The tax structure in India is a three-tier federal structure.

The central government,

state governments, and local municipal bodies make up this structure. Article 256 of the
constitution states that “No tax shall be levied or collected except by the authority of
law”. Hence, each and every tax that is collected needs to backed by an accompanying
law.

Types Of Taxes in India:

The Indian tax structure allows for two types of taxes—Direct and Indirect Tax.

 Direct Tax:

It is levied directly on individuals and corporate entities. This tax cannot be transferred
or borne by anybody else. Examples of direct tax include income tax, wealth tax, gift
tax, capital gains tax.

Income tax is the most popular tax within this section. Levied on individuals on the
income earned with different tax slabs for income levels. The term ‘individuals’ includes
individuals, Hindu Undivided Family (HUF), Company, firm, Co-operative Societies,
Trusts.

 Indirect Tax:

These are taxes which are indirectly levied on the public through goods and services.
The sellers of the goods and services collect the tax which is then collected by the
government bodies.

Examples of indirect taxes are

 Value Added Tax (VAT)– A sales tax levied on goods sold in the state. The rate
depends on the government.

 Octroi Tax– Levied on goods which move from one state to another. The rates
depend on the state governments.

 Service Tax– Government levies the tax on service providers.

 Customs Duty– It is a tax levied on anything which is imported into India from a
foreign nation.

India offers a well-structured tax system for its population. Taxes are the largest
source of income for the government. This money is deployed for various
purposes and projects for the development of the nation.
Taxes are determined by the Central and State Governments along with local
authorities like municipal corporations. The government cannot impose any tax
unless it is passed as a law.
Here are the salient features of the taxation system in India:

1. Role of the Central and State Government

The entire system is clearly demarcated with specific roles for the central and
state government. The Central Government of India levies taxes such as
customs duty,income tax, service tax, and central excise duty.
The taxation system in India empowers the state governments to levy income
tax on agricultural income, professional tax, value added tax (VAT), state excise
duty, land revenue and stamp duty. The local bodies are allowed to collect
octroi, property tax, and other taxes on various services like drainage and water
supply.

2. Types of taxes
Taxes are classified under two categories namely direct and indirect taxes. The
largest difference between these taxes is their implementation. Direct taxes are
paid by the assessee while indirect taxes are levied on goods and services.


o A) Direct taxes

o Direct taxes are levied on individuals and corporate

entities and cannot be transferred to others. These
include income tax, wealth tax, and gift tax.

 Income tax

 As per the Income Tax (IT) Act, 1961 every assessee whose
total income exceeds the maximum exempt limit is liable to
pay this tax. The tax structure and rates are annually
prescribed by the Union Budget. This tax is imposed during
each assessment year, which commences on 1st April and
ends on 31st March. The total income is calculated from
various heads such as business and profession, house
property, salaries, capital gains, and other sources. The
assesses are classified as individuals, Hindu Undivided Family
(HUF), association of persons (AOP), body of individuals (BOI),
company, firm, local authority, and artificial judiciary not
falling in any other category.

o B) Indirect taxes

o Indirect taxes are not directly paid by the assessee

to the government authorities. These are levied on
goods and services and collected by intermediaries
(those who sell goods or offer services). Here are
the most common indirect taxes in India:

o Value Added Tax (VAT)
This is levied by the state government and was not imposed by all
states when first implemented. Presently, all states levy such tax. It
is imposed on goods sold in the state and the rate is decided by the
state governments.
o Customs duty
Imported goods brought into the country are charged with customs
duty which is levied by the Central Government.
 o Octroi
Goods that move from one state to another are liable to octroi duty.
This tax is levied by the respective state governments.
o Excise duty
All goods produced domestically are charged with excise duty. Also
known as Central Value Added Tax (CENVAT), this is paid by the
manufacturers.
o Service Tax
All services provided domestically are charged with service tax. The
tax is paid by all service providers unless specifically exempted.

o C) Goods and Service Tax (GST)

As a significant step towards the reform of indirect taxation in India,
the Central Government has introduced the Goods and Service Tax
(GST). GST is a comprehensive indirect tax on manufacture, sale
and consumption of goods and services throughout India and will
subsume many indirect taxes levied by the Central and State
Governments. GST will be implemented through Central GST
(CGST), Integrated GST (IGST) and State GST (SGST).
Four laws (IGST, CGST, UTGST & GST (Compensation to the States), Act)
have received President assent. All the States & UT expected to pass
State GST Act, by end of May 2017. GST law is expected to take effect
from July 1, 2017. GST:
In India, the three government bodies collected direct and indirect taxes until 1 July
2017 when the Goods and Services Act (GST) was implemented. GST incorporates
many of the indirect taxes levied by states and the central government. What does
the GST mean for your money?

