India has a well developed taxation structure. The tax system in India is mainly a three tier system which is based between the Central, State Governments and the local government organizations. In most cases, these local bodies include the local councils and the municipalities.
According to the Constitution of India, the government has the right to levy taxes on individuals and organizations. However, the constitution states that no one has the right to levy or charge taxes except the authority of law. Whatever tax is being charged has to be backed by the law passed by the legislature or the parliament. Article 246 (SEVENTH SCHEDULE) of the Indian Constitution, distributes legislative powers including taxation, between the Parliament and the State Legislature. Schedule VII enumerates these subject matters with the use of three lists;
• List – I entailing the areas on which only the parliament is competent to makes laws, Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent (often but not always unpaid labour).
• List – II entailing the areas on which only the state legislature can make laws, and
• List – III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.
Direct Taxes: They are imposed on a person’s income, wealth, expenditure, etc. Direct Taxes charge is on person concern and burden is borne by person on whom it is imposed. Example- Income Tax.
Indirect Taxes: They are imposed on goods/ services. The Immediate liability to pay is of the manufacturer/ service provider/ seller but its burden is transferred to the ultimate consumers of such goods/ services. The burden is 
transferred not in form of taxes, but, as a part of the price of goods/ services. Example- Excise Duty, Customs Duty, Service Tax, Value-Added Tax (VAT), Central Sales Tax (CST).
Progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term “progressive” refers to the way the tax rate progresses from low to high, with the result that a taxpayer’s average tax rate is less than the person’s marginal tax rate.
Proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation.
Tax Reforms in India
Sience 1990 ie the liberalization of Indian economy saw the beginning of Taxation reforms in the nation. The taxation system in the nation has been subjected to consistent and comprehensive reform. Following factors arise the need for tax reforms in India:-
- Tax resources must be maximized for increased social sector investment in the economy.
- International competitiveness must be imparted to Indian economy in the globalized world.
- Transaction costs are high which must be reduced.
- Investment flow should be maximized.
- Equity should be improved
- The high cost nature of Indian economy should be changed.
- Compliance should be increased.
Direct & Indirect Tax Reforms
Direct tax reforms undertaken by the government are as follows:-
- Reduction and rationalization of tax rates, India now has three rates of income tax with the highest being at 30%.
- Simplification of process, through e-filling and simplifying the tax return forms.
- Strengthening of administration to check the leakage and increasing the tax base.
- Widening of tax base to include more tax payers in the tax net.
- Withdrawal of tax exceptions gradually.
- Minimum Alternate Tax (MAT) was introduced for the ‘Zero Tax’ companies.
- The direct tax code of 2010 replace the outdated tax code of 1961.
Indirect tax reforms undertaken by the government are as follows:-
- Reduction in the peak tariff rates.
- reduction in the number of slabs
- Progressive change from specific duty to ad valor-em tax.
- VAT is introduced.
- GST has been planned to be introduced.
- Negative list of services since 2012.
Tax Laws: Laws relating to income, Profits, Wealth Tax, Corporate Tax
The Income-tax Act, 1961
The Income Tax Act, focusing on the rules and regulations of tax regulation, was initially put into existence in the year 1961. Under this act, everything related to taxation and more are mentioned which also includes collection and levy.
The Income Tax Act was enacted in the year 1961 and is the statute under which everything related to taxation is listed. This includes levy, collection, administration and recovery of income tax. The act basically aims to consolidate and amend the rules related to taxation in the country.
The Income tax Act contains a long list of sections, each of which deal with different aspects of taxation in the country. Let us look into each of these chapters of the IT Act and their related sections and sub-sections.
Chapter I: This is the first section and is hence for introducing the IT Act and to give a basic idea about the same.
Chapter II: This chapter talks about the commencement and the extent of the Income Tax Act.
Chapter III: The third chapter of the IT Act is basically about the charge of income tax, the scope of total income, dividend income, and income arising as a result of working abroad and so on.
Chapter IV: This chapter deals with all forms of income that do not form part of the total income. These include income from property, trusts, institutions, incomes of political parties etc.
Chapter V: The fifth chapter is about incomes of other individuals that form part of the assessee’s income. This includes income from capital gains, from businesses, from house property etc.
Chapter VI: This deals with the transfer of income when there is no actual transfer of assets. This includes transfer as well as revocable transfer. Chapter VII: Chapter VII is basically about the deductions that are applicable on certain payments and certain incomes
Chapter VIII: Chapter VIII deals with rebates and share of member in an association or body
Chapter IX: This talks about double taxation relief that is rebate on income tax and relief in income tax.
