TAXATION Chapter 1

INTRODUCTION TO
LAW OF TAXATION
Dr. M.A. SALEEM AHMED
Prepared & Presented by -

M.A.SALEEM AHMED., M.A.,M.L., PGDLAL
ASSISTANT PROFESSOR (LAW)
BHARATH INSTITUTE OF LAW
BHARATH INSTITUTE OF HIGHER EDUCATION AND RESEARCH
CONTENTS
• Public Finance
• Public Revenue
• Taxation
• Objectives of taxation
• Canons of taxation
• Classification of taxation
• Individual Income tax rates in India
• Exemptions and Deductions from tax
• Conclusion
• References
▪ What is Public Finance?
According to Dalton,’ Public finance is the branch of
knowledge which is concerned with the income and
expenditure of public authorities and with the adjustment of
one to another.’ It deals with the study of revenue and
expenditure of the government at the centre, state and local
bodies.
The public authorities have to perform various functions such

as maintenance of law an order, provision of defence,
production for bringing in economic development. The
performance of these functions require large amount of funds
which is raised through taxes, fees, fines, commercial
revenues and loans.
▪ Public Revenue
This is one of the branches of public finance. It
deals with the various sources from which the state
might derive its income. These sources include
incomes from taxes, commercial revenues in the
form of prices of goods and services supplied by
public enterprises, administrative revenues in the
form of fees, fines etc and gifts and grants.
Difference between Public revenue and
Public receipts
Public revenue includes that income which is not

subject to repayment by the government. Public
receipts include all the income of the government
including public borrowing and issue of new
currency. In this way public revenue is a part of
public receipts.
Public Receipts = Public revenue + Public

borrowing + issue of new currency
▪Taxation
• The most important source of revenue of the
government is taxes.
• The act of levying taxes is called taxation.
• A tax is a compulsory charge or payment
imposed by government on individuals or
corporations.
• The persons who are taxed have to pay the
taxes irrespective of any corresponding return
from the goods or services by the government.
• The taxes may be imposed on the income and
wealth of persons or corporations and the rate of
taxes may vary.
▪ OBJECTIVES OF TAXES
• Raising Revenue
• Regulation of Consumption and
Production
• Encouraging Domestic Industries
• Stimulating Investment
• Reducing Income Inequalities
• Promoting Economic Growth
• Development of Backward Regions
• Ensuring Price Stability
▪ Canons of Taxation
A good tax system should adhere to certain

principles which become its characteristics. A
good tax system is therefore based on some
principles.
Adam Smith has formulated four important
principles of taxation. A few more have been
suggested by various other economists. These
principles which a good tax system should follow
are called canons of taxation.
Adam Smith’s four canons of
taxation
• Canon of Equality
• Canon of Certainty
• Canon of Convenience
• Canon of Economy
➢ Canon of Equality
This states that persons should be taxed according to their
ability to pay taxes. That is why this principle is also known as
the canon of ability. Equality does not mean equal amount of
tax, but equality in tax burden. Canon of equality implies a
progressive tax system.
➢ Canon of Certainty
According to this canon, the tax which each individual is
required to pay should be certain and not arbitrary. The time
of payment, the manner of payment and the amount to be
paid should be clear to every tax payer. The application of
this principle is beneficial both to the government as well as
to the tax payer.
➢ Canon of Convenience
According to this canon, the mode and timings of tax

payment should be convenient to the tax payer. It means that
the taxes should be imposed in such a manner and at the
time which is most convenient for the tax payer. For example,
government of India collects the income tax at the time when
they receive their salaries. So this principle is also known as
‘the pay as you earn method’.
➢ Canon of Economy
Every tax has a cost of collection. The canon of economy
implies that the cost of tax collection should be minimum.
Types of Taxes
Taxes can be classified into various types on the

basis of form, nature, aim and method of
taxation. the most common and traditional
classification is to classify into direct and
indirect taxes.
• Direct Tax
• Indirect tax
➢ Direct taxes
A direct tax is that tax whose burden is borne by the same
person on whom it is levied. The ultimate burden of
taxation falls on the person on whom the tax is levied. It is
based on the income and property of a person. Thus
income tax, corporation tax on company’s profits, property
tax, capital gains tax, wealth tax etc are examples of direct
taxes.
➢ Indirect taxes
An indirect tax is that tax which is initially paid by one
individual, but the burden of which is passed over to some
other individual who ultimately bears it. It is levied on the
expenditure of a person. Excise duty, sales tax, custom
duties etc are examples of indirect taxes.
Classification of Taxation
On the basis of degree of progression of tax, it

may be classified into:
• Proportional taxation
• Progressive taxation
• Regressive taxation
• Degressive taxation
➢ Proportional tax
A tax is called proportional when the rate of taxation remains
constant as the income of the tax payer increases. In this
system all incomes are taxed at a single uniform rate,
irrespective of whether tax payer’s income is high or low. The
tax liability increases in absolute terms, but the proportion of
income taxed remains the same.
➢ Progressive tax
When the rate of taxation increases as the tax payer’s
income increases, it is called a progressive tax. In this
system, the rate of tax goes on increasing with every
increase in income.
➢ Regressive taxation
A regressive tax is one in which the rate of taxation
decreases as the tax payer’s income increases. Lower
income is taxed at a higher rate, whereas higher
income is taxed at a lower rate. However absolute tax
liability may increase.
➢ Degressive taxation
A tax is called degressive when the rate of progression in
taxation does not increase in the same proportion as the
increase in income. In this case, the rate of tax increases
upto a certain limit, after that a uniform rate is charged. Thus
degressive tax is a combination of progressive and
proportional taxation. This type of taxation is often used in
case of income tax. This is the case of income tax in India as
well.
Thank you

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TAXATION Chapter 1

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INTRODUCTION TO

Prepared & Presented by -

The public authorities have to perform various functions such

Public revenue includes that income which is not

Public Receipts = Public revenue + Public

A good tax system should adhere to certain

According to this canon, the mode and timings of tax

Taxes can be classified into various types on the

On the basis of degree of progression of tax, it

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