Some of the taxes GST replaced include:

 Sales Tax

 Central Excise Duty

 Entertainment Tax

 Octroi

 Service Tax

 Purchase Tax
It is a multi-stage destination-based tax. Multi-stage because it is levied on each stage
of the supply chain right from purchase of raw material to the sale of the finished
product to the end consumer whenever there is value addition and each transfer of
ownership.

Destination-based because the final purchase is the place whose government can
collect GST. If a fridge is manufactured in Delhi but sold in Mumbai, the Maharashtra
government collects GST.

A major benefit is the simplification of taxation in India for government bodies.

GST has three components:

 CGST- Stands for Central Goods and Services Act. The central government
collects this tax on an intrastate supply of goods or services.
(Within Maharashtra)

 SGST: Stands for State Goods and Services Tax. The state government
collects this tax on an intrastate supply of goods or services.
(Within Maharashtra)

 IGST: Stands for Integrated Goods and Services Tax. The central government
collects this for inter-state sale of goods or services.

3. Revenue Authorities
CBDT
The Central Board of Direct Taxes (CBDT) is a part of the
Department of Revenue under the Ministry of Finance. This body
provides inputs for policy and planning of direct taxes in India and is
also responsible for administration of direct tax laws through the
Income Tax Department.
CBEC
The Central Board of Excise and Customs (CBEC) is also a part of
the Department of Revenue under the Ministry of Finance. It is the
nodal national agency responsible for administering customs,
central excise duty and service tax in India.
CBIC
Under the GST regime, the CBEC has been renamed as the Central Board of
Indirect Taxes & Customs (CBIC) post legislative approval. The CBIC would
supervise the work of all its field formations and directorates and assist the
 government in policy making in relation to GST, continuing central excise levy
and customs functions.
The Indian taxation system in India has witnessed several modifications over the
years. There has been standardization of income tax rates with simpler
governing laws enabling common people to understand the same. This has
resulted in ease of paying taxes, improved compliance, and enhanced
enforcement of the laws.

Understanding The Basics Of Tax Structure And Taxation System In

India
by Edelweiss Tokio LifePosted in: Tax Saving |
Taxation system in India traces its roots to the ancient texts like Manusmriti
and Arthashastra. As prescribed by these texts, artisans, farmers and traders
hundreds of years ago would pay taxes in the form of silver, gold and
agricultural produces. Taking clues from these texts and with some added
tweaks, the basis for the modern tax system in India was laid by the British
when Sir James Wilson introduced income tax for the first time in 1860. At
the time of independence, the newly-formed Indian Government cemented
the system to catalyse the economic progress of the country and also to
eradicate income and wealth disparity.

Since then, the tax structure in the country has undergone revival with
abolitions and amendments as well as additions of new reforms. Let’s have a
look at the current aspects of taxation system in India.

Definition and Main Highlights

Tax can be defined in very simple words as the government’s revenue or

source of income. The money collected under the taxation system is put into
use for country’s development through a number of projects and schemes.

 The Indian Constitution authorizes the Central and the State

Governments to levy taxes.

 The Parliament passes laws to approve taxes collected by the Central

Government. In case of the State Governments, the State Legislature holds
this power.

 In addition, the local governing and civic bodies too have the right to
levy certain taxes.
 Types of Taxes

There are two ways to classify different types of taxes in India:

1. Taxes Levied by the Central Government and State

Governments

 By the Central Government: These include income taxes (exception

being the tax on agricultural income), custom duties, corporation taxes,
excise duties, estate duty and more

 By the State Government: Taxes on agricultural incomes, VAT (value

added taxes), electricity consumption and sale taxes, land revenues, tolls
and more

 By the Local Civic Bodies: Municipal corporations and other local

governing bodies collect taxes like property taxes

2. Direct and Indirect Taxes

 Direct Taxes: These taxes are directly paid by the individuals to the
respective governments. The most important examples include income tax,
capital gains tax, perquisite tax, corporate tax and securities transaction tax.

 Indirect Taxes: These taxes are not directly paid to the governments
but are collected by the intermediaries who sell or arrange products and
services. Service tax, sales tax, octroi, customs duty, value added tax and
excise duty are some of the top examples.

