Taxation System

Notes

Art. 265: no tax can be levied or collected except by authority of law. Taxes provide the main source of government revenue.

Distribution of taxing powers

Union List: income tax (other than agricultural income), corporation tax, customs duties, and (earlier) excise and service tax. Art. 246A (101st Amendment) now gives both Parliament and States concurrent power over GST.
State List: land revenue, tax on agricultural income, excise on alcohol, stamp duties, and professional tax (limited to ₹2,500 a year, Art. 276). Local bodies levy property tax.
Surcharges and cesses go only to the Union and are not shared with the States (Art. 270).

Principles: Adam Smith's canons of taxation: equity, certainty, convenience and economy. Taxes can be progressive (higher rate for higher income), proportional or regressive.

Concepts: tax buoyancy (the response of tax revenue to GDP growth), the tax-GDP ratio (India's is low compared with developed countries; the Centre's gross tax revenue is about 11-12% of GDP), and the Laffer curve (beyond a point, a higher rate reduces revenue). Tax avoidance is legal; tax evasion is illegal.

Administration: the Department of Revenue, with the CBDT (direct taxes) and the CBIC (indirect taxes and customs; renamed from CBEC in 2018).

Reforms

Raja Chelliah Committee (1991-93): lower and simpler rates, move to VAT.
Kelkar Task Force (2002): direct and indirect tax reform; supported VAT and GST. Shome Committee (2012): GAAR.
GST (2017); corporation tax cuts (22% under Section 115BAA); a new simplified income tax regime (Section 115BAC, the default regime now) with lower slab rates and few deductions; faceless assessment (2020); the Taxpayers' Charter (2020); the Black Money Act, 2015 and GAAR (2017).
The Income-tax Act, 1961 has been replaced by the Income-tax Act, 2025 (effective from 1 April 2026), so check the latest provisions.

Key Points

Art. 265: no tax without law; Art. 246A: GST.
Union: income tax, corporation tax, customs; States: land revenue, alcohol excise, stamp duty.
Surcharges and cesses are not shared with States.
CBDT and CBIC administer taxes under the Department of Revenue.
Reforms: Chelliah, Kelkar, GST; new tax regime.

MCQs

Q1. The Constitutional provision that no tax can be levied without the authority of law is: (a) Art. 112 (b) Art. 265 (c) Art. 268 (d) Art. 280 Ans: (b).

Q2. Which of the following is NOT shared with the States? (a) Income tax (b) Surcharges and cesses (c) Union excise duties (d) GST Ans: (b).

Q3. The Tax Reforms Committee (1991-93) was headed by: (a) Vijay Kelkar (b) Raja Chelliah (c) N.K. Singh (d) Parthasarathi Shome Ans: (b).