Proposed Direct tax code
The direct taxation of the income of individuals, companies and other entities is governed by the Income Tax Act, 1961. The Direct Taxes Code seeks to consolidate the law relating to direct taxes. The Bill will replace the Income Tax Act, 1961, and the Wealth Tax Act, 1957. The Bill widens tax slabs, and lowers corporate tax rates. It removes a number of exemptions and grandfathers some others.
The new direct tax code will try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate and phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation. Globally, governments are racing to woo investments and boost job creation by offering lower corporate tax rates. In December, the US enacted a Tax Cuts and Jobs Act, lowering the country’s corporate tax rate from 35% to 21%. A month later, Apple Inc. said it would invest $30 billion to expand US operations. India’s new direct tax code will take forward the plan to lower the corporate tax rate from 30% to 25% for all firms gradually as revenue collection improves. From 2018-19, the 25% tax rate is available to all firms with sales less than Rs250 crore.
The wealth tax, 1957
The Wealth Tax Act, 1957 governed the taxation process associated with the net wealth that an individual, a Hindu Undivided Family (HUF), or a company possesses on the valuation date. The valuation date was an important component in the calculation of the Wealth Tax. The net wealth that an assessee possessed on the valuation date determined the amount of tax. The valuation date was the day of 31 March immediately preceding the Assessment Year.
Government of india decided to abolish the levy of wealth tax under the Wealth-tax Act, 1957 with effect from the 1st April, 2016. The objective of taxing high networth persons shall be achieved by levying a surcharge on tax payer earning higher income as levy of surcharge is easy to collect & monitor and also does not result into any compliance burden on the assessee and administrative burden on the department.
corporate tax laws in india
Corporate Income Tax (CIT) refers to the corporate tax rate imposed on: the ‘net income’ of companies registered under the Companies Act, 1956 or foreign companies earning income in India. India has among the highest corporate tax rates in the world, but the effective tax liable differs across industry and sector. In this article, we briefly discuss the structure of corporate taxation in the country.
A company, whether Indian or foreign, is liable to pay CIT under the country’s Income Tax Act, 1961. While a resident company is taxed on its worldwide income, a non-resident (foreign) company is taxed only on income that is received in India, or that arises, or is deemed to accrue in India.
Previously, a foreign company was considered a resident company only if the control and management of their affairs were wholly situated in India in the financial year. Companies that were partly or wholly controlled and managed from outside India were treated as non-resident companies. This was amended by the Finance Act of 2015 to align the rules with international best practices.
India’s Finance Act 2015
Properly determining tax residency is critical for foreign companies doing business in India. A spate of recent court cases challenging the tax residency status of foreign companies spurred the government to enact changes clarifying the law. The Finance Bill as introduced provided that a company would be considered a resident of India if its place of effective management (POEM) was in India “at any time” during the year. This wording would potentially cause a company to qualify as a resident in India even if it were to have a POEM in India for only one meeting during the year. Under this scenario, a foreign company with Indian operations could be deemed a resident in India, which could lead to taxation in India on the company’s worldwide income.
Minimum Alternative Tax
Following criticism of the multiple minimum alternative tax assessments (MAT) on foreign institutional investors, the Lok Sabha (or lower house of parliament) introduced a change to the original bill. The change clarifies the government’s position on the applicability of the MAT to foreign companies.
The Finance Act extends the explicit exemption from the MAT to any foreign company that earns income in the form of capital gains on securities, interest or royalties and fees for technical services. The exclusion applies as long as the tax payable on such income is less than 18.5 percent; that is, the rate of the MAT. However, the Finance Act stops short of providing retroactive relief for foreign investors that received tax notices on MAT applicability to past gains on investments.
General Anti-Avoidance Rules
Another timely provision of the Finance Act is the deferral of the general anti-avoidance tax rules (GAAR). GAAR represents a major area of concern and uncertainty for foreign investors doing business in India; the government has not yet issued guidelines explaining its implementation.
The Finance Act defers GAAR’s effective date so that it applies to transactions taking place on or after April 1, 2017. This is the fourth time that the government has postponed implementation. As written, GAAR provisions would give tax authorities greater powers to examine cross-border transactions for signs of tax evasion. Such powers would include the power to override all tax treaties and to disregard, look through, or re-characterize business arrangements that are deemed to be impermissible avoidance arrangements.
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