Indian Taxation and GST — Direct/Indirect Tax, GST Structure, Income Tax, Reforms
Complete guide to Indian taxation for PSC exams: direct vs indirect taxes, GST (CGST/SGST/IGST), income tax slabs, and history of tax reforms.
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Taxation questions appear in most PSC exams (2-4 questions). Focus on GST structure, the difference between direct and indirect taxes, constitutional provisions, and key tax reform milestones.
Direct vs Indirect Taxes
| Feature | Direct Tax | Indirect Tax |
|---|---|---|
| Definition | Paid directly to government by the person on whom it is levied | Paid to government by one person but burden shifted to another |
| Incidence and impact | On the same person | On different persons |
| Examples | Income Tax, Corporate Tax, Wealth Tax (abolished), Capital Gains Tax | GST, Customs Duty, (erstwhile: Excise Duty, Service Tax, VAT) |
| Progressive/Regressive | Generally progressive (higher income = higher rate) | Generally regressive (same rate regardless of income) |
| Administered by | CBDT (Central Board of Direct Taxes) | CBIC (Central Board of Indirect Taxes and Customs) |
| Evasion | Relatively easier | Harder (collected at point of sale) |
Constitutional Provisions on Taxation
| Article | Provision |
|---|---|
| Article 265 | No tax shall be levied or collected except by authority of law |
| Article 246 | Distribution of legislative powers (Union List, State List, Concurrent List) |
| Article 268 | Duties levied by Union but collected and appropriated by States |
| Article 269 | Taxes levied and collected by Union but assigned to States |
| Article 270 | Taxes levied and distributed between Union and States |
| Article 279A | GST Council (inserted by 101st Amendment) |
| 7th Schedule | Lists specifying which government can levy which tax |
Article 265 is the most asked: “No tax shall be levied or collected except by authority of law.” This means every tax MUST have a legal backing — no arbitrary taxation.
Goods and Services Tax (GST)
Basic Facts
| Feature | Detail |
|---|---|
| Launched | 1 July 2017 |
| Constitutional Amendment | 101st Amendment Act, 2016 |
| Replaced | Central Excise, Service Tax, VAT, CST, Entertainment Tax, Luxury Tax, Octroi, and several other indirect taxes |
| Motto | ”One Nation, One Tax” |
| Type | Destination-based consumption tax |
| First country with GST | France (1954) |
| GST Council | Article 279A; chaired by Union Finance Minister |
| GST Network (GSTN) | IT backbone; manages portal (www.gst.gov.in) |
Structure of GST
| Type | Full Form | Levied On | Collected By |
|---|---|---|---|
| CGST | Central GST | Intra-state supply | Central Government |
| SGST | State GST | Intra-state supply | State Government |
| IGST | Integrated GST | Inter-state supply + imports | Central Government (then shared) |
| UTGST | Union Territory GST | Intra-UT supply (UTs without legislature) | Central Government |
How GST Works — Example
Intra-state sale (within Kerala):
- Item price: Rs 1,000; GST rate: 18%
- CGST = 9% = Rs 90 (goes to Centre)
- SGST = 9% = Rs 90 (goes to Kerala)
- Total price: Rs 1,180
Inter-state sale (Kerala to Tamil Nadu):
- Item price: Rs 1,000; GST rate: 18%
- IGST = 18% = Rs 180 (collected by Centre, shared with consuming state)
- Total price: Rs 1,180
GST Tax Slabs
| Rate | Items (Examples) |
|---|---|
| 0% (Exempt) | Fresh fruits, vegetables, milk, eggs, bread, salt, books, newspapers, educational services, healthcare |
| 5% | Sugar, tea, coffee, edible oils, packaged food, economy air travel, transport services |
| 12% | Butter, ghee, fruit juice, mobile phones, processed food, business class air travel |
| 18% | Most goods and services fall here — soap, toothpaste, capital goods, IT services, financial services, restaurant services (AC) |
| 28% | Luxury items — cars, cement, pan masala, aerated drinks, white goods; + Compensation Cess on some items |
GST Council
| Feature | Detail |
|---|---|
| Constitutional basis | Article 279A |
| Chairperson | Union Finance Minister |
| Members | Union Minister of State for Finance + Finance Ministers of all States/UTs |
| Voting | Centre has 1/3 weightage; States have 2/3 weightage collectively |
| Quorum | 1/2 of total members |
| Decision | 3/4 majority of weighted votes |
| Recommendations | On GST rates, exemptions, model laws, threshold limits |
PSC Key Fact: GST Council decisions are recommendations, not binding (per Supreme Court ruling in Union of India v. Mohit Minerals, 2022). States retain legislative power. However, in practice, Council recommendations are followed uniformly.
