About the Book
The Indian tax system has undergone major structural changes since independence in 1947. Besides being the main source of revenue, both for the central and state governments, it is an effective instrument to realize various socio-economic objectives of national policies. However, the tax system has been relying heavily on indirect taxes and suffering extensively from tax evasion. Restructuring of the tax system has constituted a major component of fiscal reforms initiated since 1991. The main focus of the tax reforms has been on the simplification and rationalization of both direct and indirect taxes with the objective of augmenting revenues and removing anomalies in the tax structure. Tax reforms in recent years have brought the tax system much closer to international tax practices. This book provides an exhaustive and analytical account of tax structure developments in India since its independence, with a focus on post-1991 reforms, placing the current developments in perspective. [Subject: India Studies, Economics, Taxation]
Table of Contents:
1. Taxes in Ancient India and during Mughal Period
1.1 Taxes in Ancient India
1.2 Taxes during Mughal Period
2. Taxes during British Rule
2.1 Financial Administration
2.2 Income Tax
2.2.1 Income Tax Act, 1860
2.2.2 Income Tax Act, 1886
2.2.3 Income Tax Act, 1918
2.2.4 Income Tax Act, 1922
2.2.5 Recommendations of the Indian Taxation Enquiry Committee
(Chairman: Charles Todhunter), 1924-25
2.2.6 Recommendations of the Income Tax Enquiry Committee, 1935
2.2.7 Excess Profit Tax
2.2.8 Income Tax Investigation Commission, 1947
2.3 Excise Duties
2.3.1 Cotton Textiles
2.3.2 Salt
2.3.3 Petroleum Products
2.3.4 Tobacco
2.3.5 Other Products
2.3.6 Rules of Excise Taxation
2.4 Customs Duties
2.4.1 Period 1859 to 1894
2.4.2 Period 1894 to 1919
2.4.3 Inter-War Period
2.4.4 Second World War
2.5 Sales Tax
2.5.1 Initial Legal Hurdles
2.5.2 Beggar-my-neighbour Policies
2.6 Structure of Government Tax Revenue
2.7 Centre-State Financial Relations
2.7.1 Mayo Scheme, 1870
2.7.2 Government of India Act, 1919
2.7.3 Meston Settlement, 1920
2.7.4 Indian Taxation Enquiry Committee, 1924-25
2.7.5 Indian Statutory Commission, 1930
2.7.6 Peel Committee I, 1931
2.7.7 Percy Committee, 1932
2.7.8 Peel Committee II, 1932
2.7.9 White Paper on Indian Constitutional Reforms, 1931
2.7.10 Joint Parliamentary Committee on Indian Constitutional Reforms, 1934
2.7.11 Government of India Act, 1935
2.7.12 Indian Financial Enquiry Report, 1936
Part II: Post-Independence Tax Policy
3. Constitutional Provisions Pertaining to Taxes
3.1 Nature of Indian Federation
3.2 Centrally Biased Constitution and its Justification
3.2.1 Supremacy of Union Legislative Power
3.2.2 Union Control over State Legislation
3.2.3 Emergency Provisions
3.2.4 Restrictions on Taxation Powers of the States
3.2.5 Restrictions on Borrowing Powers of the States
3.2.6 President’s Rule
3.3 Constitutional Provisions Pertaining to Taxes
3.3.1 Distribution of Taxation Powers
3.3.2 Restrictions on the Taxation Powers of the States
3.3.3 Rationale for Constitutional Arrangements
3.3.4 Sharing of Central Taxes
3.3.5 Philosophy of Articles 268 and 269
3.3.6 Taxes and Duties in the Union List not being Levied at Present
