Scope of Tax Laws and Constitutional Provisions Related to Taxation in India
In a growing economy like India, taxes form the backbone of government revenue. From infrastructure to welfare programs, the entire functioning of the government depends on taxation. But what gives the government the authority to collect taxes? How are these laws created and regulated?
This article explains the scope of tax laws in India and the constitutional provisions that govern the power to tax. Whether you’re a taxpayer, student, or professional, this guide offers a simplified explanation rooted in the law.
What Are Tax Laws?
Tax laws are legal rules and procedures concerning how taxes are imposed, calculated, collected, and enforced. They define how much an individual or a business must pay and under what conditions.
In India, taxes are primarily of two types:
- Direct Taxes: Such as Income Tax and (formerly) Wealth Tax.
- Indirect Taxes: Such as GST, Customs Duty, and Excise Duty.
Scope of Tax Laws in India
The scope of taxation in India is broad and impacts individuals, businesses, and the economy at large.
1. Wide Applicability
Tax laws apply to multiple entities such as:
- Individuals
- Hindu Undivided Families (HUFs)
- Firms
- Companies
- Associations of Persons (AOPs)
- Local Authorities
- Artificial Juridical Persons
2. Federal Taxation System
India’s tax system follows a federal structure, meaning taxation powers are divided between:
- The Central Government
- State Governments
- Local Authorities (for certain taxes)
Each level has its own laws, rules, and enforcement powers.
3. Collection and Compliance Mechanism
Tax laws lay down procedures for:
- Filing returns
- Deducting taxes at source
- Paying taxes
- Compliance and audit
- Penalties for non-compliance
4. Subject to Change and Interpretation
Tax laws are dynamic. They evolve through:
- Finance Acts (presented in the Union Budget each year)
- Notifications and circulars issued by the Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes and Customs (CBIC)
- Judicial interpretations by courts
5. Dispute Resolution System
Tax laws also include provisions for:
- Assessment
- Appeals
- Tribunal hearings
- Court proceedings
These ensure that both the taxpayer and the government have fair channels for redressal.
Constitutional Provisions Relating to Taxation
The Constitution of India is the source of all legal powers to levy and collect taxes. Let’s explore the main articles relevant to taxation.
Article 265 – No Tax Without Authority of Law
This article states that no tax shall be levied or collected except by authority of law. It prevents arbitrary taxation and ensures that all taxes must be backed by legislation passed by Parliament or a State Legislature.
Article 246 – Distribution of Legislative Powers
This article classifies the division of powers through the Seventh Schedule:
- Union List (List I): Parliament can legislate on matters like Income Tax, Customs Duty, Corporate Tax, and GST on inter-state supplies.
- State List (List II): States can impose taxes like Land Revenue, Excise on alcohol, and Stamp Duty.
- Concurrent List (List III): Although taxation is not specifically mentioned here, certain procedural aspects like audits can fall under this list.
Article 248 – Residuary Powers of Legislation
This grants Parliament the power to make laws on matters not enumerated in any of the three lists, including new types of taxes.
Article 269 – Taxes Collected by Centre but Assigned to States
Taxes such as the Integrated GST (IGST) are collected by the Centre but distributed between the Centre and States based on a prescribed formula.
Article 270 – Distribution of Taxes Between Centre and States
This article ensures that revenue from certain central taxes is shared with the states based on the recommendations of the Finance Commission.
Article 279A – Establishment of the GST Council
This article created the GST Council, a constitutional body comprising the Union Finance Minister and Finance Ministers of all states. It makes recommendations on:
- Tax rates
- Tax exemptions
- Model GST laws
The Council ensures uniformity and cooperation between Centre and States in the administration of GST.
Why Constitutional Provisions Matter
These provisions:
- Empower legislative bodies to create tax laws
- Prevent unauthorized taxation
- Divide responsibilities fairly between Centre and States
- Enable dispute resolution through judiciary and Finance Commissions
This ensures a structured and legally valid taxation framework for both the government and the taxpayer.
Real-World Application
Suppose the Central Government wants to impose a new digital advertisement tax. It must:
- Check whether the power exists under the Union List
- If not, use Article 248 to introduce legislation under its residuary powers
- Pass a bill in Parliament and enact it into law
Only then can such a tax be legally collected.
Summary Table
| Concept | Explanation |
|---|---|
| Tax Law | Legal framework for levy, collection, and dispute resolution |
| Article 265 | No tax without legal authority |
| Article 246 | Division of powers between Centre and States |
| Article 248 | Power to legislate on new taxes |
| Article 269 | IGST and similar taxes collected by Centre, shared with States |
| Article 270 | Tax sharing mechanism between Centre and States |
| Article 279A | GST Council to manage indirect taxes |
Mnemonic :
Mnemonic to Remember Key Tax Articles: “TAX CODE”
- T – Article 265: Tax only by authority of law
- A – Article 246: Allocation of tax powers
- X – Article 248: Exclusive residuary powers to Parliament
- C – Article 269: Centre collects, States benefit
- O – Article 270: Overall tax sharing formula
- D – Article 279A: GST Council formation
- E – Easy structure through constitutional provisions
