Tax System In India

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by a governmental organization in order to fund various public expenditures. A failure to pay, or evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. Most countries have a tax system in place to pay for public/common/agreed national needs and government functions: some levy a flat percentage rate of taxation on personal annual income, some on a scale based on annual income amounts, and some countries impose almost no taxation at all, or a very low tax rate for a certain area of taxation. Some countries charge a tax both on corporate income and dividends; this is often referred to as double taxation as the individual shareholder(s) receiving this payment from the company will also be levied some tax on that personal income.
There are three types of tax systems: progressive, proportional and regressive.
1. Direct and 2. Indirect Taxes
Direct taxes are taxes on wealth, profit and income. Direct taxes are levied on the individual’s income or profits. Indirect taxes are placed on goods and the burden of the tax can be divided between the buyer and the seller. For example: The sales tax in California is 8.75%

Types of Tax System

A marginal tax rate is the extra tax for an additional dollar earned. The average tax rate is the ratio of the total tax paid over the total income earned.

1. Progressive Tax System

In a progressive tax rate system, higher income individuals pay a higher proportion of tax with a rise in income. In this case, the marginal tax rate would be higher than the average tax rate. A progressive ta is cited as a method to reduce inequality in society. Most economies around the world use a progressive tax to assess taxes for individual income.

2. Proportional Tax System

In a proportional tax rate system, everyone pays the same proportion of his or her income as tax. The tax rate does not change with an increase or decrease in income. Here, the average tax rate is equal to the marginal tax rate. This system exists in Latvia and Russia, and is considered to be more ‘fair’ and easier to manage for everyone. Some states in the U.S. like Colorado, Utah and Michigan impose a proportional income tax for individuals.

3. Regressive Tax System

A regressive tax is a tax which results in a decrease in the tax rate as the amount subject to taxation increases. In a regressive tax rate system, the individuals with lower income pay a higher proportion of his or her income as tax. Here, the marginal tax rate is lower than the average tax rate. Any tax with a cap above which no taxes are paid are regressive taxes.

Important Tax Imposed in India:-

1. Income Tax – The Central Govt. Impose different types of tax on income and wealth, viz. Income tax, wealth tax, corporate tax, and gift tax. Out of them income tax and corporate tax are more important from the revenue point of view.

2. Personal Tax – Personal Income Tax is generally imposed on an indivisual cobined Hindu families and total income of people of any community.

3. Corporate Tax – Corporate Tax is imposed on Registerd companies or corporations. The rate of corporate tax is equal. However rebates and excemption have been provided.

4. Custom Duty – As per the constitutional provisions, the central government imposes import duty and export duty both. Import and export duties are not only sources of income but with the help of it the central govt. regulates th foreign trade.

5. Import Duty- Generally import duties are ad-velorem in India. It means iport duty is imposed on the taxable items on percentage basis.

6. Export Duty – Export duties more important as compared to Import Duties in terms of revenue and regulation of foreign trade.

7. Excise Duty – Excise Duties are commodity taxas it is imposed on the production of an item and has no relevance with its sale. This is the largest source of revenue for the central government

Types of Taxes:-

1. Direct Tax – Income Tax, Property tax, Gift Tax

2. Indirect Tax – Sales Tax, Excise Duty, Custom Duty

3. Taxes Imposed by Central Govt.- Income Tax, Corporate Tax, Property Tax, Succession Tax, Wealth Tax, Gift Tax, Custom Duty, Tax on Agricultural wealth etc

4. Tax Imposedby state Govt. – Land revenue tax, Agricultural income Tax

Revenue, State Excise Duty, Entertainmet Tax, Stamp Duty, Road Tax, Motor Vehicle Tax.

Some Financial Institutions And their year of establishment

1. Industrial Credit and Investment Corporation of India --- Jan. 1955

2. Industrial Finance Corporation Of India --- 1948

3. UnitTrust Of India – 1 Feb 1964

4. National Bank foa Agricultural And Rural Development(NABARD) – 12 July 1982

5. Industrial Reconstruction Bank of India – 20 March 1985

6. Small Scale Industries Development Bank of India (SIDBI) - 1990

7. Export –Import Bank of India(EXIM Bank) - 1 Jan 1982

8. Regional Rural Bank(RRB) -- 2 Oct. 1975

9. Life Insurance Corporation Of India (LIC) -- Sept. 1956