Tax Law Project –

Analytical Study of Different Forms of Taxes

Submitted To –
Mr. Rana Navneet Roy

Submitted By – Pranab Kumar Sona

Semester – V Section – “A” Roll No - 109

Hidayatullah National Law University

Raipur (C.G)
 Declaration

I hereby declare that the project work entitled “Analytical Study of Different Forms of
Taxes” submitted to Hidayatullah National Law University, Raipur, is a record of an original
work done by me under the guidance of Mr. Rana Navneet Roy, Faculty, Hidayatullah
National Law University, Raipur.

Pranab Kumar Sona

Semester – V, Section- “A”
Roll No – 109.

i
 Acknowledgements

I feel highly elated to work on the topic “Analytical Study of Different forms of Taxes.”.

The practical realization of this project has obligated the assistance of many persons. I
express my deepest regard and gratitude for Mr. Rana Navneet Roy, Faculty of Law.
His consistent supervision, constant inspiration and invaluable guidance have been of
immense help in understanding and carrying out the nuances of the project report.

I would like to thank my family and friends without whose support and encouragement,
this project would not have been a reality.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and through Internet.

Some printing errors might have crept in, which are deeply regretted. I would be grateful
to receive comments and suggestions to further improve this project report.

Pranab Kumar Sona

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 Contents

1. Declaration…………………………………………………………… i
2. Acknowledgements…………………………………………………… ii
3. Introduction…………………………………………………………....1
4. Research Methodology……………………………………………….. 3
5. Objectives………………………………………………………………3
6. Limitation………………………………………………………………3
7. Chapter – 2 ……………………………………………………………4
8. Chapter – 3 ……………………………………………………………9
9. Conclusion……………………………………………………………..18
10. Bibliography…………………………………………………………...19
 Chapter -1
(1.A)
Introduction –

This project seeks to provide a bird eye’s view of the taxation structure and various
forms of taxes in India. The topics broadly covered here are Direct Taxes (Income Taxes)
and Indirect taxes (At Central Government level and State Government level).

A tax (from the Latin taxo) is a financial charge or other levy imposed upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of a state to fund various public
expenditures.1

India has a well-developed tax structure with clearly demarcated authority between Central and
State Governments and local bodies.

Central Government levies taxes on the following:

• Income Tax: Tax on income of a person

• Customs Duties: Duties on import and export of goods

• Central Excise: Taxes on Manufacturing of dutiable goods

• Service Tax: Taxes on provision of services

1
Charles E. McLure, Jr. “Taxation”. Britannica. Retrieved – 15-August-2016

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State Governments can levy the following taxes:

 Value Added Tax (VAT): This is tax on sale of goods. While intra-state sale of goods are
covered by the VAT Law of that state, inter-state sale of goods is covered by the Central
Sales Tax Act. Even the revenue collected under Central Sales Tax Act is done so by the
State Governments themselves and actually the Central Government has no role to play so.
 Stamp duties and Land Revenue: Since land is a matter on which only State
Governments can govern, thus the Stamp duties on transfer of immovable properties are
levied by State Governments.
 State Excise on Liquor and certain agricultural goods.

Apart from the above, certain powers of taxation have been devolved in the hands of local
bodies. These local governing bodies can levy taxes on water, property, shop and establishment
charges etc.

Under the Income Tax Act, 1961 The Central Government levies direct taxes on the income
of individuals and business entities as well as Non business entities also. The taxation level
depends on the residential status of individuals. The thumb rule of residential status is that an
individual becomes resident in India if he has remained in India for more than 182 days in a
particular residential year. If he becomes resident in India, then his global income i.e. income
earned even outside India is taxable in India. This has to be noted very carefully by Expatriates on
deputation to India.

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 (1.B)
Research Methodology –

The present study is a doctrinal as well as non-doctrinal and descriptive study based on the
critical review of both primary and secondary sources. Secondary and Electronic resources have
been largely used to gather information and data about the topic. Books and other references have
been primarily helpful in giving this project a firm structure. Websites, dictionaries and articles
have also been referred. Footnotes have been provided wherever needed, to acknowledge the
sources.

