Income Tax Structure of Individual Assessee in India - A Critical Study

AbstractIn present paper an effort has been made to analyze the present tax structure in India. In this paper issues relating to high tax burden on lower and medium income groups and low tax burden on high income group are taken. Several problems like high compliance costs, tax evasion and so on arise due to poorly designed tax structure. Taxpayer's attitude play a vital role in tax policy-making of any country.Researcher concludes that there is still a need to have more reforms in income tax structure whatever in the form of broadening of exemption limits, reducing the tax rates, reorganization of prevailing tax slab rates or to make income tax structure so simple that all people could understand it and can follow the tax laws willing fully.Keywords: Tax Structure, Tax Slabs, Exemptions, Broadening, Reorganizing.IntroductionAccording to Income Tax Act, 1961, every person whether individual, company, partnership firms, AOP, BOI, AJP or HUF whose total income exceeds the minimum exemption limit is liable to pay tax at the prescribed under I.T. Act. Govt, needs finance mainly for these functions i.e. welfare of people, safeguard of country from foreign powers and for the development of country. This requires mobilization of funds. This mobilization of funds is done only through levy of tax on general people. Every tax payer wants to pay less tax or not to pay tax. There is always a conflict between the tax payer and the tax collector. This is due to irrational tax structure. There is always a need for rational tax structure but very little reforms have been done so far.Income tax was introduced in 1860, abolished in 1873 and reintroduced ini 886. Income tax levels in India were very high during 1950-1980, in 1970-71 there were 11 tax slabs with highest tax rate being 93.5% including surcharge. In 1973-74 highest rate was 97.75%. But to reduce tax evasion tax rates were reduced later on, by 1992-93 maximum tax rates were reduced to 40%.The findings reveal that in India, the taxpayers have shown more concern for the tax base broadening measures like effective linkage between social welfare and the utilization of tax revenue, Voluntary Disclosure of Income Scheme (VDIS) and so on. Further, the complexity of tax procedure has emerged as an important issue. Technology has also been identified as a major factor as it can provide e-filing facility. These results reflect the support of taxpayers for a simple and transparent tax structure.Review of LiteratureIt is generally believed 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 communities8. The rapid changes in administration of direct taxes, during the last decades, reflect the history of socio-economic thinking in India4. India has a tax charter with three-tier federal structure (Union, state governments and local bodies)3. Governments use different kinds of taxes and vary tax rates because taxes are one of the significant sources of revenue.Quite apart from its role of raising revenue, the personal income tax has long been regarded as a potent weapon of effecting distributive justice. Secondly, it is an instrument of equity, social justice and income distribution. Another common and most empirically used way to understand its role is the ratio of income tax to total tax revenue and national income2. A good tax system is characterized by a high responsiveness of tax revenue to changes in income of public bodies or national income; the technique of measuring this response is tax elasticity and tax buoyancy. Tax policy forms an important part of development process in a developing economy. The total tax revenue is dependent upon three variables viz., tax rate, tax base and national income.Tax reforms sometime bring changes in taxation system. A tax payer sometime finds it difficult to understand whether change in tax liability is due to change in the tax code or shift in his/her own circumstance. …