Taxation

Subject: Economy | Unit: Fiscal Policy | Topic: Taxation Exam: AP Group 2 (APPSC)

Introduction

Taxation is the primary source of government revenue, funding public services, infrastructure, and welfare schemes. India's tax system comprises direct taxes (income tax, corporate tax) administered by CBDT and indirect taxes (GST, customs) administered by CBIC, both under the Ministry of Finance. The implementation of GST on 1 July 2017 as "One Nation, One Tax" was the most significant indirect tax reform since independence. GST 2.0 reforms in September 2025 further simplified the rate structure. India's tax-to-GDP ratio remains approximately 11.7% — significantly lower than the OECD average of ~34%.

Economic Context

Article 265 of the Constitution states that no tax shall be levied or collected except by authority of law. The 101st Constitutional Amendment Act (2016) introduced Article 246A, empowering both Centre and States to levy GST. The GST Council under Article 279A, chaired by the Union Finance Minister with all State FMs as members, decides on rates and exemptions by 3/4th majority (Centre 1/3rd weightage, States 2/3rd). Budget 2025-26 raised the income tax rebate threshold to Rs 12 lakh under the new regime and revised tax slabs significantly.

Core Content

Tax Classification

Basis	Type	Characteristics	Examples
Incidence	Direct Tax	Paid directly by person; burden cannot be shifted	Income tax, Corporate tax
	Indirect Tax	Collected by intermediary; burden shifted to consumer	GST, Customs duty
Progressivity	Progressive	Rate increases with income	Income tax
	Regressive	Rate effectively decreases with income	Indirect taxes
	Proportional	Same rate regardless of income	Flat tax

Direct Taxes

Tax	Detail
Income Tax	Levied on individuals, HUFs, firms under Income Tax Act 1961
Corporate Tax	Domestic: 22% (without exemptions); New manufacturing: 15% + surcharge + cess = 25.17%
STT	Securities Transaction Tax on buying/selling on recognized exchanges
Capital Gains Tax	Short-term (<12/24 months) and Long-term (>12/24 months); different rates
Wealth Tax	Abolished from AY 2016-17
Administrator	CBDT (Central Board of Direct Taxes) under Ministry of Finance

Income Tax Slabs — FY 2025-26 (New Regime — Default)

Income Slab	Tax Rate
Up to Rs 4 lakh	NIL
Rs 4-8 lakh	5%
Rs 8-12 lakh	10%
Rs 12-16 lakh	15%
Rs 16-20 lakh	20%
Rs 20-24 lakh	25%
Above Rs 24 lakh	30%

Rebate u/s 87A: Income up to Rs 12 lakh — zero tax (rebate of Rs 60,000)
Standard deduction: Rs 75,000 for salaried individuals under new regime
New tax regime under Section 115BAC is the default; old regime is optional

Goods and Services Tax (GST)

Feature	Detail
Implementation date	1 July 2017
Constitutional basis	101st Amendment Act 2016; Article 246A
Replaces	Central Excise, Service Tax, VAT, CST, Entry Tax, Octroi, Purchase Tax, Luxury Tax, Entertainment Tax
GST Council (Art 279A)	Union FM (Chair) + State FMs; 3/4th majority; Centre 1/3rd, States 2/3rd weightage

Types of GST

Type	Applicability	Collected by
CGST	Intra-state supply	Centre
SGST	Intra-state supply	State
IGST	Inter-state supply	Centre (shared with destination state)
UTGST	UTs without legislature	Centre

GST 2.0 Reforms (September 2025)

Feature	Before	After
Rate structure	0%, 5%, 12%, 18%, 28% + Cess	Primarily 5%, 18%, 40%
Luxury/sin goods	28% + Compensation Cess	40% rate
Daily essentials	Mixed rates	Reclassified to 5% or nil
Compensation Cess	Ongoing	Continues on select items

GST Compliance

Requirement	Threshold/Detail
Registration	Turnover >Rs 40 lakh (goods) or >Rs 20 lakh (services)
Composition Scheme	Up to Rs 1.5 crore turnover; flat rate; simplified compliance
GSTR-1	Outward supply return
GSTR-3B	Summary return
E-invoicing	Mandatory for turnover above Rs 5 crore
Input Tax Credit (ITC)	Claim credit for GST paid on inputs against GST on output

Customs Duty

Type	Purpose
Basic Customs Duty	On imported/exported goods under Customs Act 1962
Additional Customs Duty (CVD)	Countervailing duty
AIDC	Agriculture Infrastructure and Development Cess (Budget 2021-22)
Anti-dumping duty	When foreign goods sold below normal value, injuring domestic industry

