The Indian tax system has undergone major structural changes since independence in 1947. Besides being the main source of revenue, both for the central and state governments, it is an effective instrument to realize various socio-economic objectives of national policies. However, the tax system has been relying heavily on indirect taxes and suffering extensively from tax evasion. Restructuring of the tax system has constituted a major component of fiscal reforms initiated since 1991. The main focus of the tax reforms has been on the simplification and rationalization of both direct and indirect taxes with the objective of augmenting revenues and removing anomalies in the tax structure. Tax reforms in recent years have brought the tax system much closer to international tax practices. This book provides an exhaustive and analytical account of tax structure developments in India since its independence, with a focus on post-1991 reforms, placing the current developments in perspective. [Subject: India Studies, Economics, Taxation]

Table of Contents:
1. Taxes in Ancient India and during Mughal Period 1.1 Taxes in Ancient India 1.2 Taxes during Mughal Period 2. Taxes during British Rule 2.1 Financial Administration 2.2 Income Tax 2.2.1 Income Tax Act, 1860 2.2.2 Income Tax Act, 1886 2.2.3 Income Tax Act, 1918 2.2.4 Income Tax Act, 1922 2.2.5 Recommendations of the Indian Taxation Enquiry Committee (Chairman: Charles Todhunter), 1924-25 2.2.6 Recommendations of the Income Tax Enquiry Committee, 1935 2.2.7 Excess Profit Tax 2.2.8 Income Tax Investigation Commission, 1947 2.3 Excise Duties 2.3.1 Cotton Textiles 2.3.2 Salt 2.3.3 Petroleum Products 2.3.4 Tobacco 2.3.5 Other Products 2.3.6 Rules of Excise Taxation 2.4 Customs Duties 2.4.1 Period 1859 to 1894 2.4.2 Period 1894 to 1919 2.4.3 Inter-War Period 2.4.4 Second World War 2.5 Sales Tax 2.5.1 Initial Legal Hurdles 2.5.2 Beggar-my-neighbour Policies 2.6 Structure of Government Tax Revenue 2.7 Centre-State Financial Relations 2.7.1 Mayo Scheme, 1870 2.7.2 Government of India Act, 1919 2.7.3 Meston Settlement, 1920 2.7.4 Indian Taxation Enquiry Committee, 1924-25 2.7.5 Indian Statutory Commission, 1930 2.7.6 Peel Committee I, 1931 2.7.7 Percy Committee, 1932 2.7.8 Peel Committee II, 1932 2.7.9 White Paper on Indian Constitutional Reforms, 1931 2.7.10 Joint Parliamentary Committee on Indian Constitutional Reforms, 1934 2.7.11 Government of India Act, 1935 2.7.12 Indian Financial Enquiry Report, 1936 Part II: Post-Independence Tax Policy 3. Constitutional Provisions Pertaining to Taxes 3.1 Nature of Indian Federation 3.2 Centrally Biased Constitution and its Justification 3.2.1 Supremacy of Union Legislative Power 3.2.2 Union Control over State Legislation 3.2.3 Emergency Provisions 3.2.4 Restrictions on Taxation Powers of the States 3.2.5 Restrictions on Borrowing Powers of the States 3.2.6 President’s Rule 3.3 Constitutional Provisions Pertaining to Taxes 3.3.1 Distribution of Taxation Powers 3.3.2 Restrictions on the Taxation Powers of the States 3.3.3 Rationale for Constitutional Arrangements 3.3.4 Sharing of Central Taxes 3.3.5 Philosophy of Articles 268 and 269 3.3.6 Taxes and Duties in the Union List not being Levied at