Taxation in India

For UPSC, State PSC, and Competitive Examinations

📋 TABLE OF CONTENTS

Introduction to Indian Taxation System
Constitutional Framework
Types of Taxes
Direct Taxes in Detail
Indirect Taxes in Detail
Goods and Services Tax (GST)
Tax Revenue Distribution
Important Concepts & Terms
Recent Budget Highlights
Constitutional Articles Summary
Tax Authorities in India
Tax Devolution and Federalism
International Taxation
Previous Year Questions (PYQs)
Practice MCQs with Answers
Quick Revision Tables
Glossary of Tax Terms

PART 1: INTRODUCTION TO INDIAN TAXATION SYSTEM

1.1 What is Tax?

A tax is a compulsory, legally mandated payment imposed by the government on citizens and entities. There is no direct quid-pro-quo (immediate benefit) for the taxpayer.

Key Characteristics of Tax:

Compulsory: Cannot be refused or avoided legally
Legally backed: Must have legislative sanction (Article 265)
No direct benefit: Not a fee for service rendered
For public purpose: Used for collective social welfare

Objectives of Taxation:

Economic Development: Mobilization of resources for infrastructure
Income Redistribution: Reducing economic inequality through progressive taxation
Price Stability: Controlling inflation through fiscal measures
Employment Generation: Promoting labor-intensive industries
Regulatory Function: Discouraging harmful consumption (sin goods)
Balance of Payments: Correcting disequilibrium through tariffs
Protection to Domestic Industry: Through customs duties
Economic Stabilization: During recessions or booms

1.2 History of Taxation in India

Ancient India: Mentioned in Manusmriti and Arthashastra; King’s share of produce (1/6th – “Shadbhaga”)
Mauryan Period: Comprehensive tax system; land tax (bali), irrigation tax, trade taxes, octroi
Mughal Period: Zabt system; land revenue major source (Todar Mal’s reforms)
British Period: Modern income tax introduced in 1860 by James Wilson; permanent settlement; customs and excise
Post-Independence: Constitution framed (1950); Income Tax Act, 1961; Customs Act, 1962
1991 Reforms: Liberalization; reduction in tax rates; simplification of procedures
2017: GST implementation – biggest tax reform since independence (“One Nation, One Tax”)

Did You Know? The word “tax” comes from the Latin word “taxare” meaning “to assess” or “to value.” Kautilya’s Arthashastra (300 BCE) dedicates an entire chapter to revenue collection and taxation principles.

PART 2: CONSTITUTIONAL FRAMEWORK

2.1 Fundamental Principle: Article 265

“No tax shall be levied or collected except by the authority of law.”

This cornerstone article establishes:

Legislative Mandate: Every tax must be backed by a valid law passed by legislature
No Executive Overreach: No executive action can impose tax without legislative sanction
Legislative Competence: Tax laws must be within the legislative competence of the taxing authority
Due Process: Tax collection must follow prescribed legal procedures

Important Case Law: K.T. Moopil Nair v. State of Kerala (1961) – Article 265 requires not only that tax is levied by authority of law, but also that the law is valid and not arbitrary.

2.2 Seventh Schedule: Division of Taxing Powers

Union List (List I) – Entries 82-92B: Central Government

Entry 82: Income tax (excluding agricultural income)
Entry 83: Customs duties including export duties
Entry 84: Excise duty on tobacco and other goods manufactured in India (except liquor)
Entry 85: Corporation tax
Entry 86: Taxes on capital value of assets (excluding agricultural land)
Entry 87: Estate duty on property other than agricultural land
Entry 88: Duties on succession to property other than agricultural land
Entry 89: Terminal taxes on goods or passengers carried by railways, sea or air
Entry 90: Taxes on railway fares and freights
Entry 91: Stamp duties on specified financial instruments
Entry 92: Taxes on sale/purchase of newspapers and advertisements
Entry 92A: Taxes on inter-state sale/purchase of goods
Entry 92B: Taxes on consignment of goods

State List (List II) – Entries 45-63: State Governments

Entry 45: Land revenue
Entry 46: Taxes on agricultural income
Entry 47: Duties on succession to agricultural land
Entry 48: Estate duty on agricultural land
Entry 49: Taxes on lands and buildings
Entry 50: Taxes on mineral rights (subject to Union limitations)
Entry 51: Excise duty on alcoholic liquors, opium and narcotics
Entry 52: Taxes on entry of goods into local area (octroi)
Entry 53: Taxes on electricity consumption
Entry 54: Taxes on sale/purchase of goods (except newspapers)
Entry 55: Taxes on advertisements (except newspapers)
Entry 56: Taxes on goods and passengers carried by road/inland waterways
Entry 57: Taxes on vehicles plying on roads
Entry 58: Taxes on animals and boats
Entry 59: Tolls
Entry 60: Taxes on professions, trades, callings (subject to ₹2,500 per year)
Entry 61: Capitation taxes
Entry 62: Taxes on entertainment and amusements
Entry 63: Stamp duties on documents (excluding specified financial instruments)

Concurrent List (List III): No taxation heads exist in Concurrent List

2.3 Important Constitutional Articles for Taxation

Article 265: Authority of law – No tax without law
Article 246: Subject matter of laws – Distribution of legislative powers
Article 246A: GST – Concurrent powers to Centre and States to levy GST
Article 268: Duties levied by Centre but collected by States – Stamp duties on bills of exchange, excise on medicinal preparations
Article 269: Taxes levied and collected by Centre but assigned to States – Taxes on inter-state sale/purchase of goods
Article 269A: IGST – Levy and collection of GST on inter-state supply
Article 270: Tax distribution – Taxes levied by Centre but distributed between Centre and States (divisible pool)
Article 271: Surcharge – Surcharge on certain taxes for Union purposes (not shareable)
Article 279: Calculation of net proceeds – Computation of tax proceeds
Article 279A: GST Council – Constitution and functions of GST Council
Article 280: Finance Commission – Distribution of tax revenues between Centre and States
Article 286: Restrictions on taxation of goods – Limits on state taxation powers
Article 287: Exemption from taxes on electricity
Article 288: Exemption from taxes on water
Article 289: Taxation of Union property by States – Exemption of Union property from State taxation

PART 3: TYPES OF TAXES

3.1 Classification of Taxes

TAXES IN INDIA
├── DIRECT TAXES
│ ├── Income Tax
│ │ ├── Capital Gains Tax
│ │ ├── Securities Transaction Tax (STT)
│ │ └── Perquisite Tax
│ ├── Corporate Tax
│ │ ├── Minimum Alternate Tax (MAT)
│ │ └── Dividend Distribution Tax (abolished in 2020)
│ └── Other Direct Taxes
│ ├── Wealth Tax (abolished in 2015)
│ ├── Gift Tax (merged with Income Tax)
│ ├── Estate Duty (abolished in 1985)
│ └── Professional Tax (levied by States)
│
└── INDIRECT TAXES
├── Goods and Services Tax (GST)
│ ├── CGST (Central GST)
│ ├── SGST/UTGST (State/UT GST)
│ └── IGST (Integrated GST)
├── Customs Duty
│ ├── Basic Customs Duty (BCD)
│ ├── Integrated GST on imports
│ ├── Social Welfare Surcharge
│ ├── Anti-dumping Duty
│ ├── Countervailing Duty (CVD)
│ └── Safeguard Duty
└── Excise Duty (on petroleum, tobacco, alcohol)

3.2 Direct vs Indirect Taxes: Key Differences

Parameter: Direct Tax vs Indirect Tax

Meaning:

Direct Tax: Paid directly to government by the person on whom it is imposed
Indirect Tax: Paid via intermediary, collected from buyer by seller