3.3.7 Freedom as to Payment of Taxes for Promotion of any Particular Religion
4. Socio-economic Objectives of Tax Policy
4.1 Health, Education and Housing
4.1.1 Health
4.1.2 Education
4.1.3 Housing
4.2 Tax Holiday Schemes
4.3 Tax Incentives for Infrastructure Development
4.3.1 Justification
4.3.2 Income Tax Incentives under Section 80-IA
4.3.3 Tax-free Bonds
4.4 Tax Concessions for Labour Welfare
4.4.1 Income Tax Concessions
4.4.2 Wealth Tax Concessions
4.4.3 Excise Duty Concessions
4.5 Fiscal and Financial Incentives for Protection of Environment
4.5.1 Income Tax Concessions
4.5.2 Excise Duty Concessions
4.5.3 Customs Duty Concessions
4.5.4 Financial Assistance
4.6 Tax Incentives for Non-resident Indians
5. Tax Reforms since 1991
5.1 Approach to Tax Reforms
5.2 Income Tax
5.3 Wealth Tax
5.4 Excise Duties
5.5 Taxation of Services
5.6 Customs Duties
5.7 State Level Sales Tax/VAT
5.8 Direct Taxes Code (DTC)
5.9 Goods and Services Tax (GST)
Part III: Combined (Centre and States) Tax Revenue
6. Trends in Tax-GDP Ratio
6.1 Tax-GDP Ratio: Meaning and Significance
6.2 Trends in Tax-GDP Ratio
6.3 Tax-GDP Ratios in Developed and Developing Countries
6.3.1 Limitations of Inter-country Tax Comparisons
7. Trends in the Relative Revenue Significance of Direct and Indirect Taxes
7.1 Direct versus Indirect Taxes
7.2 Trends Prior to Tax Reforms (i.e. Pre-1991 Period)
7.3 Post-Tax Reforms Period
7.4 Equity Implications
8. Buoyancy and Elasticity of Tax Revenue
8.1 Conceptual Framework
8.1.1 Automatic Response versus Discretionary Changes
8.2 Various Estimates of Buoyancy and Elasticity of Tax Revenue
9. Distribution of Tax Burden (Tax Incidence)
9.1 Meaning of Tax Incidence
9.2 Methodological Issues
9.3 All-India Level Studies
9.3.1 Findings of the Taxation Enquiry Commission, (Chairman: John Matthai), 1953-54
9.3.2 Studies by the Ministry of Finance
9.3.3 Estimates of Indirect Taxation Enquiry Committee, (Chairman: L.K. Jha), 1978
9.3.4 Findings of the Study by National Institute of Public Finance and Policy (NIPFP)
9.4 State-Level Studies
9.4.1 Orissa Taxation Enquiry Committee
9.4.2 NCAER Study on Gujarat
9.4.3 NCAER Study on Mysore (now Karnataka)
9.5 Sectoral Studies
10. Tax Evasion
10.1 Tax Evasion: Meaning
10.1.1 Tax Evasion and Tax Avoidance
10.2 International Tax Avoidance and Evasion
10.2.1 Transfer Pricing
10.2.2 Tax Treaty Shopping
10.3 Causes of Tax Evasion
10.3.1 High Level of Tax Rates
10.3.2 Less Respect for Government and its Laws
10.3.3 Lenient Penal Action
10.3.4 Nature of the Economy
10.4 Consequences of Tax Evasion
10.5 Devices Adopted to Evade Taxes
10.5.1 Evasion of Specific Taxes
10.5.2 Tax Havens
10.5.3 Participatory Notes (PNs)
10.5.4 Investment through Complex Derivative Instruments
10.6 Various Estimates of Tax Evasion in India
10.6.1 Early Attempts
10.6.2 Taxation Enquiry Commission (TEC), [Chairman: John Matthai], 1953-54
10.6.3 Estimates of Nicholas Kaldor
10.6.4 Central Board of Revenue
10.6.5 Direct Taxes Enquiry Committee (DTEC), [Chairman: Justice K.N. Wanchoo], 1971
10.6.6 National Institute of Public Finance and Policy (NIPFP)
10.6.7 Tax Reforms Committee (TRC), [Chairman: Raja Chelliah], 1991
10.7 Agencies for Enforcement of Tax Laws