Present 3.3.7 Freedom as to Payment of Taxes for Promotion of any Particular Religion 4. Socio-economic Objectives of Tax Policy 4.1 Health, Education and Housing 4.1.1 Health 4.1.2 Education 4.1.3 Housing 4.2 Tax Holiday Schemes 4.3 Tax Incentives for Infrastructure Development 4.3.1 Justification 4.3.2 Income Tax Incentives under Section 80-IA 4.3.3 Tax-free Bonds 4.4 Tax Concessions for Labour Welfare 4.4.1 Income Tax Concessions 4.4.2 Wealth Tax Concessions 4.4.3 Excise Duty Concessions 4.5 Fiscal and Financial Incentives for Protection of Environment 4.5.1 Income Tax Concessions 4.5.2 Excise Duty Concessions 4.5.3 Customs Duty Concessions 4.5.4 Financial Assistance 4.6 Tax Incentives for Non-resident Indians 5. Tax Reforms since 1991 5.1 Approach to Tax Reforms 5.2 Income Tax 5.3 Wealth Tax 5.4 Excise Duties 5.5 Taxation of Services 5.6 Customs Duties 5.7 State Level Sales Tax/VAT 5.8 Direct Taxes Code (DTC) 5.9 Goods and Services Tax (GST) Part III: Combined (Centre and States) Tax Revenue 6. Trends in Tax-GDP Ratio 6.1 Tax-GDP Ratio: Meaning and Significance 6.2 Trends in Tax-GDP Ratio 6.3 Tax-GDP Ratios in Developed and Developing Countries 6.3.1 Limitations of Inter-country Tax Comparisons 7. Trends in the Relative Revenue Significance of Direct and Indirect Taxes 7.1 Direct versus Indirect Taxes 7.2 Trends Prior to Tax Reforms (i.e. Pre-1991 Period) 7.3 Post-Tax Reforms Period 7.4 Equity Implications 8. Buoyancy and Elasticity of Tax Revenue 8.1 Conceptual Framework 8.1.1 Automatic Response versus Discretionary Changes 8.2 Various Estimates of Buoyancy and Elasticity of Tax Revenue 9. Distribution of Tax Burden (Tax Incidence) 9.1 Meaning of Tax Incidence 9.2 Methodological Issues 9.3 All-India Level Studies 9.3.1 Findings of the Taxation Enquiry Commission, (Chairman: John Matthai), 1953-54 9.3.2 Studies by the Ministry of Finance 9.3.3 Estimates of Indirect Taxation Enquiry Committee, (Chairman: L.K. Jha), 1978 9.3.4 Findings of the Study by National Institute of Public Finance and Policy (NIPFP) 9.4 State-Level Studies 9.4.1 Orissa Taxation Enquiry Committee 9.4.2 NCAER Study on Gujarat 9.4.3 NCAER Study on Mysore (now Karnataka) 9.5 Sectoral Studies 10. Tax Evasion 10.1 Tax Evasion: Meaning 10.1.1 Tax Evasion and Tax Avoidance 10.2 International Tax Avoidance and Evasion 10.2.1 Transfer Pricing 10.2.2 Tax Treaty Shopping 10.3 Causes of Tax Evasion 10.3.1 High Level of Tax Rates 10.3.2 Less Respect for Government and its Laws 10.3.3 Lenient Penal Action 10.3.4 Nature of the Economy 10.4 Consequences of Tax Evasion 10.5 Devices Adopted to Evade Taxes 10.5.1 Evasion of Specific Taxes 10.5.2 Tax Havens 10.5.3 Participatory Notes (PNs) 10.5.4 Investment through Complex Derivative Instruments 10.6 Various Estimates of Tax Evasion in India 10.6.1 Early Attempts 10.6.2 Taxation Enquiry Commission (TEC), [Chairman: John Matthai], 1953-54 10.6.3 Estimates of Nicholas Kaldor 10.6.4 Central Board of Revenue 10.6.5 Direct Taxes Enquiry Committee (DTEC), [Chairman: Justice K.N. Wanchoo], 1971 10.6.6 National Institute of Public Finance and Policy (NIPFP) 10.6.7 Tax Reforms Committee (TRC), [Chairman: Raja Chelliah], 1991 10.7 Agencies for Enforcement of Tax Laws 10.7.1 Central