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All about Tax and its types – RBI Grade B

All about Tax and its types - RBI Grade B

Tax is the main source of state income, which is compulsorily paid to the state. Taxes are the amount of money government impose on an individual or corporate directly or indirectly so as to generate revenue.

Generally in India Tax is divided into two categories, which are as follows

  1. Direct Tax- These are taxes imposed directly on individuals or corporate. Direct tax includes personal income tax, corporate tax, wealth tax, professional tax, etc.

  2. Indirect tax- These are the Charge levied by the State on consumption, expenditure, privilege, or right but not on income or property. Customs duty, Excise duty, service tax, value added tax (VAT) , entertainment tax, etc. are examples of indirect tax.

Public revenue, consists of taxes, revenue from administrative activities like fines, fees, gifts & grants. Public revenue can be classified into two types.

Tax Revenue

Taxes are the first and foremost sources of public revenue. Taxes are compulsory payments to government without expecting direct benefit or return by the tax payer. Taxes collected by Government are used to provide common benefits to all mostly in form of public welfare services. Taxes do not guarantee any direct benefit for person who pays the tax. It is not based on direct quid pro quo principle.

Non-Tax Revenue

Non-tax revenue or non-tax receipts are government revenue not generated from taxes.

Non Tax Revenue Receipts are those revenue receipts which are not generated by Taxing the public. Money which the Government earns as “Dividends and profits” from its profit making public enterprises (PSUs) . Interest which the Governmentearns on the money lent by it to external or internal borrowers

The revenue obtained by the government from sources other then tax is called Non-Tax Revenue.

The sources of non-tax revenue are :-

1. Fees

Fees are another important source of revenue for the government. A fee is charged by public authorities for rendering a service to the citizens. Unlike tax, there is no compulsion involved in case of fees. The government provides certain services and charges certain fees for them. For example, fees are charged for issuing of passports, driving licenses, etc.

2. Fines or Penalties

Fines or penalties are imposed as a form of punishment for breach of law or non fulfillment or certain conditions or for failure to observe some regulations. Like taxes, fines are compulsory payments without quid pro quo. But while taxes are generally imposed to collect revenue. Fines are imposed as a form of punishment or to prevent people from breaking the law. They are not expected to be a major source of revenue to the government.

 

3. Surplus from Public Enterprises

The Government also gets revenue by way of surplus from public enterprises. In India, the Government has set up several public sector enterprises to provide public goods and services. Some of the public sector enterprises do make a good amount of profits. The profits or dividends which the government gets can be utilized for public expenditure. There is some sort of quid-pro-quo in the case of surplus from public enterprises. This is because, the public gets goods and services, and the government gets prices, and consequently profits from selling such goods and services.

4. Special assessment of betterment levy

It is a kind of special charge levied on certain members of the community who are beneficiaries of certain government activities or public projects. For example, due to a public park in a locality or due to the construction of a road, people in that locality may experience an appreciation in the value of their property or land. Thus, due to public expenditure, some people may experience ‘unearned increments’ in their asset holding. Betterment levy is like a tax because it is a compulsory payment, but unlike a tax, in case of betterment levy there is some element of quid pro quo.

5. Grants and Gifts

Gifts are Voluntary contributions by individuals or institutions to the government. Gifts are significant source of revenue during war and emergency.

A grant from one government to another is an important sources of revenue in the modern days. The government at the Centre provides grants to State governments and the State governments provide grants to the local government to carry out their functions.

Grants from foreign countries are known as Foreign Aid. Developing countries receive military aid, food aid, technological aid, etc. from developed countries.

6. Deficit Financing

Deficit means an excess of public expenditure over public revenue.

This excess may be met by borrowings from the market, borrowings from abroad, by the central bank creating currency. In case of borrowing from abroad, there cannot be compulsion for the lender

GST

GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India (Except state of Jammu and Kashmir) , to replace taxes levied by the central and state governments.

GST is a single tax on the supply of goods and services,right from the manufacturer to the consumer.Credits of input taxes paid at each stage will be available in the subsequent stage of value addition,which makes GST essentially a tax only on value addition at each stage.The final consumer will thus bear only the GSTcharged by the last dealer in the supply chain,with set-off benefits at all the previous stages

For the consumer

  • Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.

  • Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.

Administration of GST in India

Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST) . Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST) , and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.

In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution.

GST Council approved a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

Dual GST

India is a federal country where both the centre and the states have been assigned the powers to levy and collect taxes through appropriate legislation.Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the constitution for which they need to raise resources.A dual GST will,therefore,be in keeping with the constitutional requirement of fiscal federalism.

There will be two components of GST – Central GST (CGST) and State GST (SGST) . Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST) , and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.

In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution.

GST Council approved a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

Centre will levy and administer CGST and IGST while respective states/UTs will levy and administer SGST/UTGST.

The CGST and SGST would be levied at rates to be jointly decided by the centre and states.The rates would be notified on the recommendations of the GST council.

Under the GST regime,tax is payable by the taxable person on the supply of goods and/or services.Liability to pay tax arises when the taxable person crosses the turnover threshold of Rs.20lakhs(Rs.10lakhs for NE and special category states) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit

The following are the state and centre level are subsumed into GST:

At the Central level,the following taxes are being subsumed:

Central Excise Duty

Additional Excise Duty

Service Tax

Additional Customs Duty commonly known as Countervailing Duty,

Special Additional Duty of Customs

At the State level,the following taxes are being subsumed:

Subsuming of state value added tax/Sales tax

Entertainment Tax(other than the tax levied by the local bodies) ,Central sales tax(levived by the centre and collected by the states)

Octori and entry tax

Luxury tax

Taxes on lottery,betting and gambling

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