Cess vs Surcharge

Feature	Cess	Surcharge
Purpose	Specific purpose (Health & Education Cess 4%)	Additional charge on high income
Sharing	NOT shared with states	Shared with states via Finance Commission
Usage	Must be used for specified purpose	General revenue

Tax Administration

Body	Jurisdiction
CBDT	Direct taxes (income tax, corporate tax)
CBIC	Indirect taxes (GST, customs, central excise)
Both under	Department of Revenue, Ministry of Finance

India's tax-to-GDP ratio: approximately 11.7% (2024-25) — lower than OECD average of ~34%.

AP Connection

AP collects State GST (SGST): Rs 45,078 crore projected in 2026-27 budget (15% increase)
State Excise: Rs 30,067 crore — second largest own-tax revenue source
AP's own tax revenue projected at Rs 1,25,846 crore (2026-27) — 28% increase
AP receives share of central taxes through 15th Finance Commission devolution
GST has unified the market across states, benefiting AP's manufacturing and trade
AP's fiscal deficit improvement (4.4% to 3.8%) partly driven by better tax collection
Mining non-tax revenue: Rs 5,196 crore (2026-27) — significant for AP

Key Points Summary

Article 265: no tax without authority of law
Direct taxes: burden cannot be shifted (income tax, corporate tax); Indirect taxes: burden shifts to consumer (GST)
Progressive tax: rate increases with income; income tax is progressive
Income Tax Act 1961 governs income tax; new regime (Section 115BAC) is default
Income up to Rs 12 lakh: zero tax with rebate u/s 87A under new regime
Standard deduction: Rs 75,000 for salaried under new regime
Corporate tax: 22% (without exemptions); new manufacturing 15% (+surcharge+cess)
Wealth tax abolished from AY 2016-17
GST implemented 1 July 2017; 101st Amendment; Article 246A
GST Council (Article 279A): Union FM (Chair) + State FMs; 3/4th majority
Centre has 1/3rd weightage, States have 2/3rd in GST Council voting
CGST + SGST for intra-state; IGST for inter-state supply
GST 2.0 (September 2025) simplified to primarily 5%, 18%, 40%
ITC: businesses claim credit for GST paid on inputs
E-invoicing mandatory for turnover above Rs 5 crore
Cess is NOT shared with states; Surcharge IS shared via Finance Commission
CBDT administers direct taxes; CBIC administers indirect taxes
India's tax-to-GDP ratio: ~11.7% (vs OECD ~34%)

Exam Strategy

Question Pattern	Frequency	Focus Area
Direct vs Indirect tax classification	Very High	Definition, examples, burden shifting
GST types (CGST, SGST, IGST)	Very High	Which applies when; inter-state vs intra-state
GST Council composition	Very High	Article 279A, majority, voting weightage
Income tax slabs (new regime)	High	Current rates and rebate threshold
Cess vs Surcharge	High	Sharing with states, purpose
What GST replaced	Medium	List of taxes subsumed
Article 265	Medium	No tax without law
CBDT vs CBIC	Medium	Which administers what

Key Terms Glossary

Term	Meaning	Telugu
Direct Tax	Tax paid directly, burden not shifted	ప్రత్యక్ష పన్ను
Indirect Tax	Tax collected by intermediary, burden on consumer	పరోక్ష పన్ను
GST	Goods and Services Tax — unified indirect tax	వస్తు సేవల పన్ను
CGST	Central GST on intra-state supply	కేంద్ర GST
SGST	State GST on intra-state supply	రాష్ట్ర GST
IGST	Integrated GST on inter-state supply	సమగ్ర GST
GST Council	Body that decides GST rates and rules	GST మండలి
Income Tax	Tax on individual/firm income	ఆదాయ పన్ను
Corporate Tax	Tax on company profits	కార్పొరేట్ పన్ను
Cess	Additional tax for specific purpose, not shared with states	సెస్
Surcharge	Extra tax on high income, shared via Finance Commission	అదనపు పన్ను
ITC	Input Tax Credit — offset GST on inputs	ఇన్‌పుట్ టాక్స్ క్రెడిట్
Progressive Tax	Rate increases with income	ప్రగతిశీల పన్ను
CBDT	Central Board of Direct Taxes	ప్రత్యక్ష పన్నుల కేంద్ర బోర్డు
Tax-to-GDP Ratio	Tax revenue as percentage of GDP	పన్ను-GDP నిష్పత్తి