10.7.1 Central Board of Direct Taxes (CBDT)
10.7.2 Central Board of Excise and Customs (CBEC)
10.8 Regulatory Authorities for Supervision and Policing
10.8.1 Central Bureau of Investigation (CBI)
10.8.2 Financial Intelligence Unit (FIU)
10.8.3 Narcotics Control Bureau (NCB)
10.9 Co-ordinating Agencies
10.9.1 Central Economic Intelligence Bureau (CEIB)
10.9.2 National Investigation Agency (NIA)
10.10 Other Agencies
10.10.1 Central Bureau of Narcotics (CBN)
10.10.2 Serious Frauds Investigation Office (SFIO)
10.10.3 Registrar of Companies (ROCs)
10.10.4 Registrar of Societies (ROSs)
10.10.5 Economic Intelligence Council (EIC)
10.10.6 National Crime Records Bureau (NCRB)
10.10.7 State Police Agencies
10.11 Measures Adopted to Curb Tax Evasion
10.11.1 Lowering of Tax Rates
10.11.2 Tax Amnesties
10.11.3 Advance Tax Payment
10.11.4 Withholding Tax [or Tax Deduction at Source (TDS)]
10.11.5 Presumptive Tax for Small Traders
10.11.6 Permanent Account Number (PAN) or General Index Register Number (GIR)
10.11.7 Survey of Income Tax
10.11.8 Summons, and Search and Seizure
10.11.9 Penalties and Prosecutions
Part IV: Structure of Central Taxes
11. Trends in the Level and Composition of Central Taxes
11.1 Central Taxes as Percent of GDP
11.2 Direct and Indirect Taxes
11.3 Composition of Direct Taxes
11.3.1 Income Tax
11.3.2 Wealth Tax
11.4 Composition of Indirect Taxes
11.4.1 Union Excise Duties
11.4.2 Service Tax
11.4.3 Customs Duties
12. Income Tax
12.1 Constitutional Provisions and Legal Framework
12.1.1 Constitutional Provisions
12.2 Revenue Significance of Income Tax
12.3 Income Tax Act, 1961: Main Provisions
12.3.1 Meaning of Income
12.3.2 Residential Status
12.3.3 Incomes Exempt from Tax
12.3.4 Tax Holiday Schemes
12.3.5 Heads of Income
12.3.6 Clubbing of Income
12.3.7 Set Off and Carry Forward of Losses
12.3.8 Deductions from Gross Total Income
12.3.9 Rebates
12.3.10 Computation of Total Income
12.3.11 Units of Assessment
12.3.12 Basic Exemption
12.3.13 Rate Structure of Income Tax
12.3.14 Advance Payment of Tax
12.3.15 Tax Deduction at Source
12.4 Taxation of Companies
12.4.1 Main Features of Company Taxation
12.4.2 Compulsory Filing of Returns by Companies
12.5 Taxation of Partnership Firms
12.6 Tax Treatment of Small Traders (Presumptive Tax)
12.6.1 Estimated Income Scheme for Small Businesses
12.6.2 Estimated Income Scheme for Truck Owners
12.7 Taxation of Non-residents in India
12.8 Taxation of Capital Gains
12.8.1 Meaning and Scope of Capital Gains Tax
12.8.2 Transactions Regarded as Transfer
12.8.3 Year of Taxability
12.8.4 Short-term versus Long-term Capital Gains
12.8.5 Computation of Short-term Capital Gains
12.8.6 Computation of Long-term Capital Gains
12.8.7 Capital Gains Account Scheme, 1988
12.8.8 Set Off and Carry Forward of Capital Losses
12.8.9 A Critique
12.9 Survey, Summons, Search and Seizure
12.10 Penalties and Prosecutions
12.11 Organisational Set Up and IT Initiatives
12.11.1 Department of Revenue
12.11.2 Central Board of Direct Taxes (CBDT)
12.11.3 Permanent Account Number (PAN)
12.11.4 E-payment of Tax and E-filing of Returns
12.11.5 Digital Signature
12.12 Recommendations of the Task Force on Direct Taxes (Chairman: Vijay Kelkar), 2002
Pertaining to Income Tax