Burden:

Direct Tax: Cannot be shifted to others
Indirect Tax: Can be shifted to consumers

Impact & Incidence:

Direct Tax: Impact and incidence on same person
Indirect Tax: Impact on seller, incidence on buyer

Examples:

Direct Tax: Income Tax, Corporate Tax, Wealth Tax (earlier)
Indirect Tax: GST, Customs Duty, Excise Duty

Progressivity:

Direct Tax: Generally progressive (rate increases with income)
Indirect Tax: Generally regressive (same rate for all consumers)

Collection:

Direct Tax: Difficult to collect, requires extensive machinery
Indirect Tax: Easier to collect, embedded in transaction

Evasion:

Direct Tax: Higher possibility of evasion
Indirect Tax: Lower possibility due to transaction-based collection

Inflationary effect:

Direct Tax: Less inflationary as it reduces disposable income
Indirect Tax: More inflationary as it increases prices

Taxpayer base:

Direct Tax: Limited to income earners (smaller base)
Indirect Tax: Wider base (all consumers)

Taxable event:

Direct Tax: Earning of income/wealth
Indirect Tax: Transaction, manufacture, sale, import

PART 4: DIRECT TAXES IN DETAIL

4.1 Income Tax

Governing Law: Income Tax Act, 1961
Administered by: Central Board of Direct Taxes (CBDT)
Share in Total Revenue: ~28-32%

Who is Liable?

Resident individuals: Global income taxable in India
Non-residents: Only income earned in India taxable
HUF (Hindu Undivided Family): Taxed separately
Firms, LLPs, Companies, AOPs: Taxed as per applicable rates

Income Tax Slabs (New Regime – FY 2024-25)

Income Range (₹)	Tax Rate
Up to 3,00,000	Nil
3,00,001 – 7,00,000	5%
7,00,001 – 10,00,000	10%
10,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

Income Tax Slabs (Old Regime – FY 2024-25)

Income Range (₹)	Tax Rate (Individuals below 60)
Up to 2,50,000	Nil
2,50,001 – 5,00,000	5%
5,00,001 – 10,00,000	20%
Above 10,00,000	30%

Senior Citizens (60-80 years): Basic exemption limit ₹3,00,000
Very Senior Citizens (80+ years): Basic exemption limit ₹5,00,000

Additional Levies:

Health and Education Cess: 4% on tax amount (including surcharge)
Surcharge: Applicable on high income
Income > ₹50 lakh: 10%
Income > ₹1 crore: 15%
Income > ₹2 crore: 25%
Income > ₹5 crore: 37% (reduced from 37% to 25% under new regime)

Heads of Income (Section 14)

Salary Income: Earnings from employment (including pension, allowances, perquisites)
House Property Income: Rental income from buildings (self-occupied or let-out)
Business/Profession Income: Profits from business, profession, or vocation
Capital Gains: Profit from sale of capital assets
Other Sources: Interest, dividends, gifts, lottery winnings, etc.

Deductions under Income Tax:

Popular Deductions (Old Regime):

Section 80C: Investments up to ₹1.5 lakh (PPF, ELSS, LIC, NSC, etc.)
Section 80D: Health insurance premium (up to ₹25,000/₹50,000)
Section 24(b): Interest on home loan (up to ₹2 lakh)
Section 80E: Interest on education loan
Section 80G: Donations to specified funds
Section 80TTA: Interest on savings account (up to ₹10,000)
Section 80CCD(1B): NPS additional investment (up to ₹50,000)

4.2 Corporate Tax

Share in Total Revenue: ~22-26%

Current Rates:

Company Type	Regular Rate	Effective Rate (with cess & surcharge)
Domestic Companies (turnover ≤ ₹400 cr)	25%	~26%
Domestic Companies (opting for concessional rate u/s 115BAA)	22%	~25.17%
New Manufacturing Companies (opting for Section 115BAB)	15%	~17.16%
Foreign Companies	40%	~41-43%

Minimum Alternate Tax (MAT)

Applicable to: Companies with book profits but nil tax due to exemptions/deductions
Rate: 15% of book profits (w.e.f. AY 2024-25)
Credit: Can be carried forward for 15 years and set off against future tax liability

Alternate Minimum Tax (AMT)

Applicable to: Non-corporate assessees (firms, LLPs, AOPs)
Rate: 18.5% of adjusted total income

4.3 Capital Gains Tax

Type of Asset	Holding Period	Tax Rate
Short-term (Listed Equity Shares/Equity MF)	< 12 months	15%
Long-term (Listed Equity Shares/Equity MF)	≥ 12 months	10% (over ₹1 lakh)
Short-term (Other assets – debt funds, gold, property)	< 36 months	As per income slab
Long-term (Other assets – with indexation)	≥ 36 months	20% with indexation
Long-term (Other assets – without indexation)	≥ 36 months	10% (option available)

Indexation Benefit:

Cost of acquisition adjusted for inflation using Cost Inflation Index (CII)
CII notified by CBDT every year (Base year: 2001-02)
Reduces tax liability on long-term capital gains significantly

Cost Inflation Index (CII) – Recent Years:

Financial Year	CII
2017-18	272
2018-19	280
2019-20	289
2020-21	301
2021-22	317
2022-23	331
2023-24	348
2024-25	363

4.4 Securities Transaction Tax (STT)

Transaction Type	Rate
Delivery-based equity purchase	0.1%
Delivery-based equity sale	0.1%
Intra-day equity sale (non-delivery)	0.025%
Sale of equity-oriented mutual fund units	0.001%
Sale of options (on premium)	0.05%
Sale of futures	0.01%
Sale of units of business trust (REITs/InvITs)	0.001%

4.5 Other Direct Taxes

Professional Tax:

Levied by: State Governments (under Article 276)
Maximum Limit: ₹2,500 per annum
Applicable on: Salaried individuals and professionals
States Levying: Maharashtra, Karnataka, West Bengal, etc. (about 18 states)

Dividend Distribution Tax (DDT):

Status: Abolished from April 1, 2020
Earlier: Companies paid 15% + surcharge + cess on dividends declared
Current: Dividend taxable in hands of recipients (Classical System)

Wealth Tax:

Status: Abolished in 2015 (Finance Act, 2015)
Earlier: 1% on wealth exceeding ₹30 lakh
Reason: Low collection, high administrative cost, evasion

Gift Tax:

Status: Merged with Income Tax in 1998
Current: Gifts exceeding ₹50,000 taxable as “Income from Other Sources”
Exceptions: Gifts from relatives, on marriage, under will/inheritance

Estate Duty:

Status: Abolished in 1985
Earlier: Tax on inheritance/transfer of property upon death
Also called: Death Duty

PART 5: INDIRECT TAXES IN DETAIL

5.1 Goods and Services Tax (GST)

Governing Law: Central Goods and Services Tax Act, 2017
Administered by: Central Board of Indirect Taxes and Customs (CBIC)
Share in Total Revenue: ~28-32%

GST Structure:

Component	Levied By	Applicable On
CGST	Central Government	Intra-state supplies (within same state)
SGST/UTGST	State/UT Government	Intra-state supplies (within same state)
IGST	Central Government	Inter-state supplies (across states) + Imports

GST Tax Slabs:

