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The article provides insight into the Indian tax structure, its evolution after independence, some of the prominent tax laws and the tax structure after liberalization.

Taxation in India

The Indian Tax Structure is quite elaborate, with clear distinction in authority between Central, State and local governments. The taxes levied by the Central government are on income (other than tax on agriculture income which would be levied by the state government), customs duties, central excise and service tax.

The State government levies Value Added Tax (VAT), sales tax in states where VAT is not applied, stamp duty, state excise, land revenue and tax on professions.

Local bodies levy tax on property, octroi and for utilities like water supply, drainage etc.

In the last 10 to 15 years, tax system in India has been subjected to significant reforms. The tax rates have been revised and tax laws have been modified. Since April 1, 2005 many State Governments in India have replaced the sales tax with VAT.

Indian Tax Structure After Independence
The period after Independence was quite challenging for the tax planners. A huge black economy set in both due to Second World War and the increase in economic activity after independence. Savings and investment were encouraged through the various taxation laws by the way of incentives. There was a need for generating huge amount of revenues to fund the economic growth of the country. The tax department took great care to plan the tax structure not only with the aspect to widen the income tax base, but also to look for alternate taxes and to eradicate tax avoidance .The department was severely tested due to the high volumes of work.

Some of the prominent taxes that came into existence were:
  • Business Profits Tax (1947)
  • Capital Gains (1946-48 to 1956)
  • Estate Duty (1953)
  • Wealth Tax (1957)
  • Expenditure Tax (1957)
  • Gift Tax (1958)
To check the growth of black money, high denomination notes were demonetized in 1946.

The Income tax Act was re modified in 1961, replacing the outdated law of 1922.

Income Tax Structure Post Liberalization
The wave of tax reforms which started across the world in the second half of 1980's found its way into India. As part of its policy of liberalization, India introduced tax reforms in the 1990's.The reforms introduced in the Indian tax structure are different in comparison to other countries. The tax reforms in India took place independent of interference from any external multilateral agency unlike some other countries. But the tax reforms took place in such a way as to ensure its adherence to the prevailing International trends.

During the initial stages of reforms, the restructuring of the tax structure took place with a view to increase savings and use the increased savings towards investment, to bring in equitable distribution of income and to rectify the disparities due to oligopolistic market that existed due to co existence of both private and public sector. The tax structure reform in India can be used as an example for many developing countries that are in the same path of development, due to the large size of the country and the disproportion in the socio economic condition across the country.

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