12.12.1 Personal Income Tax
12.12.2 Corporate Tax
12.12.3 Capital Gains
12.13 Critical Evaluation of the Indian Income Tax System
12.13.1 Unstable Law
12.13.2 Multitude of Exemptions/Concessions
12.13.3 Earned versus Unearned Incomes
13. Wealth Tax
13.1 Rationale for Wealth Tax
13.2 Wealth Tax Act, l957: Main Provisions
13.2.1 Persons Chargeable to Wealth Tax
13.2.2 Net Wealth and Residential Status
13.2.3 Meaning of Net Wealth
13.2.4 Meaning of Assets
13.2.5 Deemed Assets
13.2.6 Assets Exempt from Wealth Tax
13.2.7 Basic Exemption and Rate of Tax
13.3 Critical Comments
13.3.1 Shrinkage of Base
13.3.2 Lowering of Top Marginal Rate
14. Union Excise Duties
14.1 Constitutional Provisions
14.2 Various Types of Excise Duties
14.2.1 Basic Excise Duty
14.2.2 Additional Duties in Lieu of Sales Tax
14.2.3 Cesses
14.3 Different Procedures to Collect Excises
14.3.1 Physical Control System
14.3.2 Self-Removal Procedure (SRP)
14.3.3 Compounded Levy Scheme
14.4 New Excise Tariff Nomenclature
14.5 Administration of Excise Taxation
14.6 Revenue Significance
14.7 Commodity Coverage
14.8 Excise Tariff Structure
14.8.1 Statutory versus Effective Rates
14.8.2 Specific versus Ad Valorem Duties
14.8.3 Multiplicity of Excise Tariff
14.8.4 Committee on Rationalisation and Simplification of Tax Structure,
(Chairman: S. Bhoothalingam), 1968
14.8.5 Indirect Taxation Enquiry Committee, (Chairman: L.K. Jha), 1978
14.8.6 Technical Study Group on Excise Tariff, (Chairman: J. Dutta), 1985
14.8.7 Triple Rate Excise Structure
14.8.8 Task Force on Indirect Taxes, (Chairman: Vijay Kelkar), 2002
14.9 Excises on Inputs
14.9.1 Pre-MODVAT Arrangements
14.9.2 MODVAT Scheme
14.9.3 Introduction of CENVAT
14.9.4 Further Simplification
14.10 Exemptions and Concessions
14.10.1 Rationale
14.10.2 Problems Created by Concessions
14.10.3 General Exemptions
14.10.4 Concessions to Small Industries
14.10.5 Misuse of Concessions
15. Taxation of Services
15.1 Justification for Taxing Services
15.2 Constitutional Provisions
15.3 Growth of Service Sector in India
15.4 Present Structure of Service Tax
16. Customs Duties
16.1 Introduction
16.2 Legal Framework
16.2.1 Various Types of Customs Duties
16.3 New Customs Tariff Nomenclature
16.4 Revenue Significance
16.5 Import Tariff Policy
16.5.1 Early Post-Independence Period
16.5.2 Customs Reorganisation Committee, (Chairman: F.C. Badhwar), 1957-58
16.5.3 Indirect Taxation Enquiry Committee, (Chairman: L.K. Jha), 1978
16.5.4 Long-Term Fiscal Policy, 1985
16.5.5 Tax Reforms Committee, (Chairman: Raja Chelliah), 1991
16.6 Post-liberalisation Reduction and Rationalisation of Import Tariff
16.6.1 Off-budget Package of Tax Concessions, January 2004
16.7 Recent Thinking on Customs Tariff
16.7.1 Customs Tariff Report, (Chairman: Arvind Virmani), 2002
16.7.2 Import Duty Structure Recommended by Task Force on Indirect Taxes,
(Chairman: Vijay Kelkar), 2002
16.8 Export Tariff Policy
17. Direct Taxes Code (DTC)
17.1 Need for DTC
17.2 Objectives and Salient Features of DTC
17.2.1 Objectives
17.2.2 Salient Features
18. National Level Goods and Services Tax (GST)
18.1 What is GST?
18.2 Salient Features of GST
18.3 Roadmap for GST
18.4 GST Council
18.5 GST Network
Part V: Structure of State Taxes
