union Taxes which are :
- Taxes on income other than agriculture income.
- Corporation tax.
- Custom Duties.
- Excise Duties except on alcoholic liquors and narcotics not contained in medical or toilet preparation.
- Estate and succession duties other than on agricultural land.
- Taxes on the capital value of assets except agricultural land of individuals and companies.
- Rates of stamp duties – on financial documents.
- Taxes other than stamp duties on transactions in stock exchanges and future markets.
- Taxes on sales or purchases of newspapers and on advertisements therein.
- Taxes on railway freight and fares.
- Terminal taxes on goods or passengers carried by Railways Sea or air.
- Taxes on the sale or purchase of goods in the course of interstate trade.
(B) List – II of Seventh schedule enlists the taxes which are within the jurisdiction of the States :
- Land revenue.
- Taxes on the sale and purchase of goods, except newspapers.
- Taxes on Agricultural Income.
- Taxes on land and buildings.
- Succession and estate duties on agricultural land.
- Excise on Alcoholic Liquors and Narcotics.
- Taxes on the entry of goods into a local area.
- Taxes on the consumption and sale of electricity.
- Taxes on mineral rights (subject to any limitations imposed by the Parliament).
- Taxes on vehicles, animals and boats.
- Stamp duties except those on financial documents.
- Taxes on goods and passengers carried by board or inland water – ways.
- Taxes on luxuries including entertainments, betting and gambling.
- Taxes on professions, trades, callings and employment.
- Capitation taxation.
- Taxes on advertisements other than those contained in newspapers.
(C) Apart from taxes levied and collected by the States, the Constitution has provided for the revenues for certain taxes on the Union List to be allotted, partly or wholly to the States. These provisions fall into various categories :
- Duties which are levied by the Union Government but are collected and appropriated by the States. These include stamp duties, excise duties on medical preparations containing alcohol or narcotics.
- Taxes which are levied and collected by the Union, but the entire proceeds of which are assigned to the states, in proportion determined by the Parliament. These taxes include :
- Succession and Estate duty.
- Terminal Taxes on goods and passengers.
- Taxes on railway freight and fares.
- Taxes on transactions in stock exchanges and future markets.
- Taxes on sale and purchase of newspapers and advertisements therein.
- Central Taxes on income and union excise duties are levied and collected by the Union but are shared by it with the States in a prescribed manner.
- Proceeds of additional excise duty on mill – made textiles, sugar and tobacco which are levied by the Union since 1957 in replacement of State sales taxes on these commodities are wholly distributed among the States in a manner as to guarantee their former incomes from the displaced sales taxes.
Finance Commission of India
Finance Commission is constituted to define financial relations between the Centre and the States. Under the provision of Article 280 of the Constitution, the President appoints a Finance Commission for the specific purpose of devolution of non – plan revenue resources. The functions of the Commission are to make recommendations to the President in respect of :
|S.No.||Categories||Category Cade||Reservation in %age|
|1. ||Open Merit ( OM )||06||65|
|2.||Reserved Categories :||35|
The distribution of net proceeds of taxes to be shared between the Union and the States and the allocation of share of such proceeds among the States. The principles which should govern the payment of grants – in – aid by the Centre to the States. Any other matter concerning financial relations between the Centre and the States.