Rate	Applicable Items
0% (Nil)	Essential items: Food grains (wheat, rice), fresh vegetables, milk, eggs, bread, salt, unpacked food, education services, healthcare services
0.25%	Rough diamonds, precious stones, beedi leaves
3%	Gold, silver, jewelry, precious stones (cut and polished)
5%	Mass consumption items: Sugar, tea, coffee (except instant), edible oil, spices, frozen vegetables, railway tickets, economy class air travel, small restaurants
12%	Standard rate: Computers, processed food, butter, ghee, mobile phones, umbrellas, business class air travel
18%	Standard rate (most goods and services): AC, refrigerator, washing machine, toiletries, hotel rooms (₹1,000-7,500), telecom services, financial services, restaurants in hotels
28%	Luxury and sin goods: Luxury cars, tobacco products, aerated drinks, cement, pan masala, casinos, horse racing, hotel rooms above ₹7,500

GST Compensation Cess:

Levied on: Luxury and sin goods (over and above 28% tax)
Purpose: To compensate states for revenue loss (till 2026)
Rate: Varies from 1% to 290% depending on goods

Composition Scheme:

For small taxpayers: Turnover up to ₹1.5 crore (₹75 lakh for special category states)
Pay tax at fixed rate: 1% (traders), 2% (manufacturers), 5% (restaurants)
No Input Tax Credit (ITC) available
Simplified compliance: Quarterly returns and payments

Reverse Charge Mechanism (RCM):

Recipient pays tax instead of supplier
Applicable on:
Specified goods/services from unregistered dealers
Import of services
Specified notified categories (cashew, tobacco, legal services, etc.)

5.2 Customs Duty

Governing Law: Customs Act, 1962
Share in Total Revenue: ~8-10%

Types of Customs Duty:

Type	Description	Rate/Remarks
Basic Customs Duty (BCD)	Basic levy on imported goods	Varies from 0-150% (average ~10-15%)
Integrated GST (IGST)	GST on imports	Equal to IGST rate applicable (5%, 12%, 18%, 28%)
Social Welfare Surcharge	For social welfare programs	10% of BCD (on specified goods)
Anti-dumping Duty	Against below-cost imports harming domestic industry	As notified by DGTR
Countervailing Duty (CVD)	Against subsidized exports from other countries	As notified
Safeguard Duty	Temporary protection to domestic industry from import surge	As notified
Protective Duty	To protect domestic industry permanently	As notified
Export Duty	On export of select goods	Rare (on raw materials like leather, iron ore)

Customs Valuation:

Transaction value is primary basis (price actually paid or payable)
Based on WTO Valuation Agreement (GATT Article VII)
Includes: Cost, insurance, freight (CIF value)
Excludes: Landing charges (now merged with freight)

Recent Customs Duty Changes (Budget 2024):

Mobile phone components: Reduced to 15%
Cancer drugs: Fully exempted
Gold and silver: Reduced to 15%
Solar cells: Reduced to 20%
Shrimp feed: Reduced to 5%

5.3 Excise Duty

Governing Law: Central Excise Act, 1944
Share in Total Revenue: ~7-9%

Current Status:

Most manufactured goods subsumed under GST (since July 1, 2017)
Remains on:
Petroleum products (petrol, diesel, ATF, crude oil)
Tobacco products (over and above GST)
Alcohol for human consumption
Natural gas

Types of Excise Duty:

Type	Description
Basic Excise Duty (BED)	Levy on manufacture (commonly called CENVAT earlier)
Special Excise Duty (SED)	Additional levy on select items (petrol, diesel)
National Calamity Contingent Duty (NCCD)	On tobacco products, pan masala
Road and Infrastructure Cess (RIC)	On petrol and diesel
Agriculture Infrastructure and Development Cess (AIDC)	On petrol and diesel

Excise Duty Rates (Current):

Product	Basic Excise	Special Excise	Cess	Total
Petrol	₹2.98/litre	₹11/litre	AIDC: ₹2.5/litre	~₹19.90/litre
Diesel	₹4.38/litre	₹9/litre	AIDC: ₹4/litre	~₹17.90/litre
Tobacco products	As per tariff	NCCD applicable	GST compensation	Varies

PART 6: GOODS AND SERVICES TAX (GST) – DETAILED

6.1 101st Constitutional Amendment Act, 2016

Key Features:

Article 246A: Concurrent powers for Parliament and State Legislatures to levy GST
Article 269A: IGST mechanism for inter-state supplies and imports
Article 279A: GST Council establishment – joint forum of Centre and States
‘One Nation, One Tax’: Unified indirect tax system across India
Destination-based Tax: Consumption state gets revenue (not producing state)

6.2 Taxes Subsumed Under GST

Central Taxes Subsumed:

Central Excise Duty
Service Tax
Additional Excise Duty (on goods of special importance)
Special Additional Duty of Customs (SAD – CVD)
Central Sales Tax (CST)
Central Surcharges and Cesses (relating to goods and services)

State Taxes Subsumed:

State VAT / Sales Tax
Octroi and Entry Tax (all forms)
Luxury Tax
Purchase Tax
Entertainment Tax (except those levied by local bodies)
Taxes on lotteries, betting, gambling
Advertisement taxes
State cesses and surcharges (relating to goods and services)

6.3 Taxes NOT Subsumed Under GST

Tax	Reason
Customs Duty	On imports/exports (levied at border)
Stamp Duty	On legal documents (property registration)
Electricity Duty	On power consumption (state subject)
Toll Tax	For road usage (fee for service)
Professional Tax	On professions/trades (Article 276)
Excise on liquor/alcohol	For human consumption (kept out by consensus)
Excise on petroleum products	Temporarily kept out (to be included later)
Tax on real estate (stamp duty)	Already outside GST
Tax on gambling (except casinos)	State subject

6.4 GST Council

Composition:

Member	Position
Union Finance Minister	Chairperson
Union Minister of State (Revenue)	Member
All State Finance/Taxation Ministers	Members
Lieutenant Governors of UTs (with legislature)	Members

Voting Structure:

Centre: 1/3rd weightage of total votes cast
States: 2/3rd weightage of total votes cast collectively
Decision: Requires 3/4th majority of weighted votes

Functions (Section 5 of Article 279A):

Recommend tax rates and slabs including floor rates
Decide exemptions and threshold limits
Model GST laws, rules, and principles
Special provisions for certain states (hilly, northeastern)
Dispute resolution mechanism
GST on major supplies (like petroleum)
Any other matter relating to GST

Important GST Council Meetings:

Meeting	Key Decisions
1st (2016)	Formation of committees
14th (2017)	Anti-profiteering mechanism
23rd (2017)	Rate rationalization
32nd (2019)	E-way bill extension
37th (2019)	Rate cuts on many items
40th (2020)	Compensation mechanism
45th (2021)	Rate rationalization on textiles
47th (2022)	Decriminalization of offenses
50th (2023)	Composition limit increased
52nd (2023)	Online gaming taxed at 28%

6.5 Input Tax Credit (ITC)

Key Feature: Tax paid on inputs (purchases) can be claimed as credit against output tax liability (sales)

Conditions for ITC (Section 16):

Possession of valid tax invoice/debit note
Receipt of goods/services
Tax paid to supplier
Filing of valid returns (GSTR-3B)
Supplier has deposited tax with government
Goods/services not used for exempt supplies or personal use

ITC Flow:
Supplier → Pays GST → Issues Invoice → Recipient gets ITC → Used for output tax payment

ITC Not Available For:

Motor vehicles (except for specified business)
Food and beverages (except in specified cases)
Membership of club, health center
Travel benefits (except for employees)
Works contracts for personal use
Goods lost, stolen, destroyed, or gifted

Blocked Credits (Section 17(5)):

Goods and services used for personal consumption
Goods lost, stolen, destroyed, or written off
Goods used for gifts/donation
ITC on membership, travel, hospitality (except business obligation)