(1.C)
Objectives –

1. To study about Taxation in India.

2. To study about various forms of Taxes in India.

(1.D)
Limitation –

The scope of this project is limited to the study of Taxation in India.

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 Chapter – 2
Taxation in India

Taxes in India are levied by the Central Government and the state governments. Some
minor taxes are also levied by the local authorities such as the Municipality.2 The authority to levy
a tax is derived from the Constitution of India which allocates the power to levy various taxes
between the Central and the State. 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”3.
Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by
the Parliament or the State Legislature. In 2015-2016, the gross tax collection of the Centre
amounted to ₹14.60 trillion (US$220 billion)4.

The Central Board of Revenue or Department of Revenue is the apex body charged with
the administration of taxes. It is a part of Ministry of Finance which came into existence as a result
of the Central Board of Revenue Act, 1924.

Initially the Board was in charge of both direct and indirect taxes. However, when the
administration of taxes became too unwieldy for one Board to handle, the Board was split up into
two, namely the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs
(CBEC) with effect from 1 January 1964. This bifurcation was brought about by constitution of
the two Boards under Section 3 of the Central Boards of Revenue Act, 1963.

2
“Directorate of Town Panchayats”.
3
Article 265 of the Indian Constitution
4
“Tax Collection in 2015-16”, The Times of India, 3 August 2016

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2.1- Central Board of Direct Taxes

The Central Board of Direct Taxes (CBDT) provides essential inputs for policy and planning
of direct taxes in India and is also responsible for administration of the direct tax laws through
Income Tax Department. The CBDT is a statutory authority functioning under the Central Board
of Revenue Act, 1963.

2.1.1 Organizational Structure

The CBDT is headed by CBDT Chairman and also comprises six members, all of whom are
Special Secretary to Government of India.
 Member (Income Tax)
 Member (Legislation and Computerization)
 Member (Revenue)
 Member (Personnel & Vigilance)
 Member (Investigation)
 Member (Audit & Judicial)

The CBDT Chairman and Members of CBDT are selected from Indian Revenue Service
(IRS), a premier civil service of India, whose members constitute the top management of Income
Tax Department.

2.2- Central Board of Excise and Customs

Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under
them Ministry of Finance, Government of India. It deals with the tasks of formulation of policy
concerning levy and collection of Customs & Central Excise duties and Service Tax, prevention
of smuggling and administration of matters relating to Customs, Central Excise, Service Tax and
Narcotics to the extent under CBEC’s purview. The Board is the administrative authority for its

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subordinate organizations, including Custom Houses, Central Excise and Service Tax
Commissionerates and the Central Revenues Control Laboratory.

2.3 – Central Taxes

In 2015-2016, the gross tax collection of the Centre amounted to ₹14.60 trillion (US$220 billion)56.

2.3.1 – Direct Tax

Direct Taxes in India were governed by two major legislations, Income Tax Act, 1961 and
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.
As of 2015, Income Tax is the major source of direct tax in India.

2.3.1.i – Income Tax

The major tax enactment in India is the Income Tax Act, 1961 passed by the Parliament,
which imposes a tax on the income of persons7. This Act imposes a tax on income under the
following five heads8:
1. Income from house property
2. Income from business and profession
3. Income from salaries
4. Income in the form of capital gains
5. Income from other sources

5
“GST will change the way India does business: Who will win, who will lose”, The Economic Times, 3 August 2016
6
“Tax Collection in 2015-16”, The Times of India, 3 August 2016
7
Indian Income Tax Act, 1961
8
Section 14 of Income Tax Act ,

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In terms of the Income Tax Act, 1961, a person includes9 –

1. Individual

2. Hindu Undivided Family (HUF)

3. Association of Persons (AOP)

4. Body of Individuals (BOI)

5. Company

6. Firm

7. Local authority

8. Artificial Judicial person not falling in any of the preceding categories

2.3.2 – Indirect Tax

The main source of Indirect Tax is Service Tax. Service tax is a tax levied by Central
Government of India on services provided or to be provided excluding services covered under
negative list and considering the Place of Provision of Services Rules, 2012 and collected as per
Point of Taxation Rules, 2011 from the person liable to pay service tax. Person liable to pay service
tax is governed by Service Tax Rules, 1994 he may be service provider or service receiver or any
other person made so liable.