The Concerned Authorities

In 1964, the Central Board of Revenue was constituted to govern the

taxation system in the country. Two bodies formed under the board include:

 Central Board of Direct Taxes (CBDT): Plans and administers the direct
taxes

 Central Board of Excise and Customs (CBEC): Administers service tax,

customs and excise duties

Highlights of Taxation System 2017

 Revised Income Tax Slabs: In a major relief to the low-income
individuals, the Union Budget presented in 2017 reduced the tax rate for the
income bracket 2.5-5 lakh from 10% to 5%.

 Goods and Service Tax (GST): Passed in 2016, but levied in July,
2017, GST brings various indirect taxes levied by the Central and the State
Governments under a single comprehensive indirect tax.
 Central Board of Indirect Taxes and Customs (CBIC): Another
important development was renaming CBEC to CBIC under the newly-levied
GST.

The Government of India penalizes offenders, who don’t pay taxes, through
penalties ranging from fines to imprisonment. Paying taxes on time and with
honesty is indeed beneficial for all.

UK tax system-
The tax system in the United Kingdom is not easy to explain to foreigners.
Arguably UK has the longest tax code in the world since 2009. Then international
legal research company LexisNexis revealed their finding that the UK tax code
has more than doubled in size since 1997, reaching 11,520 pages. The annual
changes to tax and duty form a law called the Finance Act, which may change
the tax rates and principles set out in the main tax acts

Taxation in the UK usually involves payments to the central government agency

called Her Majesty’s Revenue and Customs (HMRC) and local councils. Local
councils collect a tax called business rates from businesses and council tax
from households.
History of main taxes in the UK
The largest source of revenue for the UK government is personal income tax. The
second largest source are national insurance contributions, the third value
added tax (VAT) and the fourth largest is corporation tax. Income tax was first
introduced during the Napoleonic wars and re-introduced permanently in 1842.
Companies were part of the income tax system until 1965, when corporation tax
was introduced. Personal income tax basic rate was reduced from 33% to 20%
during the 1979-2007 governments. This was notably done by Margaret Thatcher,
who favoured indirect taxation and reduced government spending.

The predecessor of the VAT from 1940 to 1973 was the purchase tax. The rate of
purchase tax at the start of 1973 was 25%. The VAT standard rate has been
increased from 10% after its introduction in 1973, when the UK joined European
Economic Community, to 20% effective from January 2011.

Tax year, financial year, accounting period and personal

tax year
These all are the different terms a foreigner encounters when starting a
business in the UK. The tax year is different for businesses and persons. The
financial year in the UK runs from 1 April to 31 March. Government budgeting and
tax regulations follow the financial year. The accounting period of a company can
be the financial year or the calendar year or any given 12-month period. An
accounting period in the UK is normally a 12-month period for which corporation
tax is calculated. The personal tax year runs from 6 April to 5 April. The tradition
goes back to medieval times and it was originally based on the church year.

Key principles of the UK value added tax

VAT in the UK is regulated by the Value Added Tax Act 1994 and other acts such
as the Finance Act setting the annual VAT rates. There are three rates of VAT:
standard rate (20%), reduced rate (5%) and zero rate (0%). In addition some
goods and services are exempt from VAT or outside the VAT system.

The compulsory registration threshold for businesses is £83,000 of non-VAT

exempt income per financial year. Registration threshold for distance selling into
the UK is £70,000. Businesses may want to register voluntarily in order to
reclaim VAT on purchases made before the VAT registration threshold is passed.
There is a time limit for reclaiming VAT that was paid before registration. The
time limit is 4 years for goods and 6 months for services purchased before the
date of the VAT registration.

VAT returns are submitted every three months; those periods are called “VAT
accounting periods”. These quarterly VAT returns should only be submitted
online. Businesses can choose their VAT accounting period when registering for
VAT with HM Revenue & Customs. It is possible to file VAT returns online
although it is safer to let qualified accountants do it.

The filing and payment deadline of quarterly returns is 1 calendar month and 7
days after the end of a VAT accounting period. One must be aware that the 7th
date of the second month after the end of the VAT accounting period is the
deadline for the HMRC to receive the payment and not to make the payment.

Key principles of the UK corporation tax

Corporation tax is regulated by the Corporation Tax Act 2010 and other acts.
Limited companies and foreign companies with a UK branch or office must pay
corporation tax on taxable profits. Taxable profits include trading profits,
investments and chargeable gains from selling assets. A UK limited company
pays corporation tax on all its profits from the UK and abroad. A foreign company
with an office or branch in the UK pays corporation tax on profits from its UK
activities.