6.6 GST Returns

Return	Description	Due Date	Filed By
GSTR-1	Outward supplies details (sales)	11th of next month	Regular taxpayers
GSTR-3B	Monthly summary return (sales + tax payment)	20th of next month	Regular taxpayers
GSTR-4	Composition dealer return	18th of month after quarter	Composition dealers
GSTR-5	Non-resident taxpayer return	20th of next month	Non-residents
GSTR-6	Input Service Distributor return	13th of next month	ISD
GSTR-7	TDS return	10th of next month	TDS deductors
GSTR-8	E-commerce operator return	10th of next month	E-commerce operators
GSTR-9	Annual return	31st December	Regular taxpayers (>₹2 crore turnover)
GSTR-9C	Reconciliation statement	31st December	Taxpayers (>₹5 crore turnover)
CMP-08	Composition payment challan	18th of month after quarter	Composition dealers

6.7 GST Registration

Threshold Limits:

Category	Threshold (Annual Turnover)
Normal category states	₹40 lakh (goods) / ₹20 lakh (services)
Special category states	₹20 lakh (goods) / ₹10 lakh (services)
North-Eastern states	₹20 lakh (goods) / ₹10 lakh (services)

Compulsory Registration (irrespective of turnover):

Inter-state suppliers
Casual taxable persons
Non-resident taxable persons
E-commerce operators
Persons liable under reverse charge
Input Service Distributors
TDS deductors

6.8 E-Way Bill

Requirement: Mandatory for movement of goods > ₹50,000
Valid for: 1 day per 200 km (extendable)
Generated on: E-way bill portal (e-waybill.nic.in)
Parties involved: Supplier, recipient, transporter

PART 7: TAX REVENUE DISTRIBUTION

7.1 Recent Budget Trends (FY 2024-25)

Total Tax Revenue Distribution:

DIRECT TAXES (52-56%)
├── Income Tax (28-32%)
├── Corporate Tax (22-26%)
└── Other Direct Taxes (2-3%)

INDIRECT TAXES (44-48%)
├── GST (28-32%)
├── Customs Duty (8-10%)
└── Excise Duty (7-9%)

7.2 Percentage Share of Total Tax Revenue (FY 2024-25 Estimates)

Tax Type	Percentage Share
DIRECT TAXES (Total)	54%
Income Tax	30%
Corporate Tax	24%
INDIRECT TAXES (Total)	46%
GST	30%
Customs Duty	9%
Excise Duty	7%

7.3 Top Revenue Sources (FY 2024-25)

Rank	Tax Type	Contribution
🥇	Income Tax	~30%
🥈	GST	~30%
🥉	Corporate Tax	~24%
4th	Customs Duty	~9%
5th	Excise Duty	~7%

7.4 Tax-GDP Ratio

Year	Tax-GDP Ratio
2019-20	10.1%
2020-21	9.9% (COVID impact)
2021-22	11.1% (recovery)
2022-23	11.5%
2023-24	11.7% (BE)
2024-25	11.8% (Target)

7.5 Direct Tax vs Indirect Tax Ratio

Year	Direct:Indirect Ratio
2019-20	52:48
2020-21	54:46
2021-22	55:45
2022-23	54:46
2023-24	53:47
2024-25 (BE)	54:46

PART 8: IMPORTANT CONCEPTS & TERMS

8.1 Cess vs Surcharge

Parameter	Cess	Surcharge
Purpose	Specific purpose (earmarked fund)	General purpose (not earmarked)
Duration	Can be temporary or permanent	Usually temporary
Sharing with States	Not shared (kept in Consolidated Fund of India)	Not shared (Article 271)
Article	No specific article	Article 271
Examples	Education Cess, Health Cess, Swachh Bharat Cess	Income Tax surcharge (10-37%)
Legal basis	Finance Act	Income Tax Act
Share in divisible pool	No	No

8.2 Impact vs Incidence

Term	Definition	Example
Impact	Point of levy (who pays to government)	Manufacturer pays excise duty to government
Incidence	Point of burden (who ultimately bears)	Consumer bears final cost through higher price

8.3 Tax Shifting

Forward Shifting: Producer → Wholesaler → Retailer → Consumer
Backward Shifting: Producer → Supplier (raw material)
Onward Shifting: Intermediary to next stage in supply chain

8.4 Other Important Concepts

Term	Meaning
Divisible Pool	Taxes shared between Centre and States under Article 270
Consolidated Fund of India	All government revenues (Article 266)
Contingency Fund of India	Emergency expenses (Article 267)
Public Account of India	Other funds (PPF, small savings, deposits)
Progressive Tax	Higher rate for higher income (e.g., Income Tax)
Regressive Tax	Higher burden on lower income (e.g., GST on essentials)
Proportional Tax	Same rate for all (e.g., Corporate Tax flat rate)
Specific Duty	Fixed amount per unit (₹/kg, ₹/litre)
Ad Valorem Duty	Percentage of value (e.g., 18% GST)
Tax Avoidance	Legal minimization of tax (using provisions)
Tax Evasion	Illegal non-payment of tax (hiding income)
Tax Planning	Legitimate arrangement to reduce liability
Tax Mitigation	Reducing tax through permissible means
Tax Exemption	Complete relief from tax (specified items)
Tax Deduction	Reduction from taxable income
Tax Rebate	Reduction from tax payable
Tax Credit	Direct reduction from tax liability

8.5 Key Doctrines in Taxation

Doctrine	Meaning
Doctrine of Territorial Nexus	Tax can be levied if sufficient territorial connection exists
Doctrine of Economic Nexus	Tax based on economic presence (for digital economy)
Doctrine of Source	Income taxed where it originates
Doctrine of Residence	Residents taxed on global income
Doctrine of Origin	Tax in state of production (pre-GST)
Doctrine of Destination	Tax in state of consumption (GST principle)
Doctrine of Lifting Corporate Veil	Ignoring corporate entity to tax real owner

8.6 Important Tax Terms

Term	Definition
Assessment Year (AY)	Year in which income of previous year is taxed (e.g., AY 2024-25)
Previous Year (PY)	Financial year in which income is earned (e.g., FY 2023-24)
PAN	Permanent Account Number (10-digit alphanumeric)
TAN	Tax Deduction and Collection Account Number
TDS	Tax Deducted at Source
TCS	Tax Collected at Source
GSTIN	GST Identification Number (15-digit)
HSN Code	Harmonized System of Nomenclature (for goods)
SAC Code	Service Accounting Code (for services)
ITC	Input Tax Credit
RCM	Reverse Charge Mechanism
QRMP	Quarterly Return Monthly Payment scheme

PART 9: RECENT BUDGET HIGHLIGHTS

9.1 Union Budget 2024-25 (Interim) – February 2024

Direct Tax Proposals:

Proposal	Details
New Tax Regime	Made default regime (taxpayers can still opt old regime)
Tax Slab Revision	Revised slabs with higher exemption:

0-3 lakh: Nil
3-7 lakh: 5%
7-10 lakh: 10%
10-12 lakh: 15%
12-15 lakh: 20%
Above 15 lakh: 30%
Standard Deduction | Increased to ₹50,000 in new regime (from ₹50,000 already existed in old regime, now extended to new)
Family Pension Deduction | Increased to ₹25,000 (from ₹15,000)
Tax Exemption Limit | No tax up to ₹7 lakh (new regime with rebate u/s 87A)
Annuity Plans | Deduction for senior citizens (up to specified limit)
Pending demands | Withdrawal of minor tax demands (up to ₹25,000 for years up to 2009-10, up to ₹10,000 for 2010-11 to 2014-15)

Indirect Tax Proposals:

Proposal	Details
GST Exemptions	Certain cancer drugs (Trastuzumab, Osimertinib, Durvalumab) exempted
Customs Duty	Reduced on mobile phone components (to 15%)
Export Promotion	Schemes extended (Status Holders, EOU, SEZ)
Tax Compliance	Simplified filing process
Gold and Silver	Customs duty reduced to 15% (from earlier rates)
Shrimp feed	Customs duty reduced to 5%
Solar cells	Customs duty reduced to 20% (from 25%)
Critical minerals	Full exemption on 25 minerals (lithium, copper, etc.)