It is a tax levied on services provided in India, except the State of Jammu and Kashmir. 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-

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Taxation System in India, India in Business, Ministry of External Affairs , Government of India, Investment and
Technology Promotion Division

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2009, it was announced that all small service providers whose turnover does not exceed ₹10 lakh
(US$15,000) need not pay service tax. Service tax at a rate of 14 percent(Inclusive of EC & SHEC)
will be imposed on all applicable services from 1 June 2015. From 15th 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 percent (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 the 1st 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.

2.4 – State Tax

Value Added Tax (VAT) is a major source of revenue for Indian States. Other state level
taxes include Entertainment tax, Entry Tax etc. Value-added taxation in India was introduced as
an indirect value added tax (VAT) into the Indian taxation system from 1 April 2005. The existing
general sales tax laws were replaced with the Value Added Tax Act (2005) and associated VAT
rules.

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 Chapter – 3
Types of Taxes in India

Tax, in general, is the imposition of financial charges upon an individual or a company by

the Government of India or their respective state or similar other functional equivalents in a state.
The computation and imposition of the varied taxes prevalent in the country are carried on by the
Ministry of Finance’s Department of Revenue. Taxes are the government’s way of earning an
income which can then be used for various projects that the government needs to indulge in to help
boost the country’s economy or its people. Taxes in India are decided on by the central and state
governments with local governments, such as municipalities, also deciding on smaller taxes that
can be levied within their jurisdiction.

3. Types of Tax –

3.1 Direct Tax

These types of taxes are directly imposed & paid to Government of India. There has been a
steady rise in the net Direct Tax collections in India over the years, which is healthy signal. Direct
taxes, which are imposed by the Government of India, are:

3.1 (1) Income Tax:-

Income tax, this tax is mostly known to everyone. Every individual whose total income exceeds
taxable limit has to pay income tax based on prevailing rates applicable time to time.

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3.1 (2) Capital Gains Tax:-

Capital Gain tax as name suggests it is tax on gain in capital. If you sale property, shares,
bonds & precious material etc. and earn profit on it within predefined time frame you are supposed
to pay capital gain tax. The capital gain is the difference between the money received from selling
the asset and the price paid for it.

Capital gain tax is categorized into short-term gains and long-term gains. The Long-term
Capital Gains Tax is charged if the capital assets are kept for more than certain period 1 year in
case of share and 3 years in case of property. Short-term Capital Gains Tax is applicable if these
assets are held for less than the above-mentioned period. Rate at which this tax is applied varies
based on investment class.

Example:-

If you purchase share at say 1000 Rs/- (per share) and after two months this price increased to
1200 Rs/-(per share) you decide to sale this stock and earn profit of 200 Rs/- per share. If you do
so you have to pay Short term CGT (capital gain tax) @ 10% +Education cess on profit as it is
short term capital gain. If you hold same share for 1 year or above, it is considered as long term
capital gain and you need not to pay capital gain tax.it is considered as tax free.

Similarly if you purchase property after two year if you find that property price in which you
invested has increased and you decide to sale it you need to pay short term capital gain tax.

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For property it is considered as long term capital gain if you hold property for 3 years or above.

3.1 (3) Securities Transaction Tax:-

A lot of people do not declare their profit and avoid paying capital gain tax, as government can
only tax those profits, which have been declared by people. To fight with this situation Government
has introduced STT (Securities Transaction Tax ) which is applicable on every transaction done at
stock exchange. That means if you buy or sell equity shares, derivative instruments, equity oriented
Mutual Funds this tax is applicable.

This tax is added to the price of security during the transaction itself, hence you cannot avoid (save)
it. As this tax amount is very low people do not notice it much.

3.1 (4) Perquisite Tax:-

Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was abolished in 2009,
this tax is on benefit given by employer to employee. E.g If your company provides you non-
monetary benefits like car with driver, club membership, ESOP etc. All this benefit is taxable
under perquisite Tax.

3.1 (5) Corporate Tax:-

Corporate Taxes are annual taxes payable on the income of a corporate operating in India. For the
purpose of taxation companies in India are broadly classified into domestic companies and foreign
companies.

