Taxes (or duties) are defined as the financial charges levied by the Government upon an individual or an organisation or property in return for the government services received by them. These taxes may be broadly classified into direct and indirect taxes. Direct taxes are those where the tax payer pays the taxes directly to the imposing authority like income tax and wealth tax. Whereas, indirect taxes are those which are not paid directly to the imposing authority but paid to someone else who acts as an intermediary link between the tax payer and the tax levying authority like excise duty and service tax.
In India, the power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Constitution. The main taxes/duties that the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.
The tax system in India has under gone a radical change as a result of economic reforms. Some of the changes include:- rationalization of tax structure; progressive reduction in peak rates of customs duty, corporate tax rate reduced, customs duties to be aligned with ASEAN levels; value added tax introduced;widening of the tax base; tax laws have been simplified to ensure better compliance.