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Classification of Taxes in India

Published on Wednesday, September 14, 2016

Smart Facts –

  • Raja Chelliah Committee (1991) and Kelkar Committee (2001) recommended increased of Direct Taxation and decrease of Indirect Taxation 

Five Major Taxes (Higher to Lower) –

  • Corporate Tax 
  • Income Tax 
  • Exercise Duty 
  • Custom Duty 
  • Service Tax 

Taxes are classified are as follows :

1. Direct and Indirect Taxes –
Direct Tax – Its burden cannot be shifted . It is paid by the same person on whom it is imposed , Exaples are as follows :
  • Income Tax 
  • Wealth Tax 
  • Fringe Tax 
  • Corporate Tax 
  • Professional Tax 
  • Property Tax 
Indirect Tax – The burden of Indirect Tax can be Shifted , Examples are as follows :
  • Exercise duty 
  • Customs duty 
  • VAT 
  • Entertainment Tax 

2. Ad Valorum and Specific Tax –

  • Ad Valorum – Tax imposed on the basis of the total value of the commodity produced or sold 
  • Specific Tax – It is imposed on the basis of specific attributes like length , breadth , quantity , size etc . e.g – Cigarettes 

3. Progressive and Regressive Tax –

  • Progressive Tax – As income of a person increases , the rate of taxes also increases , so that he ends up paying more . 
  • Regressive Tax – As income of a person increases , the rate of tax goes down . 
NOTE – Every country tries to have a tax structure which is by and large progressive , because it is equitable in nature

Some Important Taxes –

  • Value Added Tax (VAT) – It is a tax on value addition at each stage from the first stage of production to the last stage of distribution up-to the final consumer , so that at each stage tax is paid on value addition 
  • Goods and Service Tax (GST) – It is a tax on consumption . Recommended by the Vijay Kelkar Task Force , GST is the ultimate reforms in the Indirect Taxation . The proposed GST will subsume a multiplicity of central and state level Indirect Tax , so as to bring about an uniform Indirect Tax Structure in India . 
  • Minimum Alternate Tax (MAT) – It is imposed on such companies which make profits , distribution dividends to shareholders and ye so adjust and lawfully manipulate their accounts that they end up as zero tax company . Thus , they lawfully avoid tax by using various rebates , Concessions and exemptions provided in the Income Tax Law . On Such companies , Government imposes MAT of 18% and more at their book profits .
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