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The world's 12th-largest economy at market exchange rates and the fourth largest in purchasing power,
India has a quasi-federal form of government. India's Constitution is the longest and the most exhaustive
constitution of any independent nation in the world. India has a three-tier federal structure, com- prised of
the union or central government, the state governments, and the local bodies, all of which have the
authority to levy taxes. Besides direct taxes such as the income tax, indirect forms of tax are collected
such as the sales tax, VAT, service tax, stamp duty, customs, and excise duty. 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
Interestingly, the tax system in India traces its origin to the prehistoric texts such as Arthashastra and
Manu smriti. As proposed by these manuscripts, the taxes paid by farmers and artisans in that era would
be in the form of agricultural produce, silver or gold. Based on these texts, the foundation of the modern
tax system in India was conceptualized by the Sir James Wilson during the British rule in India in the
year, 1860. However, post-independence the newly-established Indian Government then soldered the
system to propel the economic development of the country. After this period, the Indian tax structure has
been subject to a host of changes.
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Taxes are levied by governments on their citizens to generate income for undertaking projects to boost the
economy of the country and to raise the standard of living of its citizens. The authority of the government
to levy taxes in India is derived from the Constitution of India, which allocates the power to levy taxes to
the Central and State governments. All taxes levied within India need to be backed by an accompanying
law passed by the Parliament or the State Legislature.
The payment of tax is beneficial on multiple levels including the development of the nation, betterment of
infrastructure, the upliftment of the society, and even for welfare activities for the nation.
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