Tax Types in India
Tax Types can be classified as follows:
1. On the Basis of Form
- Direct Tax: Direct taxes are are those which are paid by the persons on whom these are imposed and the real burden is also borne by them, such as taxes on income. Wealth, consumption, inheritance, gift, expenditure, etc.
- Indirect Taxes: An indirect tax is imposed on one person but paid partly or wholly by another, owing to a consequential change in the terms of some contract of bargains between them.
2. On the Basis of Income or Consumption Method
- Proportional Tax: In a proportional tax, the rate schedule is one in which the rates of tax remains constant with the change in the tax base. The amount of tax payable can be estimated by multiplying the tax base with the tax rate. In this case, the tax liability increases in the same proportion as the increase in income. This type of Taxation is quite simple and one can understand it without difficulty.
- Progressive Tax: A progressive tax is one in which the tax rate increases with the increase in the tax base.
- Regressive Tax: In regressive taxation, the larger the income of tax-payer, the smaller is the proportion that they contribute.
- Degressive Tax: A degressive tax is one on which tax is progressive up to a certain limit, after that it is proportional, i.e., charged at flat rate.
3. On the Basis of Essence
- Ad Valorem Tax: When the tax is imposed on a commodity according to its value it is called ad valorem tax.
- Specific Tax: When a tax is imposed on a commodity according to its weight, size or measurement, it is called a specific tax. Specific tax is expressed as definite sum.
4. On the Basis of Volume
- Single Tax System: A single tax means only one kind of tax. It does not mean a tax on only one person. In other words, a tax on one thing, i.e., on one class of things or one class of people.
- Multiple Tax System: A multiple tax refers to the tax system in which there is the diversity of taxation, i.e., various types of taxes is levied.
Essential Components in Levy of Tax
- It is an enforced contribution.
- It is generally payable in money.
- It is proportionate in character.
- It is levied on persons, property, or the exercise of a right or privilege.
- It is levied by the State which has jurisdiction over the subject or object of taxation.
- It is levied by the law-making body of the State, and
- It is levied for public purpose or purposes.