What is Tax?

1. Tax is
- a compulsory exaction of
money
- for public purpose
- by an authority of law
2. It is appropriated to the general
expenses of the state
- without reference to a special
benefit conferred on the payer.

Associated Terms
First Set: Tax is expressed in different terms
- Additional Tax
- Duty
- Levy
- Cess
- Surcharge
- Revenue

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- Toll
- Octroi
- Fee
- Fine

Meaning & Appropriate use of

these terms
Duty is : A tax charged especially on
transactions carried out by (i) business
establishment; (ii) individual; and
(iii) Institutions. Examples:
- Stamp duty
- Excise duty
- Customs duty
- Estate duty
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 Stamp duty: - Acknowledgement of

receipts exceeding certain
amount

- Transfer of Immovable
properties
- Transfer of Shares
- Negotiable Instruments
other than, Cheques, Drafts
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- Certain types of documents like

Agreements
Power of Attorney
Proxy appointments
- Court related documents
- Affidavits
- Notary attestations
- and so on
require payment of stamp duty.
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 Excise Duty: is levied on

- certain specified goods.
- at the point of manufacture.
[before they leave factory and come into market]

The (1) manufactured goods,

(2) the tariff rate and
(3) its basis of calculation
are included in the schedule annexed
to the Act.
Such goods are called - Excise goods
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 Customs duty:
It is levied on the goods imported from
other countries.
Estate duty:
It is charged upon the principal value
of all property - which passes on the
death of a person

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 Levy: What has been levied - is Levy.

Cess: Cess is also a kind of levy only.
There is no much difference in the meaning
between these two terms except that - we
use the same term which the legislatures
used while imposing tax.

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 Natural resources are the property of everyone

and they should be used carefully and rationally.
They should be conserved for the use of future
generations.
Anybody exploiting natural resources for his
personal gain or advantage, he must pay for it.
- Hence, Cess is levied.
Cess, levy or surcharge are imposed (i) under
special circumstances (ii) for a specified period (iii)
to raise certain amount (iv) for meeting a particular
contingency (v) which contingency was - not
foreseen and - sufficient provision in the
budget was not made, for that purpose.
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 Surcharge:
- Charge on Charge is Surcharge.
- surcharge is on the rate of charge only.
Example:
If the Original Charge is 10% and
the Surcharge imposed now is 10%.
Then on a Value of Rs.1,00,000/=
Charge is @ 10%
= Rs 10,000
Surcharge on charge
of Rs.10,000 is @10% = Rs. 1,000
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So, total tax payable is

= Rs. 11,00010

 Revenue: This expression is used in case of

tax on land - Agricultural or
- Non-agricultural
The usual expression is Land revenue.
Toll: is imposed on - Passengers or
- Vehicles or
- on both
- when they pass a particular path or
- enter a particular track or area.
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 Octroi: This is collected at the entry points of a

particular local market or area - when goods enter
such market or area.
The difference between Customs duty and
Octroi lies in that
Customs duty is imposed when
foreign
goods enter the territory of another
sovereign state, whereas
Octroi is collected on indigenous goods,
when they enter a village, town or
district limits or a market yard
though all places are within in the same
sovereign territory.
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 The difference between Octroi and Toll

lies in this
- Octroi & Toll are both entry taxes
In general
- Octroi is levied on - Goods
- Toll is levied on

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- Vehicles and
- Passengers
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 Fee:
- It is collected as charges for services
rendered.
- The principle of consideration quid pro quo operates in this case.
Fine:
It is imposed - as penalty
- on the defaulter
who fails to - pay tax or fee or duties
- submit returns in time
- adhere to the rules of
law of taxation
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Associated Terms
Second Set:
Taxes are classified and expressed mainly
in terms of
- Direct taxes
- Indirect taxes
We can have a better comprehension of
these terms, by distinguishing each term
from the other.
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Distinction
Direct Taxes
Indirect Taxes
1. Taxes that are
1. Taxes that are
directly paid by the
not directly paid
tax-payer to the
to the exchequer,
exchequer but the burden is
- such taxes are
indirectly borne
named as direct
by the people taxes
- such taxes are
named as indirect
taxes
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 Direct Taxes
2. The burden of
Direct taxes
cannot be shifted
to others

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Indirect Taxes
2. The burden of
Indirect Taxes can
be shifted to
others

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 Direct Taxes
3. Scope
- Income earned
- Wealth
accumulated
- Gift received
- Estate inherited
- Profession being
carried
are subject to direct
taxation
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Indirect Taxes
3. Scope
- Sale purchase
transactions
- Imports from
foreign states
- Manufacture of
goods
- Services rendered
- Entertainment
are subject to
indirect taxation 18

 Direct Taxes
4. Imposed mainly on
- net income
- net assets
- profession being
carried

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Indirect Taxes
4. Imposed mainly on
- transfer of
property, other
than money
- services
- work contracts
- imports
- manufacture or
- such other
activities or
transactions
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 Direct Taxes

Indirect Taxes

5. Collections:
5. Collections:
Revenue
Revenue
collected under
collected under
Direct Taxes is
Indirect Taxes is
lesser than that
larger than that
from indirect
from Direct Taxes
taxes because a
for the reason,
few privileged
that almost every
and well to do
consumer is
people are
subject to this
subject to this
kind of tax.
kind of tax
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Associated Terms
Third Set:
- Tax Planning which may include
- Evasion or
- Avoidance or
- Saving
Tax evasion is an offence, punishable
with heavy or huge amounts of penalty
and even it may lead to imprisonment
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 Fourth Set:
The two key words in law are
- Levy
- Collection.
Levy must indicate - rate of tax
- incidence of tax
Collection requires Inspection
Assessment and
Collection system
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Tax System in India

CONSTITUTION OF INDIA
PART XII - FINANCE,
- PROPERTY
- CONTRACTS AND
- SUITS
CHAPTER I FINANCE
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CHAPTER I FINANCE
General ...Art.(264-267)
Distribution of Revenues between the U
nion and the States
...Art.(268-281)
Miscellaneous Financial Provisions
...Art.(282-291)
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 Article 265 of Constitution of India.

Taxes not to be imposed, save by
authority of law:
- No tax shall be
- levied
or - collected
- Except by authority of law
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Consolidated Fund of India

1. All
revenues received by the Government of
India, all loans raised by that Government
by the issue of treasury bills, loans or
ways and means
advances and all moneys received by that
Government in repayment of loans
- shall form one consolidated fund to be
entitled the Consolidated Fund of India.
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 2. All other public moneys received by or on

behalf of the Government of India
shall be credited to the public account of
India.
3. No moneys out of the Consolidated
Fund of India or the Consolidated Fund
of a State shall be appropriated except
in accordance with
- law and
- this Constitution.
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Center-State Financial Relations

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Duties levied by the Union but collected

and appropriated by the States.
[Art 268]

Taxes levied and collected by the Union

but assigned to the States.
[Art 269]

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Taxes levied and collected by the Union

and distributed between the Union and the
States.
[Art 270]
Surcharge on certain duties and taxes for
purposes of the Union.
[Art 271]
Taxes which are levied and collected by
the Union and may be distributed between
the Union and the States.
[Art 220]
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 Taxes on professions, trades,

callings and employments.

[Art 276]

Savings.

[Art 277]

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