Board of Direct Taxes (CBDT) 10.7.2 Central Board of Excise and Customs (CBEC) 10.8 Regulatory Authorities for Supervision and Policing 10.8.1 Central Bureau of Investigation (CBI) 10.8.2 Financial Intelligence Unit (FIU) 10.8.3 Narcotics Control Bureau (NCB) 10.9 Co-ordinating Agencies 10.9.1 Central Economic Intelligence Bureau (CEIB) 10.9.2 National Investigation Agency (NIA) 10.10 Other Agencies 10.10.1 Central Bureau of Narcotics (CBN) 10.10.2 Serious Frauds Investigation Office (SFIO) 10.10.3 Registrar of Companies (ROCs) 10.10.4 Registrar of Societies (ROSs) 10.10.5 Economic Intelligence Council (EIC) 10.10.6 National Crime Records Bureau (NCRB) 10.10.7 State Police Agencies 10.11 Measures Adopted to Curb Tax Evasion 10.11.1 Lowering of Tax Rates 10.11.2 Tax Amnesties 10.11.3 Advance Tax Payment 10.11.4 Withholding Tax [or Tax Deduction at Source (TDS)] 10.11.5 Presumptive Tax for Small Traders 10.11.6 Permanent Account Number (PAN) or General Index Register Number (GIR) 10.11.7 Survey of Income Tax 10.11.8 Summons, and Search and Seizure 10.11.9 Penalties and Prosecutions Part IV: Structure of Central Taxes 11. Trends in the Level and Composition of Central Taxes 11.1 Central Taxes as Percent of GDP 11.2 Direct and Indirect Taxes 11.3 Composition of Direct Taxes 11.3.1 Income Tax 11.3.2 Wealth Tax 11.4 Composition of Indirect Taxes 11.4.1 Union Excise Duties 11.4.2 Service Tax 11.4.3 Customs Duties 12. Income Tax 12.1 Constitutional Provisions and Legal Framework 12.1.1 Constitutional Provisions 12.2 Revenue Significance of Income Tax 12.3 Income Tax Act, 1961: Main Provisions 12.3.1 Meaning of Income 12.3.2 Residential Status 12.3.3 Incomes Exempt from Tax 12.3.4 Tax Holiday Schemes 12.3.5 Heads of Income 12.3.6 Clubbing of Income 12.3.7 Set Off and Carry Forward of Losses 12.3.8 Deductions from Gross Total Income 12.3.9 Rebates 12.3.10 Computation of Total Income 12.3.11 Units of Assessment 12.3.12 Basic Exemption 12.3.13 Rate Structure of Income Tax 12.3.14 Advance Payment of Tax 12.3.15 Tax Deduction at Source 12.4 Taxation of Companies 12.4.1 Main Features of Company Taxation 12.4.2 Compulsory Filing of Returns by Companies 12.5 Taxation of Partnership Firms 12.6 Tax Treatment of Small Traders (Presumptive Tax) 12.6.1 Estimated Income Scheme for Small Businesses 12.6.2 Estimated Income Scheme for Truck Owners 12.7 Taxation of Non-residents in India 12.8 Taxation of Capital Gains 12.8.1 Meaning and Scope of Capital Gains Tax 12.8.2 Transactions Regarded as Transfer 12.8.3 Year of Taxability 12.8.4 Short-term versus Long-term Capital Gains 12.8.5 Computation of Short-term Capital Gains 12.8.6 Computation of Long-term Capital Gains 12.8.7 Capital Gains Account Scheme, 1988 12.8.8 Set Off and Carry Forward of Capital Losses 12.8.9 A Critique 12.9 Survey, Summons, Search and Seizure 12.10 Penalties and Prosecutions 12.11 Organisational Set Up and IT Initiatives 12.11.1 Department of Revenue 12.11.2 Central Board of Direct Taxes (CBDT) 12.11.3 Permanent Account Number (PAN) 12.11.4 E-payment of Tax and E-filing of Returns 12.11.5 Digital Signature 12.12 Recommendations of the Task Force on Direct Taxes (Chairman: Vijay Kelkar), 2002 Pertaining to Income Tax 