Taxation powers in India "EMPOWER IAS"

In news:

Scrapping the retrospective levy is believed to provide clarity to investors by removing a major source of ambiguity on taxation laws, the government has stressed the need to establish its “sovereign right to taxation”.

Defining a Tax

A document on the Ministry of Statistics and Programme Implementation website quotes the definition of tax as a “pecuniary burden laid upon individuals or property owners to support the government; a payment exacted by legislative authority”.
It states that a tax “is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority”.

The ‘sovereign right to taxation’

In India, the Constitution gives the government the right to levy taxes on individuals and organizations but makes it clear that no one has the right to levy or charge taxes except by the authority of law.
Any tax being charged has to be backed by a law passed by the legislature or Parliament.

Taxation in India

Taxes in India come under a three-tier system based on the Central, State and local governments, and the Seventh Schedule of the Constitution puts separate heads of taxation under the Union and State list.
There is no separate head under the Concurrent list, meaning Union and the States have no concurrent power of taxation, as per the document.

Types of Taxes

An entity has to pay taxes in various forms. Depending on the manner in which they are paid to the taxation authorities, these taxes are classified into direct and indirect taxes. Let us discuss about both taxes in detail:

Direct Tax

Taxes that are paid directly by individuals and organizations to the government of India come under Direct Tax.

Indirect taxes:

Indirect taxes are collected a bit differently from direct taxes and these are consumption-based taxes that are applied to goods or services when they are bought and sold.
The government receives indirect tax payments from the seller of the good/service.
The seller, in turn, passes the tax on to the end user i.e. buyer of the good/service.
Thus, the name indirect tax as the end user of the good/service does not pay the tax directly to the government.

Goods and Services Tax (GST) is an indirect tax (or consumption tax) levied in India on the supply of goods and services. It is levied at every step in the production process.
The tax is divided into five slabs -- 0 per cent, 5 per cent, 12 per cent, 18 per cent, and 28 per cent.
Although GST is collected by the central government, taxes on petroleum products, alcoholic drinks, electricity are separately collected by the state government.