9.2 Recent GST Council Decisions

Meeting	Key Decisions
52nd GST Council (Oct 2023)	Rate rationalization on certain items; online gaming taxed at 28% on full face value; popcorn, tetra packs rates reduced
51st GST Council (Aug 2023)	Exemptions for cancer drugs (Dinutuximab); reduced rates on certain food items; clarification on ITC on motor vehicles
50th GST Council (July 2023)	Decriminalization of certain offenses; composition limit increased to ₹1.5 crore; E-way bill rationalization
49th GST Council (Feb 2023)	Measures for trade facilitation; decriminalization under GST
48th GST Council (Dec 2022)	Tax on casinos, horse racing clarified; online gaming taxation deferred
47th GST Council (June 2022)	Rate rationalization on textiles, footwear; decriminalization provisions

9.3 Recent Policy Changes

Faceless Assessment (2019): E-assessment without human interface
Taxpayer Charter (2020): CBDT charter outlining taxpayer rights
Vivad se Vishwas Scheme (2020): Direct tax dispute resolution
Updated Return (2022): Filing updated return within 24 months
New ITR Forms (2023): Simplified forms with fewer details

PART 10: CONSTITUTIONAL ARTICLES SUMMARY

Complete List of Taxation Articles

Article	Subject Matter	Key Point
Article 265	Authority of law	No tax without law
Article 266	Consolidated Funds	All revenues to be credited
Article 267	Contingency Fund	Emergency expenses fund
Article 268	Duties levied by Centre but collected by States	Stamp duties, excise on medicinal preparations
Article 268A	Service tax (Repealed)	Now subsumed under GST
Article 269	Taxes levied and collected by Centre but assigned to States	Inter-state sale/purchase taxes (now GST)
Article 269A	GST on inter-state supplies	IGST mechanism
Article 270	Taxes levied and distributed between Centre and States	Divisible pool (all taxes except surcharge/cess)
Article 271	Surcharge for Union purposes	Centre only, not shareable
Article 272	Taxes levied and distributed (Repealed)	–
Article 273	Grants in lieu of export duty	For jute and jute products
Article 274	Prior recommendation of President for taxation bills	Bills affecting states
Article 275	Grants-in-aid to states	From Consolidated Fund of India
Article 276	Taxes on professions, trades, callings	State list, maximum ₹2,500
Article 277	Existing taxes	Continuance until GST
Article 278	Agreement with states (Repealed)	–
Article 279	Calculation of net proceeds	Computation method
Article 279A	GST Council	Constitution and functions
Article 280	Finance Commission	Distribution of taxes
Article 281	Recommendations of Finance Commission	To be laid before Parliament
Article 282	Expenditure for public purpose	Centre/States can make grants
Article 283	Custody of funds	Consolidated Fund, Public Account
Article 284	Custody of suit funds	Courts, government departments
Article 285	Taxation of Union property by States	Exemption of Union property
Article 286	Restrictions on state taxation of goods	Limits on inter-state trade
Article 287	Exemption for electricity	From state taxation
Article 288	Exemption for water	From state taxation
Article 289	Exemption of Union property	State taxation exempted
Article 290	Adjustment of expenses	Between Union and States
Article 290A	Payments to certain funds	Specific funds (Kerala, Tamil Nadu)
Article 291	Privy purse (Repealed)	–
Article 292	Borrowing by Centre	Government of India
Article 293	Borrowing by States	State Governments

PART 11: TAX AUTHORITIES IN INDIA

11.1 Organizational Structure

MINISTRY OF FINANCE
├── Department of Revenue
│ ├── CBDT (Central Board of Direct Taxes)
│ │ ├── Income Tax Department
│ │ │ ├── Regions (North, South, East, West)
│ │ │ ├── Zones (CCIT)
│ │ │ ├── Circles (CIT)
│ │ │ └── Wards (ITO)
│ │ └── Investigation Wing (DGI)
│ │
│ └── CBIC (Central Board of Indirect Taxes and Customs)
│ ├── GST Formations (CGST Commissionerates)
│ ├── Customs Formations (Custom Houses)
│ ├── Central Excise (Petroleum, Tobacco)
│ └── DGGI (Directorate General of GST Intelligence)
│
└── Department of Economic Affairs

11.2 Central Board of Direct Taxes (CBDT)

Aspect	Details
Constituted under	Central Board of Revenue Act, 1963
Chairperson	CBDT Chairman (also ex-officio Secretary to Government)
Members	6 Members (including Chairman)
Jurisdiction	All direct taxes
Key Functions	Policy formulation, administration of Income Tax Act

CBDT Structure:

Chairman
Members (6):
Member (Income Tax)
Member (Legislation)
Member (Revenue)
Member (Investigation)
Member (Audit & Judicial)
Member (Administration)

Field Formations:

Principal Chief Commissioner of Income Tax (Pr. CCIT)
Chief Commissioner of Income Tax (CCIT)
Principal Commissioner of Income Tax (Pr. CIT)
Commissioner of Income Tax (CIT)
Additional/Joint Commissioner
Deputy Commissioner
Assistant Commissioner
Income Tax Officer (ITO)

11.3 Central Board of Indirect Taxes and Customs (CBIC)

Aspect	Details
Constituted under	Central Board of Revenue Act, 1963
Chairperson	CBIC Chairman (ex-officio Secretary)
Members	6 Members
Jurisdiction	GST, Customs, Excise
Key Functions	Policy, administration, anti-smuggling

CBIC Structure:

Chairman
Members (6):
Member (GST)
Member (Customs)
Member (IT & Taxpayer Services)
Member (Legal)
Member (Administration)
Member (Investigation)

Field Formations:

Principal Chief Commissioner (CGST & Customs)
Chief Commissioner
Principal Commissioner
Commissioner
Additional/Joint Commissioner
Deputy/Assistant Commissioner
Superintendent
Inspector

11.4 GST Network (GSTN)

Aspect	Details
Type	Non-Government, private limited company (Section 8)
Incorporation	2013
Shareholding	Centre (24.5%), States (24.5%), HDFC (20%), ICICI (10%), NSE (10%), LIC (6%), Others (5%)
Function	IT backbone for GST
Services	Registration, return filing, payment processing, e-way bill

11.5 Other Important Authorities

Authority	Function
DGIT (Investigation)	Search, seizure, investigation
DGIT (Systems)	IT infrastructure for Income Tax
DGGI (GST Intelligence)	Anti-evasion, intelligence gathering
DG (Audit)	Audit of tax payers
DG (Vigilance)	Internal vigilance
CIT (Appeals)	First appellate authority
ITAT (Income Tax Appellate Tribunal)	Second appeal (quasi-judicial)
GST Appellate Tribunal	GST appeals (proposed)

PART 12: TAX DEVOLUTION AND FEDERALISM

12.1 Finance Commission

Constitutional Provision: Article 280

Composition:

Chairman + 4 members
Appointed by President every 5 years

Qualifications (members):

Judge of High Court or qualified for appointment
Special knowledge of finance/accounts
Wide experience in financial matters
Special knowledge of economics
Experience in administration

Terms of Reference:

Distribution of net proceeds of taxes between Centre and States (vertical devolution)
Principles governing grants-in-aid to states
Measures to augment Consolidated Fund of States
Any other matter referred by President