Income Tax
Key Facts
| Feature | Detail |
|---|---|
| Legal basis | Income Tax Act, 1961 |
| Administered by | CBDT (Central Board of Direct Taxes) under Ministry of Finance |
| Financial Year | April 1 to March 31 |
| Assessment Year | Year following the Financial Year (income of FY 2025-26 assessed in AY 2026-27) |
| PAN | Permanent Account Number — 10-digit alphanumeric identifier |
| TDS | Tax Deducted at Source — tax collected at the point of income |
Income Tax Slabs — New Regime (FY 2025-26)
| Income Slab | Tax Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 - 8,00,000 | 5% |
| Rs 8,00,001 - 12,00,000 | 10% |
| Rs 12,00,001 - 16,00,000 | 15% |
| Rs 16,00,001 - 20,00,000 | 20% |
| Rs 20,00,001 - 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Rebate under Section 87A: Full tax rebate for income up to Rs 12,00,000 (new regime, effective FY 2025-26 per Union Budget 2025).
Note: PSC may still ask about the old regime. The old regime has basic exemption of Rs 2.5 lakh with 3 slabs (5%, 20%, 30%) and allows deductions under Chapter VI-A.
Types of Income (5 Heads)
| Head | Examples |
|---|---|
| Income from Salary | Basic pay, DA, HRA, allowances |
| Income from House Property | Rent received, deemed rent |
| Profits and Gains from Business/Profession | Business income, professional fees |
| Capital Gains | Sale of property, shares, mutual funds |
| Income from Other Sources | Interest, dividends, lottery winnings |
History of Tax Reforms in India
| Year | Reform |
|---|---|
| 1860 | Income Tax first introduced in India by James Wilson (to finance the revolt of 1857 expenses) |
| 1886 | Income Tax Act of 1886 — first comprehensive income tax law |
| 1961 | Current Income Tax Act enacted |
| 1991 | LPG reforms — tax rates reduced, compliance widened |
| 1994 | Service Tax introduced (initially on 3 services only) |
| 2002 | Kelkar Task Force on tax reforms |
| 2004 | VAT introduced by states (replacing Sales Tax) |
| 2003 | FRBM Act (Fiscal Responsibility and Budget Management) enacted — fiscal discipline |
| 2016 | 101st Constitutional Amendment for GST |
| 2017 | GST launched on 1 July |
| 2020 | New income tax regime introduced (optional) |
| 2023 | New regime made default; old regime optional |
| 2025 | Rebate limit raised to Rs 12 lakh (Budget 2025) |
Other Important Taxes and Duties
| Tax/Duty | Details |
|---|---|
| Corporate Tax | Tax on company profits; current rate: 22% (existing) or 15% (new manufacturing, Section 115BAB) |
| Customs Duty | Tax on imports/exports; levied under Customs Act, 1962 |
| Stamp Duty | On legal documents (property transfer, etc.); state-level |
| Securities Transaction Tax (STT) | On buying/selling securities on stock exchanges |
| Dividend Distribution Tax | Abolished from FY 2020-21 (dividends now taxable in hands of recipient) |
| Wealth Tax | Abolished from FY 2015-16 |
Fiscal Policy Key Terms
| Term | Meaning |
|---|---|
| Fiscal Deficit | Total expenditure minus total receipts (excluding borrowings) |
| Revenue Deficit | Revenue expenditure minus revenue receipts |
| Primary Deficit | Fiscal deficit minus interest payments |
| Budget | Annual financial statement (Article 112) |
| Finance Commission | Article 280; recommends distribution of taxes between Centre and States; currently 16th FC |
| FRBM Act (2003) | Targets fiscal deficit at 3% of GDP |
Most asked: GST launch date (1 July 2017), 101st Amendment, GST Council chair (FM), Article 265 (“no tax without law”), Income Tax first introduced (1860, James Wilson), 5 heads of income. These appear repeatedly across PSC papers.
Quick Mnemonics
Five heads of income: “SHoBuCaO” — Salary, House Property, Business/Profession, Capital Gains, Other Sources.
GST types: “CSIUS” — CGST, SGST, IGST, UTGST (plus Compensation Cess as the extra layer).
Taxes replaced by GST: “SELVES CO” — Service Tax, Excise, Luxury Tax, VAT, Entertainment Tax, Surcharge, CST, Octroi.
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