| The well-developed tax structure in India forms the basis of the Centre-State financial relations. The three-tier federal structure, involving the Union Government, the State Governments and the Urban/Rural Local Bodies is a unique feature of Indian tax structure. The Central Government is empowered to impose Income Tax (except agricultural income), Customs duties, Central Excise, Sales Tax and Service Tax.
The power to levy Value Added Tax (VAT), Sales Tax in states where VAT is not yet operational, Stamp Duty (duty on property transfer), State Excise (on manufacture of alcohol), Land Revenue, Entertainment Tax, Tax on Professions and Callings, lies on the State Governments.
Taxes on properties, Octroi, public utilities like water supply, drainage etc are levied by Local Bodies.
Since the initiation of New Economic Policy in 1991, there have been some major changes in the Indian tax structure. Rationalization of tax rates and simplification of the tax laws have made the tax payment procedures easier than before resulting in better abidance and enforcement among the taxpayers.
Some changes in tax structure are as follows: -
- Cutting down customs and excise duties
- Reducing the rate of corporate tax
- Extending the tax base to cover greater mass of population and strengthening of tax administration
Exempt Income
However the dividends paid to the shareholders by Companies and Mutual Funds fall under the category of non-taxable income. Yields received on maturity of Public Provident Fund (PPF) account is also exempted from income tax. Money received on insurance claim is also exempted from the income tax structure.
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