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 3.2 – Indirect Tax

3.2 (1) Sales Tax :-

Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is charged by
Union Government, while sales tax on intra-State sale (sale within State) (now termed as VAT) is
charged by State Government.

Sales can be broadly classified in three categories.

(a) Inter-State Sale

(b) Sale during import/export

(c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on
sale within the State.

CST is payable on inter-State sales is @ 2%, if C form is obtained. Even if CST is charged by
Union Government, the revenue goes to State Government. State from which movement of goods
commences gets revenue. CST Act is administered by State Government.

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3.2 (2) Service Tax:-

Most of the paid services you take you have to pay service tax on those services. This tax is called
service tax. Over the past few years, service tax been expanded to cover new services.

Few of the major service which comes under vicinity of service tax are telephone, tour operator,
architect, interior decorator, advertising, beauty parlor, health center, banking and financial
service, event management, maintenance service, consultancy service

Current rate of interest on service tax is 14.5%. This tax is passed on to us by service provider.

3.2 (3) Value Added Tax:-

The Sales Tax is the most important source of revenue of the state governments; every state has
their respective Sales Tax Act. The tax rates are also different for respective states.

Tax imposed by Central government on sale of goods is called as Sales tax same is called as Value
added tax by state government. VAT is additional to the price of goods and passed on to us as
buyer (end user).

3.2 (4) Custom duty & Octroi (On Goods):-

Custom Duty is a type of indirect tax charged on goods imported into India. One has to pay this
duty , on goods that are imported from a foreign country into India. This duty is often payable at
the port of entry (like the airport). This duty rate varies based on nature of items.

Octroi is tax applicable on goods entering in to municipality or any other jurisdiction for use,
consumption or sale. In simple terms one can call it as Entry Tax.

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3.2 (5) Excise Duty:-

An excise or excise duty is a type of tax charged on goods produced within the country. This is
opposite to custom duty which is charged on bringing goods from outside of country. Another
name of this tax is CENVAT (Central Value Added Tax).

If you are producer / manufacturer of goods or you hire labor to manufacture goods you are liable
to pay excise duty.

3.2 (6) Anti Dumping Duty:-

Dumping is said to occur when the goods are exported by a country to another country at a price
lower than its normal value. This is an unfair trade practice which can have a distortive effect on
international trade. In order to rectify this situation Central Govt. imposes an anti dumping duty
not exceeding the margin of dumping in relation to such goods.

3.3 – Other Tax

3.3 (1) Professional Tax :-

If you are earning professional you need to pay professional tax. Professional tax is imposed by
respective Municipal Corporations. Most of the States in India charge this tax.

This tax is paid by every employee working in Private organizations. The tax is deducted by the
Employer every month and remitted to the Municipal Corporation and it is mandatory like income
tax. The rate on which this tax is applicable is not same in all states.

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3.3 (2) Dividend distribution Tax:-

Dividend distribution tax is the tax imposed by the Indian Government on companies according to
the dividend paid to a company’s investors. Dividend amount to investor is tax free. At present
dividend distribution tax is 15%.

3.3 (3) Municipal Tax:-

Municipal Corporation in every city imposed tax in terms of property tax. Owner of every property
has to pay this tax. This tax rate varies in every city.

3.3(4) Entertainment Tax:-

Tax is also applicable on Entertainment; this tax is imposed by state government on every financial
transaction that is related to entertainment such as movie tickets, major commercial shows
exhibition, broadcasting service, DTH service and cable service.

3.3(5) Stamp Duty, Registration Fees, Transfer Tax:-

If you decide to purchase property than in addition to cost paid to seller. You must consider
additional cost to transfer that property on your name.

That cost include registration fees, stamp duty and transfer tax. This is required for preparing legal
document of property.

In simple sense this tax is imposed on the handing over of the title of property ownership by one
person to another. It incorporates a legal transaction fee & stamp duty. This amount varies from
property to property based on cost.

3.3 (6) Education Cess , Surcharge:-

Education cess is deducted and used for Education of poor people in INDIA. All taxes in India are
subject to an education cess, which is 3% of the total tax payable. The education cess is mainly
applicable on Income tax, excise duty and service tax.

