What is Income Tax ? Meaning and Definition of Income Tax

 

 Income tax is one of the important direct tax. Every country in the world charges tax on income now. It is necessary because it is a financial source to conduct government's operations. There is a general belief that taxes on income and wealth are of recent origin. But there is enough evidence to show that taxes on income in some form or the other were levied even in primitive and ancient communities. The origin of the word “Tax" is derived from “Taxation" which means an 'estimate'. These were levied either on
the sale and purchase of merchandise or livestock and were collected in a haphazard
manner from time to time. Nearly 2000 years ago, there went out a decree from Ceaser
Augustus that the entire world should be taxed. In Greece, Germany and Roman Empires, taxes were also levied sometime on the basis of turnover and sometimes on occupations. These levies and taxes in various forms and on various commodities and professions were imposed to meet the needs of the Governments. The amount so collected is used to meet the military and civil expenditure. It ensures safety to the subjects and to meet the common needs of the citizens like maintenance of roads, administration of justice and such other functions of the State.

Apart from this progressive income taxation is designed to distribute wealth more evenly in a population. It serves as automatic fiscal stabilizer to mitigate the effects of economic cycles. Income tax is a yearly charge levied on earned income such as wages, salaries, commission and unearned income (dividends, interest, and rents)

India has a well-developed tax structure. The Constitution of India empowers the legislature to enact and enforce tax laws. The constitution declares income tax to be a central subject. Income tax on all types of income except agricultural income, is charged and collected by the central government. Expenses in connection with collection of tax are deducted out of the total tax. The balance amount is known as net proceeds. Net proceeds of income tax are apportioned between central and state government on the basis of the recommendation of the finance commission. Presently nearly 80 % of the tax proceeds are distributed to states. The Central government levies direct taxes such as personal income tax and corporate tax, and also indirect taxes like customs duties, excise duties and central sales tax. The states in turn are empowered to levy state sales tax, entertainment tax etc. apart from various other local taxes like entry tax, octroi, etc. 

On our next article, we're going to discuss about various duties of Tax departments and Income Tax Act. Stay tuned!