12.12.1 Personal Income Tax 12.12.2 Corporate Tax 12.12.3 Capital Gains 12.13 Critical Evaluation of the Indian Income Tax System 12.13.1 Unstable Law 12.13.2 Multitude of Exemptions/Concessions 12.13.3 Earned versus Unearned Incomes 13. Wealth Tax 13.1 Rationale for Wealth Tax 13.2 Wealth Tax Act, l957: Main Provisions 13.2.1 Persons Chargeable to Wealth Tax 13.2.2 Net Wealth and Residential Status 13.2.3 Meaning of Net Wealth 13.2.4 Meaning of Assets 13.2.5 Deemed Assets 13.2.6 Assets Exempt from Wealth Tax 13.2.7 Basic Exemption and Rate of Tax 13.3 Critical Comments 13.3.1 Shrinkage of Base 13.3.2 Lowering of Top Marginal Rate 14. Union Excise Duties 14.1 Constitutional Provisions 14.2 Various Types of Excise Duties 14.2.1 Basic Excise Duty 14.2.2 Additional Duties in Lieu of Sales Tax 14.2.3 Cesses 14.3 Different Procedures to Collect Excises 14.3.1 Physical Control System 14.3.2 Self-Removal Procedure (SRP) 14.3.3 Compounded Levy Scheme 14.4 New Excise Tariff Nomenclature 14.5 Administration of Excise Taxation 14.6 Revenue Significance 14.7 Commodity Coverage 14.8 Excise Tariff Structure 14.8.1 Statutory versus Effective Rates 14.8.2 Specific versus Ad Valorem Duties 14.8.3 Multiplicity of Excise Tariff 14.8.4 Committee on Rationalisation and Simplification of Tax Structure, (Chairman: S. Bhoothalingam), 1968 14.8.5 Indirect Taxation Enquiry Committee, (Chairman: L.K. Jha), 1978 14.8.6 Technical Study Group on Excise Tariff, (Chairman: J. Dutta), 1985 14.8.7 Triple Rate Excise Structure 14.8.8 Task Force on Indirect Taxes, (Chairman: Vijay Kelkar), 2002 14.9 Excises on Inputs 14.9.1 Pre-MODVAT Arrangements 14.9.2 MODVAT Scheme 14.9.3 Introduction of CENVAT 14.9.4 Further Simplification 14.10 Exemptions and Concessions 14.10.1 Rationale 14.10.2 Problems Created by Concessions 14.10.3 General Exemptions 14.10.4 Concessions to Small Industries 14.10.5 Misuse of Concessions 15. Taxation of Services 15.1 Justification for Taxing Services 15.2 Constitutional Provisions 15.3 Growth of Service Sector in India 15.4 Present Structure of Service Tax 16. Customs Duties 16.1 Introduction 16.2 Legal Framework 16.2.1 Various Types of Customs Duties 16.3 New Customs Tariff Nomenclature 16.4 Revenue Significance 16.5 Import Tariff Policy 16.5.1 Early Post-Independence Period 16.5.2 Customs Reorganisation Committee, (Chairman: F.C. Badhwar), 1957-58 16.5.3 Indirect Taxation Enquiry Committee, (Chairman: L.K. Jha), 1978 16.5.4 Long-Term Fiscal Policy, 1985 16.5.5 Tax Reforms Committee, (Chairman: Raja Chelliah), 1991 16.6 Post-liberalisation Reduction and Rationalisation of Import Tariff 16.6.1 Off-budget Package of Tax Concessions, January 2004 16.7 Recent Thinking on Customs Tariff 16.7.1 Customs Tariff Report, (Chairman: Arvind Virmani), 2002 16.7.2 Import Duty Structure Recommended by Task Force on Indirect Taxes, (Chairman: Vijay Kelkar), 2002 16.8 Export Tariff Policy 17. Direct Taxes Code (DTC) 17.1 Need for DTC 17.2 Objectives and Salient Features of DTC 17.2.1 Objectives 17.2.2 Salient Features 18. National Level Goods and Services Tax (GST) 18.1 What is GST? 18.2 Salient Features of GST 18.3 Roadmap for GST 18.4 GST Council 18.5 GST Network Part V: Structure of State Taxes 