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Surcharge is an extra tax or fees that added to your existing tax calculation. This tax is applied on
tax amount.

3.3 (7) Gift Tax:-

If you receive gift from someone it is clubbed with your income and you need to pay tax on it.
This tax is called as gift tax.

This tax is applicable if gift amount or value is more than 50000 Rs/- in a year.

3.3 (8) Wealth Tax:-

Wealth tax is a direct tax, which is charged on the net wealth of the assesse. Wealth tax is
chargeable in respect of Net wealth corresponding to Valuation date. Net wealth means all assets
less loans taken to acquire those assets. Wealth tax is 1% on net wealth exceeding 30 Lakhs (Rs
3,000,000). So if you have more money, assets you are liable to pay tax.

Note:- Wealth tax is abolished by government in budget 2015.Now onwards surcharge of 12% is
applicable on individual earning 1 crore and above.

3.3 (9) Toll Tax:-

At some of places you need to pay tax in order to use infrastructure (road, bridge etc.) build from
your money given to government as Tax. This tax is called as toll tax. This tax amount is very
small amount but, to be paid for maintenance work and good up keeping.

3.3 (10) Swachh Bharat Cess:-

Swacch Bharat Cess is recently being imposed by the government of India. This tax is applicable
on all taxable services from 15thNovemeber, 2015. The effective rate of Swachh Bharat Cess is
0.5%. After this tax we need to pay 14.5% service tax.

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3.3 (11) Krishi Kalyan Cess:-

In budget 2016 finance minister has introduced new tax namely Krishi Kalyan Cess. This cess is
introduced in order to extend welfare to the farmers. The effective rate of Krishi Kalyan Cess is
0.5%. This tax will be imposed on all taxable services. Krishi Kalyan Cess would come in force
with effect from June, 1, 2016. Once this cess is applied we need to pay service tax @ 15%.

3.3 (12) Dividend Tax:-

In budget 2016 finance minister has introduced a new tax on the dividend amount. It is proposed
that 10% additional tax will be imposed on dividend income above 10 Lac from 1st April 2016
onwards.

3.3 (13) Infrastructure Cess:-

New Infrastructure cess on car and utility vehicle imposed recently in budget 2016. 1%
infrastructure cess is applicable on petrol/LPG/CNG-driven motor vehicles of length not exceeding
4 meters and engine capacity not exceeding 1200cc. 2.5% cess on diesel motor vehicles of length
not exceeding 4 meters and engine capacity not exceeding 1500cc and 4% cess is applicable on
big sedans and SUVs.

3.3 (14) Entry Tax:-

This entry tax is imposed by Gujarat, Madhya Pradesh, Assam, Delhi and Uttarakhand state
government recently. The tax rate is variable 5.5-10% depending upon the state. All items entering
in the state boundaries ordered via E-commerce are under this tax boundary.

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Conclusion –

India has a well developed tax structure. The power to levy taxes and duties is distributed
among the three tiers of Government, in accordance with the provisions of the Indian Constitution.
The main taxes/duties that the Union Government is empowered to levy are:- Income Tax (except
tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise
and Sales Tax and Service Tax.
The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of
goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol),
Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on
Entertainment and Tax on Professions & Callings.
The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry
of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User
Charges for utilities like water supply, drainage, etc.

In the wake of economic reforms, the tax system in India has under gone a radical change,
in line with the liberal policy. Some of the changes include:- rationalization of tax structure;
progressive reduction in peak rates of customs duty ; reduction in corporate tax rate; customs duties
to be aligned with ASEAN levels; introduction of value added tax ; widening of the tax base; tax
laws have been simplified to ensure better compliance. Tax policy in India provides tax holidays
in the form of concessions for various types of investments. These include incentives to priority
sectors and to industries located in special area/ regions. Tax incentives are available also for those
engaged in development of infrastructure.

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Bibliography –

Official Websites –
 Ministry of finance –
(http://finmin.nic.in/)

 Central Board of Exercise & Duty -

(http://www.cbec.gov.in/)

 Central Board of Direct Tax -

(http://incometaxindia.gov.in/cbdt/Org.asp)

Books & Statutes –

 Income Tax Act
 Constitution of India,1950

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