19. Trends in the Level and Composition of State Taxes
19.1 State Taxes as Percent of GDP
19.2 Direct and Indirect Taxes
19.3 Composition of Direct Taxes
19.3.1 Land Revenue
19.3.2 Agricultural Income Tax
19.3.3 Professions Tax
19.4 Composition of Indirect Taxes
19.4.1 Sales Tax
19.4.2 State Excises
19.4.3 Taxes on Motor Vehicles
19.4.4 Entertainment Tax
19.4.5 Stamp Duty and Registration Fees
19.4.6 Electricity Duty
19.4.7 Octroi
19.4.8 Land and Buildings
19.5 Local Finance
20. Taxation of Agricultural Income
20.1 Constitutional Provisions
20.2 Committee on Taxation of Agricultural Wealth and Income, 1972
20.3 Views of the State Governments
20.4 Tax Reforms Committee, 1991
20.5 Task Force on Direct Taxes, 2002
20.5.1 Critical Comments
21. Sales Tax and State Level VAT
21.1 Different Forms of Sales Tax
21.1.1 Multi-point Sales Tax
21.1.2 Single-point Sales Tax
21.2 Constitutional Provisions for the Regulation of Taxation of Inter-State Sales
21.2.1 Consequences of Constitutional Restrictions on Sales Tax
21.2.2 Essential Goods Act, 1952
21.3 Constitution (Sixth Amendment) Act, 1956
21.4 Central Sales Tax (CST) Act, 1956
21.4.1 Main Provisions of CST Act
21.4.2 Working of CST Act
21.5 Additional Duties of Excise (Goods of Special Importance) Act, l957
21.5.1 Rationale of the Scheme
21.5.2 Views of the State Governments
21.5.3 Decisions of the National Development Council (NDC)
21.5.4 Expert Committee on Replacement of Sales Tax by Additional Excise Duty, 1983
21.6 Constitution (Forty-sixth Amendment) Act, 1982 and Consignment Tax
21.6.1 Issues Related to Consignment Tax
21.7 Present Nature of Sales Tax
21.8 Problems Created by Sales Tax
21.9 Alternative Remedies
21.9.1 Sales Tax as Central Levy
21.9.2 Complete Substitution of Sales Tax by Excise Duty
21.9.3 Partial Substitution of Sales Tax by Excise Duty
21.10 Towards State Level VAT
21.10.1 Minimum Rate Agreement among States
21.10.2 Single-Point VAT
21.10.3 Switch Over to VAT
21.10.4 Empowered Committee of State Finance Ministers, 2001
21.10.5 Agreement of January 23, 2002
21.10.6 Task Force on Indirect Taxes, 2002
21.10.7 Agreement of June 2004
21.10.8 Salient Features of the State-level VAT Design
21.10.9 Progress of VAT Implementation
Part VI: Federal Aspects of Indian Taxation
22. Centre-State Financial Relations
22.1 Inter-governmental Transfers
22.2 Mechanism of Central Transfers to the States
22.3 Transfer of Resources through the Finance Commission
22.3.1 Finance Commission
22.3.2 From Itemised Sharing to Global Sharing
22.4 Fourteenth Finance Commission (FFC)
22.4.1 Main Recommendations of FFC
23. State-Local Financial Relations in India
23.1 Functions of Local Bodies
23.1.1 Essential Civic Functions
23.1.2 Regulatory Functions
23.1.3 Agency Functions
23.2 Financing of Local Bodies
23.3 Constitutional Provisions
23.4 Decentralisation Initiative, 1992
23.5 Constitution (Seventy-fourth Amendment) Act, 1992
23.5.1 Salient Features
23.5.2 New Status of Municipalities
23.5.3 Desirability and Feasibility of Uniformity in Municipal Functions
23.5.4 Role of State Finance Commissions
23.6 Municipal Commercial Borrowings
23.6.1 Rationale for Municipal Commercial Borrowings
23.6.2 Limitations
23.6.3 Factors Determining Success of Municipal Bonds