19. Trends in the Level and Composition of State Taxes 19.1 State Taxes as Percent of GDP 19.2 Direct and Indirect Taxes 19.3 Composition of Direct Taxes 19.3.1 Land Revenue 19.3.2 Agricultural Income Tax 19.3.3 Professions Tax 19.4 Composition of Indirect Taxes 19.4.1 Sales Tax 19.4.2 State Excises 19.4.3 Taxes on Motor Vehicles 19.4.4 Entertainment Tax 19.4.5 Stamp Duty and Registration Fees 19.4.6 Electricity Duty 19.4.7 Octroi 19.4.8 Land and Buildings 19.5 Local Finance 20. Taxation of Agricultural Income 20.1 Constitutional Provisions 20.2 Committee on Taxation of Agricultural Wealth and Income, 1972 20.3 Views of the State Governments 20.4 Tax Reforms Committee, 1991 20.5 Task Force on Direct Taxes, 2002 20.5.1 Critical Comments 21. Sales Tax and State Level VAT 21.1 Different Forms of Sales Tax 21.1.1 Multi-point Sales Tax 21.1.2 Single-point Sales Tax 21.2 Constitutional Provisions for the Regulation of Taxation of Inter-State Sales 21.2.1 Consequences of Constitutional Restrictions on Sales Tax 21.2.2 Essential Goods Act, 1952 21.3 Constitution (Sixth Amendment) Act, 1956 21.4 Central Sales Tax (CST) Act, 1956 21.4.1 Main Provisions of CST Act 21.4.2 Working of CST Act 21.5 Additional Duties of Excise (Goods of Special Importance) Act, l957 21.5.1 Rationale of the Scheme 21.5.2 Views of the State Governments 21.5.3 Decisions of the National Development Council (NDC) 21.5.4 Expert Committee on Replacement of Sales Tax by Additional Excise Duty, 1983 21.6 Constitution (Forty-sixth Amendment) Act, 1982 and Consignment Tax 21.6.1 Issues Related to Consignment Tax 21.7 Present Nature of Sales Tax 21.8 Problems Created by Sales Tax 21.9 Alternative Remedies 21.9.1 Sales Tax as Central Levy 21.9.2 Complete Substitution of Sales Tax by Excise Duty 21.9.3 Partial Substitution of Sales Tax by Excise Duty 21.10 Towards State Level VAT 21.10.1 Minimum Rate Agreement among States 21.10.2 Single-Point VAT 21.10.3 Switch Over to VAT 21.10.4 Empowered Committee of State Finance Ministers, 2001 21.10.5 Agreement of January 23, 2002 21.10.6 Task Force on Indirect Taxes, 2002 21.10.7 Agreement of June 2004 21.10.8 Salient Features of the State-level VAT Design 21.10.9 Progress of VAT Implementation Part VI: Federal Aspects of Indian Taxation 22. Centre-State Financial Relations 22.1 Inter-governmental Transfers 22.2 Mechanism of Central Transfers to the States 22.3 Transfer of Resources through the Finance Commission 22.3.1 Finance Commission 22.3.2 From Itemised Sharing to Global Sharing 22.4 Fourteenth Finance Commission (FFC) 22.4.1 Main Recommendations of FFC 23. State-Local Financial Relations in India 23.1 Functions of Local Bodies 23.1.1 Essential Civic Functions 23.1.2 Regulatory Functions 23.1.3 Agency Functions 23.2 Financing of Local Bodies 23.3 Constitutional Provisions 23.4 Decentralisation Initiative, 1992 23.5 Constitution (Seventy-fourth Amendment) Act, 1992 23.5.1 Salient Features 23.5.2 New Status of Municipalities 23.5.3 Desirability and Feasibility of Uniformity in Municipal Functions 23.5.4 Role of State Finance Commissions 23.6 Municipal Commercial Borrowings 23.6.1 Rationale for Municipal Commercial Borrowings 23.6.2 Limitations 23.6.3 Factors Determining Success of Municipal Bonds 23.7 Privatisation of Municipal Services Part VII: International Aspects of Indian Taxation 24. International Double Taxation 24.1 What is Double Taxation? 