On the eve of Indian Republic Day: Lets Discuss Constitution and Taxation
Arjuna (Fictional Character): Arjuna, Indians celebrate 26th January as Republic Day. On this auspicious day in the year 1950 The Constitution of India came into force.
Krishna (Fictional Character): Yes Arjuna, by replacing the Government of India Act (1935) The Constitution of India came into force on 26 January 1950. Constitution is the soul of every country. Indian Constitution is the Constitution of the people, by the people, for the people and hence every Indian feels proud to follow it and celebrate Republic Day. Parliament as well as State Legislatures gets the power to legislate various laws from the Constitution only and therefore every law has to be within the vires of the Constitution. Otherwise citizens may make appeal in the court against unconstitutional laws and provisions. Further Honorable Supreme Court and other courts of India take The Constitution of India as the base for giving decisions and thereby law and order prevails in the country.Keshav Nanda Bharti Case is one of the remarkable case of Honurable Supreme Court on this issue.
Arjuna: What are the articles related to taxes in The Constitution of India?
Krishna: As per The Constitution of India’s Seventh schedule and various Articles, mainly Article 246, 265 powers to make tax laws are prescribed as per the list:
1. List I (referred to as the Union List) enumerates the matters in respect of which the Parliament has an exclusive right to make laws. Some of the examples are Duties of customs, Duties of excise, Corporation tax, Central Sales Tax i.e. Taxes on sale or purchase of goods other than newspapers in the course of Interstate trade or commerce, Service Tax.
2. List II (referred to as the State List) enumerates the matters in respect of which the legislature of any state has an exclusive right to make laws. Some of the examples are Local Sales Tax i.e. Tax on sale or purchase of goods other than newspapers except tax on interstate sale or purchase, Octroi or Entry Tax, Tax on professionals, trades, callings and employment.
Arjuna: How taxes are collected by the government?
Krishna: 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. If the taxes are collected unconstitutionally then collected taxes will have to be refunded to the taxpayers. There are various types of taxes, broadly divided into two categories i.e. Direct Tax and Indirect Tax.
Arjuna: Krishna, Please explain me in simple words what is Direct Tax and Indirect Tax?
Krishna: Arjuna, laws, rules and regulation are simple but they were made difficult by finding loopholes in it. A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. Some examples of the important Direct Taxes imposed in India are Income Tax, Corporation Tax, Property Tax, Inheritance Tax, Gift Tax. Indirect taxes are those paid by consumers when they buy goods and services. Usually, these charges are passed on to the consumer. The consumer often does not know that he is paying the tax. The some important examples of Indirect Taxes imposed in India are Customs Duty, Central Excise Duty, Service Tax, Sales Tax, Value Added Tax and Securities Transaction Tax.
In simple and joyful manner the example of Direct and Indirect Tax is, “When husband himself gives money to her wife, then it is Direct Tax and when wife secretly takes away money from his husband’s wallet then it is indirect tax”.
Arjuna: What major developments are taking place in Indian Taxation?
Krishna: In six decades of tax system in India many developments as per the need of time took place. Government is planning for many changes in taxation like GST, DTC, etc.
Arjuna: What is this GST my dear Krishna, when common man is already burdened with taxes?
Krishna: Arjuna, taxes are not burden but they are the source of revenue which in turn used for the development of the citizens. For your information, The Goods and Services Tax (GST) is Indirect Tax to be implemented in India, but god knows when? The foundation for the same has already been laid by the introduction of the Constitution Amendment Bill in the Parliament in March 2011. It will replace all indirect taxes i.e. Excise Duty, VAT, Service Tax, etc. levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services. A nationwide GST is intended to usher in a uniform market for goods and services, cut business costs and boost government revenues.
Arjuna: Ok, then what is DTC?
Krishna: DTC is Direct Tax Code proposed to replace the existing Direct Taxes such as Income Tax Act, Wealth Tax Act, Dividend Distribution Tax, etc. so as to enable to establish an economically efficient, effective and equitable direct tax system which will facilitate voluntary compliance and help increase in tax GDP ratio. Another objective of the code is it will reduce the scope for dispute and minimize litigation. Consensus between stakeholders is going on but again god knows when it will be implemented?
Arjuna: Krishna, nowadays lot of discussion is going on Banking Transaction Tax (BTT), what is it?
Krishna: According to available information BTT may replace many taxes and single tax on bank transactions only will be levied and collected. However there is a long way to go for practical implementation of it. Further in democratic country like India, political consensus is not yet reached on many grounds for implementation of it. Hence better we leave it on future.
Arjuna: How taxpayer should celebrate Republic Day?
Krishna: On Republic day all school, colleges, government institution come together for flag hosting. People come together in the honor of nation and to respect the sacrifices made by martyrs for the nation. Our constitution gives the message of justice, liberty, equality, sacrifice and fraternity on the republic day. Taxpayers should pay tax as per constitution and government should also make tax laws accordingly. One should keep this in mind and give his contribution in growth of nation. Government is also making its contribution by bringing changes in taxation like GST, DTC, etc. one should adopt these changes and help the nation grow. Hope corruption in society nullifies by efforts of every citizen of India. As rightly said by Mahatma Gandhi, “No Nation is perfect it needs to be made perfect” so “You must be the change you wish to see in the world.”
Dear Karniti lovers, your valuable comments please.