23.7 Privatisation of Municipal Services
Part VII: International Aspects of Indian Taxation
24. International Double Taxation
24.1 What is Double Taxation?
24.1.1 Double Taxation by the Same Tax Jurisdiction
24.1.2 Double Taxation by Competing Tax Jurisdictions at Different Levels of
Government in a Country
24.1.3 Double Taxation by Competing Tax Jurisdictions at
Same Level of Government in Different Countries
24.2 International Double Taxation
24.3 Assignment Rules of Foreign Income
24.3.1 Source Rule
24.3.2 Residence Rule
24.4 Methods to Alleviate International Double Taxation
24.4.1 Exemption Method
24.4.2 Foreign Tax Credit
24.4.3 Bilateral Tax Treaties
24.4.4 Multilateral Tax Treaties
24.5 International Tax Evasion and Tax Avoidance
25. Indian Law on Double Tax Relief
25.1 Provisions of Income Tax Act, 1961 on Double Tax Relief
25.2 Main Features of a Typical Tax Treaty between
India and another Country
25.2.1 Scope of the Treaty
25.2.2 Permanent Establishment
25.2.3 Provisions for Taxation under the Tax Treaties
25.2.4 Provisions Regarding Elimination of Double Taxation
25.3 Double Taxation Relief Where No Tax Treaty Exists
25.4 Issues Relating to Indo-Mauritius Tax Treaty
25.4.1 Supreme Court on Indo-Mauritius DTAA
25.5 Transfer Pricing Regulations in India
25.6 Taxation of Non-residents in India
25.6.1 Rules to Determine Residential Status
25.6.2 Relationship between Residential Status and Tax Incidence
25.7 Tax Incentives for Non-resident Indians
25.8 Assessment and Collection of Tax from Non-residents in India
Part VIII: Time Series Tax Statistics of India: 1950-51 to 2013-14/2015-16
Table 1: Combined Tax Revenue, Breakdown between Direct and
Indirect Taxes with Percentage Shares, and Tax-GDP
Ratios: 1950-51 to 2013-14
Table 2: Gross Central Taxes, Breakdown between Direct and
Indirect Taxes with Percentage Shares, and Tax-GDP
Ratios: 1950-51 to 2013-14
Table 3: Share of States in Central Taxes, Breakdown between
Direct and Indirect Taxes with Percentage Shares, and
Tax-GDP Ratios: 1950-51 to 2013-14
Table 4: Net Central Taxes, Breakdown between Direct and
Indirect Taxes with Percentage Shares, and Tax-GDP
Ratios: 1950-51 to 2013-14
Table 5: States’ Own Taxes, Breakdown between Direct and
Indirect Taxes with Percentage Shares, and Tax-GDP
Ratios: 1950-51 to 2013-14
Table 6: States’ Total Tax Revenue, Breakdown between Direct
and Indirect Taxes with Percentage Shares, and Tax-
GDP Ratios: 1950-51 to 2013-14
Table 7: Income Tax (Including Corporation Tax) Collections:
1950-51 to 2015-16
Table 8: Wealth Tax Revenue: 1957-58 to 2015-16
Table 9: Central Excise Collections: 1950-51 to 2015-16
Table 10: Revenue from Customs Duties: 1950-51 to 2015-16
Table 11: Key Deficit Indicators of the Central Government:
1970-71 to 2015-16
Table 12: Revenue from Agricultural Income Tax Levied by
State Governments: 1950-51 to 2013-14
Table 13: Land Revenue Collections of State Governments:
1950-51 to 2013-14
Table 14: Revenue from Sales Tax Levied by State Governments:
1950-51 to 2013-14
Table 15: Revenue from State Excise Duty: 1950-51 to 2013-14
Table 16: Revenue from Entertainment Tax Levied by State
Governments: 1950-51 to 2013-14
Select Bibliography
Index