15th Finance Commission (2021-26) – Recommendations

Criteria for Horizontal Distribution:

Criteria	Weightage	Purpose
Income distance	45%	To bridge gap between high and low-income states
Population (2011)	15%	Reflects current needs
Population (1971)	15%	Reward states with population control
Area	15%	Higher cost of service in larger states
Forest and ecology	10%	Ecological fiscal transfer

Vertical Devolution:

Centre: Retains 59% of taxes
States: Receive 41% of divisible pool

Horizontal Devolution (Major States’ Share):

State	Share (%)
Uttar Pradesh	17.9%
Bihar	10.1%
Madhya Pradesh	7.9%
West Bengal	7.5%
Maharashtra	6.1%
Rajasthan	5.8%
Tamil Nadu	4.8%
Karnataka	4.7%
Gujarat	4.3%
Odisha	4.0%
Andhra Pradesh	3.8%
Telangana	2.3%
Kerala	2.0%
Punjab	1.8%
Haryana	1.3%

12.2 Centrally Sponsored Schemes and Tax Devolution

Key Distinction:

Parameter	Tax Devolution	Grants-in-Aid
Source	Article 270	Article 275
Nature	Untied funds	Tied/Untied
Control	States have full autonomy	Conditions may apply
Predictability	Based on FC formula	Discretionary + FC grants
Share in total transfer	~80%	~20%

12.3 Issues in Fiscal Federalism

Vertical Fiscal Imbalance:

Centre collects more than it spends (65:35 ratio)
States collect less than they need (35:65 ratio)
Dependence on Centre for funds

Horizontal Inequality:

Uneven distribution of resources among states
Rich vs poor states gap

Cess and Surcharge:

Not part of divisible pool (~12-15% of Centre’s revenue kept outside)
Reduces states’ share effectively
Examples: Health cess, education cess, AIDC

GST Compensation:

Compensation cess mechanism ended in 2022
Transition issues post-2022

Borrowing restrictions:

Article 293 limits state borrowing
Central control over state finances

12.4 Recent Developments in Fiscal Federalism

Enhanced devolution: From 32% (10th FC) to 41% (14th & 15th FC)
GST Council: Cooperative federalism in taxation
Direct Benefit Transfer (DBT): Better targeting
Finance Commission recommendations: Greater weight to forest cover
State’s own tax revenue: GST compensation issues

PART 13: INTERNATIONAL TAXATION

13.1 Double Taxation Avoidance Agreement (DTAA)

Objective: Prevent taxation of same income in two countries

Types of Relief:

Method	Description
Exemption Method	Income taxed only in source country (resident country exempts)
Credit Method	Tax paid abroad credited against domestic tax liability

Indian DTAA Network:

Over 95 countries covered
Includes OECD and UN Model conventions
Most favored nation clause in many treaties

Key DTAA Countries:

USA, UK, Canada, Australia, Germany, France, Japan
Singapore, Mauritius, UAE, Netherlands
Switzerland, Cyprus (renegotiated)

13.2 Transfer Pricing

Definition: Pricing of transactions between related parties in different countries

Applicability:

International transactions between associated enterprises
Specified domestic transactions (post-2012 with conditions)

Methods for Arm’s Length Price:

Comparable Uncontrolled Price (CUP) Method
Resale Price Method (RPM)
Cost Plus Method (CPM)
Profit Split Method (PSM)
Transactional Net Margin Method (TNMM)
Any other method prescribed by CBDT

Key Concepts:

Associated Enterprise: Control, management, capital participation
International Transaction: Cross-border dealings
Arm’s Length Price: Price in uncontrolled conditions
Safe Harbour Rules: Prescribed margins to avoid scrutiny
Advance Pricing Agreement (APA): Prospective pricing agreement

13.3 Base Erosion and Profit Shifting (BEPS)

India’s Commitments:

Member of OECD/G20 Inclusive Framework on BEPS
Signatory to Multilateral Instrument (MLI)
Implementing 4 minimum standards

Key BEPS Actions relevant to India:

Action	Description
Action 1	Digital economy challenges (SEP, Equalisation Levy)
Action 2	Neutralising hybrid mismatches
Action 3	CFC rules (Controlled Foreign Corporation)
Action 4	Interest deduction limitations
Action 5	Harmful tax practices (transparency)
Action 6	Treaty abuse prevention (Principal Purpose Test)
Action 7	PE status avoidance
Action 8-10	Transfer pricing outcomes
Action 13	Country-by-country reporting (CbCR)
Action 14	Dispute resolution (MAP)
Action 15	Multilateral instrument (MLI)

13.4 Significant Economic Presence (SEP)

Introduced in: Finance Act, 2018
Effective from: Assessment Year 2022-23

Thresholds:

Transactions exceeding ₹2 crore with Indian entities/persons
Systematic soliciting of business involving >3 lakh users in India

Significance:

Creates nexus for taxation without physical presence
Targets digital economy giants (Google, Facebook, Amazon, Netflix)
Overrides DTAA requirements (subject to treaty provisions)

13.5 Equalisation Levy

Introduced: 2016 (Digital economy tax)

Types:

Type	Rate	Applicable on
Equalisation Levy 1.0	6%	Online advertising services (B2B)
Equalisation Levy 2.0	2%	E-commerce supply/services (B2B and B2C)

Background:

Often called “Google Tax”
Interim measure before global consensus on digital tax
Applies to non-residents only

13.6 Other International Tax Concepts

Concept	Description
Permanent Establishment (PE)	Fixed place of business creating tax nexus
Royalty	Payment for use of intellectual property
FTS (Fees for Technical Services)	Payment for technical services
CbCR (Country-by-Country Reporting)	MNC group reporting (consolidated)
Master File	Global business description
MLI (Multilateral Instrument)	Treaty modification without renegotiation
GAAR (General Anti-Avoidance Rules)	Anti-abuse provisions
SAAR (Specific Anti-Avoidance Rules)	Specific provisions
CFC (Controlled Foreign Corporation)	Attribution of foreign income
MAP (Mutual Agreement Procedure)	Dispute resolution

PART 14: PREVIOUS YEAR QUESTIONS (PYQs)

14.1 UPSC CSE Mains Questions

2023

“The Goods and Services Tax (GST) has been a mixed bag for Indian federalism.” Discuss.
Explain the concept of ‘tax devolution’ and examine its significance in Centre-State financial relations.
Discuss the key features of the new income tax regime and its implications for taxpayers.

2022

Discuss the rationale behind the constitutional status given to the GST Council. Analyze its functioning.
What is ‘tax terrorism’? Examine the measures taken by the government to prevent it.
Explain the concept of ‘base erosion and profit shifting’ and India’s response to it.

2021

“Direct taxes are progressive while indirect taxes are regressive in nature.” Elaborate with suitable examples.
Critically examine the role of Finance Commission in maintaining fiscal federalism in India.
Discuss the major challenges in implementation of GST in India.

2020

What do you understand by ‘tax expenditure’? Discuss its implications for fiscal policy.
Analyze the impact of COVID-19 on tax revenue and the policy measures taken to address it.
Examine the constitutional provisions regarding distribution of tax revenues between Centre and States.

2019

“The Constitution of India provides for a federal system with unitary bias in taxation matters.” Comment.
Discuss the major recommendations of the Task Force on Direct Tax Code.
Explain the concept of ‘Input Tax Credit’ under GST and its significance.

2018

“GST is not just a tax reform but an economic reform.” Elucidate.
Examine the concept of ‘base erosion and profit shifting’ and India’s response to it.
Discuss the composition and functions of the GST Council.

