16-08-2012, 01:08 PM
INDIRECT TAXES
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so it requires revenue. The income of government from all sources is called public income or
public revenue. Public revenue includes income from taxes, income from goods and services
supplied by public enterprises, revenue from the administrative activities, such as fees, fines,
etc., gifts and grants, while public receipts include all the income of the government which it may
have during a given period of time i.e. public receipts = public revenue + income from all other
sources, such as, a public borrowing from individuals and banks and income from public
enterprises. Local bodies like Municipal Corporation, Municipal Committees, Town Panchayat,
Cantonment Board, etc can also levy certain taxes like property tax, professional tax, octroi,
education cess, etc.
Thus, taxes are contributions made by the citizens of the country towards its development and
expenditure, which the government has to incur in its social and economic activities. Taxes are
paid by the individuals, corporate houses of trade and industry etc. There are different types of
taxes like income tax, wealth tax, gift tax, property tax, sales tax, excise and custom duty etc.
Tax
A tax is legally compulsory payment levied by the government on the persons or companies to
meet the expenditure incurred on conferring common benefits upon the people of a country. In
other words a tax can also be describe as a compulsory levy where those who are taxed have
to pay the sums irrespective of any corresponding return of services or goods by the government.
Fee
Fee is also compulsory payment made by a person who receives in return a particular benefit or
services from the government.
Fines
These are compulsory payments without any quid pro que but are different from taxes because
fines are imposed to curb certain offences and discipline people and not to get revenue for the
State. In this sense, fines are not taxes.
40.1.4 Surcharges
It is an additional charge or an extra fee for a special service. It is also called tax on tax e.g. a
10% surcharge is applicable on income tax for incomes above Rs. 10 lakh. In other words
surcharges are often a charge in addition to a charge, or a tax added to the original tax.
Two aspects of tax follow from the definition:
1. A tax is a compulsory payment and no one can refuse to pay it.
2. Proceeds from taxes are used for common benefits or general purposes of the state. It
means there is no direct quid pro que involvement in the payment of a tax.
Taxes are mainly classified into direct and indirect taxes:
DIRECT TAXES
Those taxes whose burden cannot be shifted to others and the person who pays these to the
government has to bear it are called direct taxes. In other words direct tax is imposed on an
individual or a group of individuals, which affects them directly i.e, which they have to pay to the
government directly. The direct tax can be of different types:
MATHEMATICS 183
Notes
Indirect Taxes
Mathematics for
Commerce, Economics
and Business
Income Tax
The tax imposed on an individual or a group of individuals on their annual incomes is known as
income tax. Every individual whose annual income exceeds a certain specified limit is required,
under the Income Tax Act, to pay a part of his income in the form of income tax. Its rates are
announced in the beginning of each financial year by the central government.
Financial Year: The period from 1st April to 31st march is taken as a financial year i.e. every
financial year begins on 1st April and ends on 31st march of the consecutive year.
Assessment Year: The year next to a particular financial year is called the assessment year for
that financial year, e.g. for financial year 2005-06, the assessment year is 2006-07.
Permanent Account Number: An individual is given a permanent account number (PAN) by
the income tax department. He or she is obliged to file an income tax return of the financial year
by a specified date of the subsequent financial year.
Wealth Tax
The tax imposed on the wealth (property as well as money) of an individual is called wealth tax.
The exemption limit for wealth tax is Rs 5, 00,000. In addition one residential house or a part
thereof is exempted from the wealth tax.
Gift Tax
If an individual transfers any of his movable or immovable property voluntarily to any other
individual it is called a gift. If the value of a gift exceeds a specified limit then the person giving the
gift has to pay gift tax to the government where as the person receiving the gift need not pay any
tax.
A controversial issue in public finance is concerned with whether in the tax structure of an
economy, direct or indirect tax should be preferred. Indeed both direct taxes and indirect taxes
have their merits and demerits and therefore a good tax system should contain a proper mix of
these two types of taxes.
Direct taxes, it may be recalled are those which are levied directly on the individuals and firms
and their burden is borne by those on whom these are levied.
Merits of Direct Taxes
1. The larger burden of the direct taxes falls on the rich people who have capacity to bear
these and the poor people with less ability to pay have to bear less burden.
2. Direct taxes are important instrument of reducing inequalities of income and wealth.
3. Unlike indirect taxes, direct taxes do not cause distortion in the allocation of resources.
As a result these leave the consumers better off as compared to indirect taxes.
4. Revenue elasticity of direct taxes, especially if they are of progressive type is quite high.
As the national income increases, the revenue on these taxes also rises a great deal.