Since 1st April 2015 the corporation tax rate is 20%

A limited company must file annual accounts with Companies House 9 months
after the company’s financial year ends at the latest. A limited company with
profits up to £1.5 million normally must pay corporation tax 9 months and 1 day
after the company’s accounting period ends and file a company tax return 12
months after the company’s financial year ends. Four equal instalments are
normally required for profits exceeding £1.5 million.

Employment taxes in the UK

Employers have to deduct personal income tax and national insurance
contributions from employment via a system called PAYE (Pay As You Earn).
Other deductions businesses may need to make include student loan repayments
or pension contributions. Businesses need to register as an employer with HM
Revenue and Customs to get a login for PAYE Online or authorise an agent such
as an accountant. Employers are legally responsible for completing all PAYE
tasks even if an agent is getting paid to do them. A non-resident company can’t
set up a standard payroll scheme until it has business premises in the UK.

Businesses must pay the PAYE bill to HM Revenue and Customs by the 22nd of
the month for all the salaries paid the previous month. A month is defined not as
a calendar month but as a period between the 6th date of the month and the 5th
date of the following month. Small employers that expect to pay less than £1,500
a month can arrange to pay quarterly. Please note that reports must be sent to
HMRC before any payments to employees are made.

Businesses need to pay the employer’s national insurance contribution on each

employee’s earnings above £155 a week. There are 2 types of contribution made
into an employee’s Class 1 national insurance: primary contributions (also the
employee’s national insurance) are deducted from an employee’s pay and
secondary contributions (the employer’s national insurance) are paid by their
employer. Both depend on the employee’s earnings and the national insurance
category letter. The employee’s national insurance contributions are normally
12% of the net salary for the 2016-2017 tax year. The employer’s national
insurance contributions are usually 13.8% of the net salary with exceptions.

Employees in pension schemes that are not contracted out, form categories A, B,
C and J. Employees in a contracted-out workplace pension scheme form
categories D, E, C and L. Most employees fall into category A or D.
It is important to note that any business must have the Employers’ Liability (EL)
insurance as soon as they become an employer. The insurance policy must cover
the business for at least £5 million and come from an authorised insurer. EL
insurance will help the business pay compensation if an employee is injured or
becomes ill because of the work.

Key principles of the UK income tax

Personal income tax is regulated by the Income Tax Act 2007 and other acts. The
rate of income tax a person must pay depends on how much of their earned
income is above their personal allowance in the tax year. The current tax year
runs from 6 April 2016 to 5 April 2017. Most people’s personal allowance is
£11,000 per tax year. This is tax free allowance for all UK residents. The personal
allowance goes down by £1 for every £2 that the earned income exceeds
£100,000. This means that the personal allowance is zero if the earned income is
£120,000 or above.

For earned income of £0 to £32,000 above the personal allowance, which means
£11,000 to £43,000 of gross earned income, the basic income tax rate is 20%.
The higher rate of 40% applies when the earned income is £32,001 to £150,000
above the personal allowance. There is an additional 45% rate for gross income
exceeding £150,000. There are different tax rates for dividend and savings
income.

For foreign entrepreneurs it is important to note that self-employed sole traders,

partners in business partnerships and company directors have to register for a
self assessment tax return. Once registered one will usually get a letter in April
or May from HM Revenue and Customs telling to send a tax return by 31 January
at the latest. Sending a self assessment tax return is required, even if there is no
tax to pay. For paper tax returns the deadline is the last day of October and for
online tax returns the last day of January. The final payment of any tax due is on
the last day of January.

Business rates
Business rates are based on the Local Government Finance Act 2012 and other
acts. Business rates, which are also called non-domestic rates, are a kind of a
property tax introduced in England and Wales in 1990. It is a tax on the
occupation of non-domestic property and it has increased by 7% since 2010.
Tenants such as offices and shops usually pay this directly to the local council if
it is not part of the rent paid to the landlord.

All non-domestic property occupiers should register with their local council even
if the business rates are included in the rent. Business rates are based on
property occupation and don’t reflect the turnover or profits of the business. If a
foreign company plans to have business premises in the UK, it is important to
consider it in financial planning.
Properties are in a national rating list by rateable value (also RV). This is a
valuation of their annual rental value on a fixed valuation date based on
assumptions. It is not the current market price or the price agreed in the tenancy
agreement. The next revaluation date was postponed to 2017 by the government
and currently the valuation data is based on the 2010 assumptions.