14.2 State PSC Questions

Bihar PSC 2023

Discuss the composition and functions of the GST Council.
What are the different types of taxes levied by State Governments?
Explain the concept of ‘tax devolution’ and its importance for Bihar.

UPPSC 2022

Explain the difference between tax avoidance and tax evasion. What measures are taken to curb tax evasion?
Discuss the major sources of non-tax revenue for the State Government.
Analyze the impact of GST on the Uttar Pradesh economy.

MPPSC 2022

Analyze the impact of GST on the Madhya Pradesh economy.
What is professional tax? Discuss its constitutional basis and limits.
Explain the composition scheme under GST.

WBPSC 2021

Examine the role of CBDT and CBIC in tax administration.
Discuss the concept of ‘input tax credit’ under GST regime.
What are the constitutional provisions regarding taxation of agricultural income?

14.3 UPSC Prelims Questions (Topic-wise)

Constitutional Provisions:

Under which Article, no tax can be levied without authority of law? (a) 265 (b) 266 (c) 270 (d) 279A
Which Article deals with the constitution of GST Council? (a) 269A (b) 279A (c) 246A (d) 270

Direct Taxes:

Which of the following is not a direct tax? (a) Income Tax (b) Corporate Tax (c) GST (d) Wealth Tax
Minimum Alternate Tax (MAT) is applicable to: (a) Individuals (b) Companies (c) HUFs (d) All assessees

GST:

Which of the following taxes is not subsumed under GST? (a) Service Tax (b) Excise Duty (c) Stamp Duty (d) VAT
IGST is levied on: (a) Intra-state supply (b) Inter-state supply (c) Both (d) Neither

PART 15: PRACTICE MCQs WITH ANSWERS

Set 1: Constitutional Provisions

Q1. Which Article of the Constitution provides that “No tax shall be levied or collected except by authority of law”?
a) Article 245
b) Article 256
c) Article 265
d) Article 275

Answer: c) Article 265
Explanation: Article 265 is the foundation of taxation system in India, ensuring that no tax can be imposed without legislative backing.

Q2. Under which Article was the GST Council constituted?
a) Article 268
b) Article 269A
c) Article 279A
d) Article 280

Answer: c) Article 279A
Explanation: The 101st Constitutional Amendment Act, 2016 inserted Article 279A which provides for the constitution of GST Council.

Q3. Taxes on professions, trades and callings are levied under which Article?
a) Article 265
b) Article 276
c) Article 286
d) Article 289

Answer: b) Article 276
Explanation: Article 276 allows states to levy professional tax subject to maximum of ₹2,500 per annum.

Q4. Which of the following taxes is NOT in the Union List?
a) Corporation Tax
b) Customs Duty
c) Agricultural Income Tax
d) Excise Duty on tobacco

Answer: c) Agricultural Income Tax
Explanation: Agricultural Income Tax is in State List (Entry 46). Corporation tax, customs duty, and excise on tobacco are in Union List.

Q5. The divisible pool of taxes between Centre and States is governed by:
a) Article 269
b) Article 270
c) Article 271
d) Article 272

Answer: b) Article 270
Explanation: Article 270 provides for distribution of net proceeds of taxes between Centre and States (except surcharge and cess).

Set 2: Direct Taxes

Q6. Under the new tax regime for FY 2024-25, income up to which amount is exempt from tax (with rebate)?
a) ₹5 lakh
b) ₹7 lakh
c) ₹10 lakh
d) ₹12 lakh

Answer: b) ₹7 lakh
Explanation: Under Section 87A rebate, income up to ₹7 lakh is exempt in new regime (FY 2024-25).

Q7. Which of the following is not a head of income under the Income Tax Act?
a) Salary
b) House Property
c) Capital Gains
d) Dividend

Answer: d) Dividend
Explanation: Dividend falls under “Income from Other Sources”. The five heads are: Salary, House Property, Business/Profession, Capital Gains, Other Sources.

Q8. The holding period for long-term capital gains on listed equity shares is:
a) 12 months
b) 24 months
c) 36 months
d) 48 months

Answer: a) 12 months
Explanation: For listed equity shares and equity-oriented mutual funds, holding period of 12 months qualifies as long-term.

Q9. Minimum Alternate Tax (MAT) rate for companies is:
a) 15% of book profit
b) 18.5% of book profit
c) 20% of book profit
d) 25% of book profit

Answer: a) 15% of book profit
Explanation: MAT is levied at 15% of book profits (w.e.f. AY 2024-25) on companies with nil tax due to exemptions.

Q10. Securities Transaction Tax (STT) on delivery-based equity sale is:
a) 0.025%
b) 0.05%
c) 0.1%
d) 0.2%

Answer: c) 0.1%
Explanation: STT on delivery-based equity purchase/sale is 0.1% each.

Set 3: Indirect Taxes & GST

Q11. Which of the following taxes is not subsumed under GST?
a) Central Excise Duty
b) Service Tax
c) Customs Duty
d) Central Sales Tax

Answer: c) Customs Duty
Explanation: Customs duty on imports/exports is not subsumed under GST. It continues to be levied separately.

Q12. The highest GST slab rate is:
a) 18%
b) 20%
c) 28%
d) 30%

Answer: c) 28%
Explanation: GST has slabs of 0%, 0.25%, 3%, 5%, 12%, 18%, and 28%.

Q13. Under GST Composition Scheme, the maximum turnover limit is:
a) ₹1 crore
b) ₹1.5 crore
c) ₹2 crore
d) ₹5 crore

Answer: b) ₹1.5 crore
Explanation: Composition scheme is available for taxpayers with turnover up to ₹1.5 crore (₹75 lakh for special category states).

Q14. Which of the following is NOT a condition for claiming Input Tax Credit (ITC)?
a) Possession of tax invoice
b) Receipt of goods/services
c) Payment within 180 days
d) Filing of GSTR-3B

Answer: c) Payment within 180 days
Explanation: Payment to supplier within 180 days is not a condition for ITC (though delayed payment may require reversal with interest).

Q15. IGST on inter-state supplies is governed by:
a) Article 246A
b) Article 268
c) Article 269A
d) Article 279A

Answer: c) Article 269A
Explanation: Article 269A provides for levy and collection of GST on inter-state supplies (IGST).

Set 4: Tax Authorities

Q16. CBDT is constituted under which Act?
a) Income Tax Act, 1961
b) Central Board of Revenue Act, 1963
c) Finance Act, 2017
d) GST Act, 2017

Answer: b) Central Board of Revenue Act, 1963
Explanation: CBDT and CBIC are constituted under Central Board of Revenue Act, 1963.

Q17. Chairman of GST Council is:
a) Prime Minister
b) Finance Minister of India
c) RBI Governor
d) Finance Secretary

Answer: b) Finance Minister of India
Explanation: Union Finance Minister is the Chairperson of GST Council.

Q18. GSTN is a:
a) Government Department
b) Statutory Body
c) Private Limited Company
d) Public Sector Undertaking

Answer: c) Private Limited Company
Explanation: GSTN is a non-government, private limited company (Section 8) with shared ownership.

Set 5: Concepts & Terms

Q19. Which of the following is not shared with states?
a) Income Tax
b) Corporation Tax
c) Customs Duty
d) Health and Education Cess

Answer: d) Health and Education Cess
Explanation: Cess and surcharge are not part of divisible pool under Article 270.

Q20. Doctrine of Destination under GST means:
a) Tax in state of production
b) Tax in state of consumption
c) Tax at origin
d) Tax at manufacturing point

Answer: b) Tax in state of consumption
Explanation: GST is destination-based tax, meaning revenue goes to consumption state.

