India has a well developed tax structure with the authority to levy taxes divided between the Union Government and the State Governments. The Union Government levies direct taxes such as personal income tax and corporate tax, and indirect taxes like custom duties, excise duties and central sales tax. The states are empowered to levy state sales tax apart from various other local taxes like entry tax, octroi etc.
Taxation has always played an important role in the formulation of the government's industrial policy. One of the objectives of the recent economic reforms is the rationalisation of the tax structure in the country.
In 1991, the government set up a special committee, the Raja Chelliah Committee on Tax Reforms, to review the country's tax system. Its mandate was to make recommednations to maekthe tax system more elastic and broad based, and to suggest means required for simplifying existing laws and regulations to facilitate better enforcement and compliance. The recommendations made by this committee envisaged simplified procedures and a rationalised rate structure. The government has implemented a large number of recommendations such as:
The government intends to substanially implement the committee's recommendations in the next few years. Other recommendations yet to be implemented include the introduction of VAT and streamlining tax administration, appellate procedures and procedures for searches and raids.
Tax revenue as percentage of GNP has been consistently increasing with the lion's share of the revenues increasingly attributable to indirect taxes -- particularly customs and excise.
The table below gives a list of the major direct and indirect tax laws and authorities responsible for administering these laws. A system of advance ruling has recently been introduced by tax authorities. At present, non residents can apply for advance rulings on income tax law.
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Nature of tax Government Act Authority
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Direct
Income tax Income Tax Act, 1961 Central Board of Direct Tax
Wealth tax Wealth TAx Act, 1957 Central Board of Direct Tax
Gift tax Gift Tax Act, 1958 Central Board of Direct Tax
Indirect tax
Central excise Central Excise & Salt Central Board of Excise and
Act, 1944 Customs (CBEC)
Customs Customs Act, 1962 CBEC
Central Sales Tax Central Sales Tax Act, Union Government
1956
State Sale Tax Respective State Sales Respective State Governments
Tax Acts
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Under the Indian Income Tax Act, 1961, income earned during a tax year, i.e. April 1 to March 31 is subject to income tax.
Centre for Monitoring Indian Economy, Bombay
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Last updated: May 1995.