WHAT IS MEANING OF TAX

Taxes are considered to be the “cost of living in a society”. Tax is a mandatory fee imposed upon individuals or corporations by the Central and the State Government to help build the economy of a country by meeting various public expenses. Taxes are broadly divided into two categories-

  1. Direct taxes
  2. Indirect taxes

Suggested Read: Types of Tax - Exemptions, Due Dates & Penalties

DIRECT TAXES

It is a tax levied directly on a taxpayer who pays it to the Government and cannot pass it on to someone else. Direct Taxes are referred to taxes that are charged directly on the income or wealth of a person. The person who pays direct tax to the government cannot recover it from somebody else. In easy words, burden of direct tax cannot be shifted.

Some of the important direct taxes imposed in India are mentioned below:

  • Income tax
  • Corporate tax
  • Security transaction tax
  • Gift tax
  • Wealth tax etc.

INCOME TAX

  • An Income tax is a tax charged on individuals or entities in respect of the income or profits earned by them (commonly called taxable income). Income Tax is a tax is paid directly to the government on the basis of the respective income or profit. Income tax is collected by the Government of India and is undoubtedly the most important source of revenue for the Indian Government. The Government utilize the taxes in order to meet its objectives which includes fulfilling the development & defence needs of the country, creating of new employment opportunities, building infrastructure and so on.
  • Income tax mean individual income taxes, paid by employees or other people who earn income. However, companies, estates, trusts, and many other types of entities also pay income taxes based on revenue or income.
  • In India, direct taxes are regulated by the Income Tax Department under the Central government.
  • The department falls under the Finance Ministry’s Department of Revenue, and is responsible for the collection of income tax across the country. The apex body in the Income Tax Department is the Central Board of Direct Taxes (CBDT) which has regional headquarters established in different parts of the country which oversee duties in that part of the country. The Income Tax Department regulates all matters relating to taxation applicable on different investments.

Income tax rules,1962

The administration of direct taxes is looked after by the central board of direct taxes (CBDT).

  • The CBDT is empowered to make rules for carrying out the purposes of the Act.
  • For the proper administration of the Income Tax Act, 1961, the CBDT frames rules from time to time. These rules are collectively called Income Tax Rules, 1962.
  • Rules also have sub-rules, provisos and Explanations. The proviso to Rule/Sub - rule spells out the exception to the limits, conditions, guidelines, basis of valuation, as the case may be, spelt out in the Rule/Sub-rule. The Explanation gives clarification for the purposes of the Rule.
  • It is important to keep in mind that along with the Income Tax Act, 1961, these rules should also be studied for better clarity.
Circulars and Notifications:
Circulars:
  • Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify doubts regarding the scope and meaning of certain provisions of the Act.
  • Circulars are issued for the guidance of the officers and / or assesses.
  • The department is bound by the circulars. While such circulars are not binding on the assessee, they can take advantage of beneficial circulars.
Notifications

Notifications are issued by the Central Government to give effect to the provisions of the Act. The CBDT is also empowered to make and amend rules for the purposes of the Act by issue of notifications which are binding on both the department and the Assessee.

Case Laws

Case Laws refers to the decision given by courts for matters brought to its notice. The study of case laws and unavoidable part of the study of Income Tax Law as a law can be interpreted differently by different persons. Therefore it is essential to keep an eye on the judgements made by the court. Hence the judiciary will hear the disputes between the assessee and the department and give decisions on various issues.

The primary responsibilities of the Income Tax Department are listed below:

  1. Enforcing Tax Laws

    In India, tax laws are enforced by the Income Tax Department, of which the most important is the Income Tax Act, 1961. The task of enforcing tax laws include them setting up knowledge sessions with various stakeholders and ensuring implementation at an administrative level. To ensure compliance from taxpayers, the department performs assessment which is a process that helps in the correct estimation of taxes payable as well as to detect non-compliance.

    Additionally, the department can perform search and seizure activities on residential and official premises of non-compliant taxpayers or of those evading taxes. The Income Tax Department also draws power from its ability to prosecute those who are willfully evading payment of taxes. This department also enforces other financial laws including the Black Money Act, 2015 and the Benami Transactions (Prohibition) Act, 1988.

  2. Collect Government Revenue

    The government’s primary source of revenue is through tax collection, and the Income Tax Department is the apex body for tax collection. It ensures compliance from taxpayers and ensures the government receives the due revenue.

    The department levies taxes on individuals, companies, firms, societies, local authorities, and even artificial judicial persons. Furthermore, the generation of taxes from international professionals and companies are also regulated and ensured by the department.

  3. Enforce other Taxation Laws

    Aside from laws relating to income tax, the department also takes responsibility for enforcing Double Taxation Avoidance Agreements. International taxation agreements relating to transfer pricing are also under the purview of the Income Tax Department. Its responsibilities also include utilising its power to deal with repeat non-compliance from taxpayers through the implementation of rules such as the General Anti-Avoidance Rules.

    The Income Tax Department is the primary authority for the implementation of laws relating to taxation, and especially with regards to income tax. Through this body’s actions, the government is assured of a regular income through its measures for generation and collection of revenue.