Q21. Tax evasion vs Tax avoidance:
a) Both are legal
b) Both are illegal
c) Evasion illegal, avoidance legal
d) Evasion legal, avoidance illegal

Answer: c) Evasion illegal, avoidance legal
Explanation: Tax evasion is illegal non-payment; tax avoidance is legal minimization using provisions.

Q22. Equalisation Levy is often called:
a) Corporate Tax
b) Google Tax
c) Digital Tax
d) Both b and c

Answer: d) Both b and c
Explanation: Equalisation levy is commonly known as Google Tax or Digital Tax on digital economy players.

PART 16: QUICK REVISION TABLES

16.1 Taxation Articles at a Glance

Article	Subject
265	No tax without law
266	Consolidated Fund
269A	IGST
270	Divisible pool
271	Surcharge (not shareable)
279A	GST Council
280	Finance Commission

16.2 Tax Rates Comparison

Tax Type	Rate
Income Tax (highest slab)	30%
Corporate Tax (domestic)	25-30%
GST (standard)	18%
GST (luxury)	28%
Customs (average)	10-15%
STT (equity delivery)	0.1%
Professional Tax (max)	₹2,500

16.3 GST Slabs with Examples

Slab	Examples
0%	Food grains, milk, eggs, salt, health/education services
5%	Sugar, tea, coffee, spices, railway tickets
12%	Computers, mobile phones, butter, ghee
18%	AC, fridge, hotel rooms, telecom
28%	Luxury cars, tobacco, cement, aerated drinks

16.4 Direct Tax Deductions (Old Regime)

Section	Purpose	Limit
80C	Investments (PPF, ELSS, LIC)	₹1.5 lakh
80D	Health insurance	₹25,000/₹50,000
24(b)	Home loan interest	₹2 lakh
80E	Education loan interest	No limit
80G	Donations	50%/100% of amount

16.5 Important Tax Years

Year	Event
1860	First Income Tax introduced
1961	Income Tax Act
1985	Estate Duty abolished
1991	Tax reforms begin
2015	Wealth Tax abolished
2017	GST introduced
2020	DDT abolished

16.6 Cess and Surcharge Rates

Levy	Rate	Applicable on
Health & Education Cess	4%	Income tax + surcharge
Surcharge (≥₹50 lakh)	10%	Income tax
Surcharge (≥₹1 crore)	15%	Income tax
Surcharge (≥₹2 crore)	25%	Income tax
Surcharge (≥₹5 crore)	37%	Income tax (old regime)

PART 17: GLOSSARY OF TAX TERMS

Assessment Year (AY): Year in which income of previous year is taxed (e.g., AY 2024-25)
Advance Tax: Tax paid in installments during the year
Agricultural Income: Income from agricultural land (exempt under Section 10(1))
Arm’s Length Price: Price in uncontrolled conditions (transfer pricing)
Associated Enterprise: Related parties with control/management

Base Erosion: Reduction in tax base through artificial shifting of profits
Basic Customs Duty (BCD): Basic levy on imported goods
BEPS: Base Erosion and Profit Shifting (OECD project)

Capital Gains: Profit from sale of capital assets
CBDT: Central Board of Direct Taxes
CBIC: Central Board of Indirect Taxes and Customs
Cess: Tax for specific purpose (not shareable)
CGST: Central GST
CII: Cost Inflation Index (for indexation benefit)
Consolidated Fund: All government revenues (Article 266)
Corporate Tax: Tax on company profits
Customs Duty: Tax on imports/exports

Deduction: Reduction from taxable income
Direct Tax: Tax paid directly to government (cannot be shifted)
Divisible Pool: Taxes shared between Centre and States
DTAA: Double Taxation Avoidance Agreement

E-way Bill: Document for movement of goods
Equalisation Levy: Digital tax (Google Tax)
Estate Duty: Tax on inheritance (abolished)
Excise Duty: Tax on manufacture
Exemption: Income not taxable

Finance Commission: Constitutional body for tax distribution (Article 280)
Fiscal Deficit: Excess of expenditure over revenue
FY: Financial Year (April-March)

GAAR: General Anti-Avoidance Rules
Gift Tax: Tax on gifts (merged with Income Tax)
GST: Goods and Services Tax
GST Council: Joint forum of Centre and States (Article 279A)
GSTN: GST Network (IT backbone)

HUF: Hindu Undivided Family (separate taxable entity)
HSN Code: Harmonized System of Nomenclature (goods)

IGST: Integrated GST (inter-state)
Impact: Point of levy
Incidence: Point of burden
Income Tax: Tax on individual income
Indexation: Adjusting cost for inflation
Indirect Tax: Tax shifted to others
ITAT: Income Tax Appellate Tribunal
ITC: Input Tax Credit (GST)

MAT: Minimum Alternate Tax (companies)
MLI: Multilateral Instrument (tax treaties)

PAN: Permanent Account Number
PE: Permanent Establishment (international tax)
Previous Year: Year of earning income
Professional Tax: State tax on professions (max ₹2,500)
Progressive Tax: Higher rate for higher income
Public Account: Other funds (PPF, deposits)

RCM: Reverse Charge Mechanism (recipient pays tax)
Rebate: Reduction from tax payable
Regressive Tax: Higher burden on lower income
Resident: Taxed on global income

SAC: Service Accounting Code (services)
SEP: Significant Economic Presence
SGST: State GST
STT: Securities Transaction Tax
Surcharge: Additional tax (not shareable)

TAN: Tax Deduction Account Number
Tax Avoidance: Legal minimization
Tax Evasion: Illegal non-payment
Tax Planning: Legitimate arrangement
TDS: Tax Deducted at Source
Transfer Pricing: Related party transactions

UTGST: Union Territory GST

VAT: Value Added Tax (pre-GST)

Wealth Tax: Tax on wealth (abolished 2015)

QUICK FACTS FOR EXAMS

🔹 Oldest Tax: Land revenue (since ancient times)
🔹 Largest Revenue Source: Income Tax (~30%)
🔹 Highest GST Slab: 28% (luxury goods)
🔹 Tax-GDP Ratio Target: 11.8% (2024-25)
🔹 Professional Tax Limit: ₹2,500 per annum
🔹 MAT Rate: 15% of book profits
🔹 STT on Equity: 0.1%
🔹 No Tax Limit: ₹7 lakh (new regime with rebate)
🔹 GST Council Votes: Centre (1/3), States (2/3)
🔹 Finance Commission Term: 5 years

ABBREVIATIONS USED

AY – Assessment Year
BCD – Basic Customs Duty
BEPS – Base Erosion and Profit Shifting
CBDT – Central Board of Direct Taxes
CBIC – Central Board of Indirect Taxes and Customs
CGST – Central Goods and Services Tax
CII – Cost Inflation Index
DTAA – Double Taxation Avoidance Agreement
FC – Finance Commission
FY – Financial Year
GAAR – General Anti-Avoidance Rules
GST – Goods and Services Tax
GSTN – GST Network
IGST – Integrated Goods and Services Tax
IT – Income Tax
ITC – Input Tax Credit
MAT – Minimum Alternate Tax
PAN – Permanent Account Number
PY – Previous Year
RCM – Reverse Charge Mechanism
SGST – State Goods and Services Tax
STT – Securities Transaction Tax
TDS – Tax Deducted at Source
UTGST – Union Territory Goods and Services Tax

© Complete Guide to Taxation in India for Competitive Examinations
For UPSC, State PSC, SSC, Banking, and All Competitive Exams

Disclaimer: This guide is for educational purposes. Tax rates and provisions are based on latest available information (FY 2024-25). Readers are advised to verify current rates and provisions from official sources.