For the 2016/17 financial year the national small business rate relief (SBRR)
multiplier was 48.4% (0.484) and the standard rate multiplier 49.7% (0.497).
Local councils can set a special levy (also called business rate supplement or
BRS) on top of the national rates. In Greater London area the BRS is 2% (0.020).

Business rates payments are calculated by multiplying the rateable value by the
business rates multiplier, which is set by the government. For example, a small
business with a rateable value of £10,000 in England must pay £4840 or 48.4% of
the rateable value as a local tax each year.

The local council will send an invoice to businesses registered for business rates
in February or March of each year. The invoice is for the following tax year.
Businesses might be able to pay their bill in 12 instalments.

A small business is a business occupying a property or properties with rateable

value below £18,000 (£25,500 in Greater London). Businesses may also be able
to get further business rates relief when their rateable value is below £12,000.
Sometimes this is automatic, but businesses may need to apply through the local
council.

If you are a small business owner, you might be eligible for rate relief through the
government’s Small Business Rate Relief Scheme (SBRR)

In England, you can get a small business rate relief if you only have one property
with a rateable value of less than £12,000 (Year 2016/17). If your property has a
rateable value of £6,000 or less you will be get 100% relief from business rates.
The percent figure will gradually decrease from 100% for properties with a
rateable valued between £6,001-£12,000.

You can still qualify as a small business if your property has a rateable value of
below £18,000 or £25,500 for greater London. In this case your business rates
will be calculated using the small business multiplier instead of the standard
multiplier. The standard multiplier for small business in England for 2016-17 is
49.7% (0.497)

Households pay a similar tax called council tax. Anybody over 18 years old and
not a full-time student, renting or owning a home in the UK, must pay council tax.
Council tax is a tax on domestic property collected by your local council. The
money is used to pay for local services such as schools, rubbish collections, road
and street lighting

Difference between UK and INDIA

1.Taxation in the United Kingdom may involve payments to at least three different levels of
government: central government (Her Majesty's Revenue and Customs), devolved governments
and local government.
1.Taxes in India are levied by the Central Government and the state governments.[1] Some minor
taxes are also levied by the local authorities such as the Municipality

2.Income tax: taxable bands and rates

2018/2019
Taxable income Rate of tax
(England, Wales and Northern Ireland)
£0 - £11,850 0% (personal allowance)
£11,851 - £46,350 20% (basic rate)
£46,351 - £150,000 40% (higher rate)
Over £150,000 45% (additional rate)
Taxable income Rate of tax
(Scotland)
£0 - £11,850 0% (personal allowance)
£11,851 - £13,850 19% (starter rate)
£13,851 - £24,000 20% (basic rate)
£24,001 - £43,430 21% (intermediate rate)
£43,431 - £150,000 41% (higher rate)
over £150,000 46% (top rate)

2.

3.UK
Basic UK taxes include income taxes, property taxes, capital gains taxes, UK Inheritance Tax and Value
Added Tax (VAT).

3.INDIA

Types of Direct Taxes in India

1) Income Tax

2) Corporate Tax
 3) Wealth Tax

4) Capital Gains Tax

5) Perquisite Tax

4. The personal tax year runs from 6 April to 5 April.

4.the Indian tax year starts from 1st april to 31st march

5. In 2015-2016, the gross tax collection of the Centre amounted to ₹14.60 trillion (US$200 billion).
india

5.

Few Misses of GST: Need of recovery:

1. Delayed IGST refund has hit Exporters and caused a slowdown: Although
efforts are being made by the department towards timely sanctioning of refund,
yet over a few months, we can expect a slowdown in the Export sector in India.
2. Sentiments around claiming of Input Tax Credit: admission of ITC is
currently being allowed on a provisional basis to the recipient of the credit.
Authorities are in process of reconciliation between Different GST returns and
hence, many taxpayers are receiving mismatch notices for ITC claimed as per
GSTR-3B and allowed as per GSTR-2A supplier data. Development of recon.
tools on the GST portal will help a buyer be cautioned before claiming any wrong
ITC, thus avoiding the interest or penalties that follow.

GST will mainly remove the Cascading effect on the sale of goods and services.
Removal of cascading effect will directly impact the cost of goods and it will
decrease.
GST is also technologically driven. All activities like registration, return filing and
response to notice needs to be done online on the GST Portal. This will speed up
the processes.