24.1.1 Double Taxation by the Same Tax Jurisdiction 24.1.2 Double Taxation by Competing Tax Jurisdictions at Different Levels of Government in a Country 24.1.3 Double Taxation by Competing Tax Jurisdictions at Same Level of Government in Different Countries 24.2 International Double Taxation 24.3 Assignment Rules of Foreign Income 24.3.1 Source Rule 24.3.2 Residence Rule 24.4 Methods to Alleviate International Double Taxation 24.4.1 Exemption Method 24.4.2 Foreign Tax Credit 24.4.3 Bilateral Tax Treaties 24.4.4 Multilateral Tax Treaties 24.5 International Tax Evasion and Tax Avoidance 25. Indian Law on Double Tax Relief 25.1 Provisions of Income Tax Act, 1961 on Double Tax Relief 25.2 Main Features of a Typical Tax Treaty between India and another Country 25.2.1 Scope of the Treaty 25.2.2 Permanent Establishment 25.2.3 Provisions for Taxation under the Tax Treaties 25.2.4 Provisions Regarding Elimination of Double Taxation 25.3 Double Taxation Relief Where No Tax Treaty Exists 25.4 Issues Relating to Indo-Mauritius Tax Treaty 25.4.1 Supreme Court on Indo-Mauritius DTAA 25.5 Transfer Pricing Regulations in India 25.6 Taxation of Non-residents in India 25.6.1 Rules to Determine Residential Status 25.6.2 Relationship between Residential Status and Tax Incidence 25.7 Tax Incentives for Non-resident Indians 25.8 Assessment and Collection of Tax from Non-residents in India Part VIII: Time Series Tax Statistics of India: 1950-51 to 2013-14/2015-16 Table 1: Combined Tax Revenue, Breakdown between Direct and Indirect Taxes with Percentage Shares, and Tax-GDP Ratios: 1950-51 to 2013-14 Table 2: Gross Central Taxes, Breakdown between Direct and Indirect Taxes with Percentage Shares, and Tax-GDP Ratios: 1950-51 to 2013-14 Table 3: Share of States in Central Taxes, Breakdown between Direct and Indirect Taxes with Percentage Shares, and Tax-GDP Ratios: 1950-51 to 2013-14 Table 4: Net Central Taxes, Breakdown between Direct and Indirect Taxes with Percentage Shares, and Tax-GDP Ratios: 1950-51 to 2013-14 Table 5: States’ Own Taxes, Breakdown between Direct and Indirect Taxes with Percentage Shares, and Tax-GDP Ratios: 1950-51 to 2013-14 Table 6: States’ Total Tax Revenue, Breakdown between Direct and Indirect Taxes with Percentage Shares, and Tax- GDP Ratios: 1950-51 to 2013-14 Table 7: Income Tax (Including Corporation Tax) Collections: 1950-51 to 2015-16 Table 8: Wealth Tax Revenue: 1957-58 to 2015-16 Table 9: Central Excise Collections: 1950-51 to 2015-16 Table 10: Revenue from Customs Duties: 1950-51 to 2015-16 Table 11: Key Deficit Indicators of the Central Government: 1970-71 to 2015-16 Table 12: Revenue from Agricultural Income Tax Levied by State Governments: 1950-51 to 2013-14 Table 13: Land Revenue Collections of State Governments: 1950-51 to 2013-14 Table 14: Revenue from Sales Tax Levied by State Governments: 1950-51 to 2013-14 Table 15: Revenue from State Excise Duty: 1950-51 to 2013-14 Table 16: Revenue from Entertainment Tax Levied by State Governments: 1950-51 to 2013-14 Select Bibliography Index