The term “Tax” comes Latin word “Taxation”. It means to determine the payable quantum on estimate. Taxing authority determines tax to be payable by the assesse. So tax is the revenue collected by the government from persons and organizations under different taxing Acts. In other words, it is a liability imposed upon the assessee who may be individuals, groups of individuals and other legal entries. A charge imposed by a government on a service, product, or activity in order to raise revenue. Tax can be levied on business or personal income.
Meaning and Definition of Taxation
According to Justice Holmes___ “The price to the government for living in a civilised society is the tax”.
According to Taylor___” Taxes are the compulsory payment to government without expectation of direct benefit to the tax payer”.
Characteristics of Taxation
- A tax is a compulsory payment made to the government. People on whom a tax imposed must pay the tax. Refusal to pay the tax is a punishable offence.
- There is no quid pro quo between a tax payer and public authorities. This means that the tax payer cannot claim any specific benefit in return for the payment of a tax.
- Every tax involves some sacrifice on part of the tax payer.
- A tax is not levied as a fine or penalty for breaking law.
- It is levied pursuant to legislative authority, the power to tax can only be exercised by the law making body or congress
- It is levied for public purpose
- It is commonly required to be paid a regular intervals.
The government collect tax revenue by way of direct taxes. Direct taxes include corporate tax; personal income tax, capital gain tax and wealth tax. Indirect taxes include custom duty,central excise duty, and VAT and service tax. In 2006-07 India related, the tax revenue contributed about 81% of the total revenue receipts of the Central Government, Whereas non-tax revenue receipts contributed the remaining 19%.
Classification of Tax
1. Direct Tax
Direct taxes are levied on wealth and income of individuals or organizations. These taxes are personal income tax, corporate tax, and gift or wealth tax. The impact of direct taxes is on the same person. Direct taxes are developing in nature and the tax rate increases along with the tax base.
- Personal Tax: Personal income tax is levied on only about 3.5% of India’s more than one billion citizens. The state levy profession tax on salaried employees and persons carrying on profession or trade rates that vary by state. An individual’s income is categorized into different employment income,business or professional income, income from real estate,capital gains,and other income.
- Net Wealth Tax: All individuals are other specified persons must pay a 1% wealth tax on the aggregate value of net wealth exceeding INR 3 million of Non-productive assets such as land;buildings not used as factories; commercial property not used for business or profession;residential accommodation for employees earning over INR 5,00,000 per annum;gold,silver,platinum and other precious metals,gems and ornaments; and cars,aircraft and yachts.
- Capital Tax: India does not levy capital duty,although a registration duty is levied.
2. Indirect Tax
Indirect taxes are imposed on goods & Commodities. These taxes include sales tax,excise duty,service tax, customs duty, VAT, Stamp Duty,etc. The impact of indirect taxes may be implied on different people. In direct taxes are not progressive but regressive in nature. Indirect taxes are of utmost importance for countries that are developing and face low income levels.