Students who aspire to become legal professionals must have an acute understanding of Tax laws and know properly about the different taxes prevalent in India. Knowledge about tax and tax laws will not only help during the course of preparation (keeping in mind the General Knowledge section) but will also help the aspirant when he or she starts working as a professional in the legal field.
India is a nation where taxes are levied by both the Central and the respective State governments. The consent of law is necessary for any government to levy a tax and then start collecting it from the residents of the State. While the Central government is instrumental in levying taxes on Income, Customs Duties, Sales and Excise, the State government’s responsibility lies in levying taxes such as Value Added Tax, Stamp Duty, State Excise and professions which are taxable under the State Government.
The bodies which are allowed to levy and collect taxes must be known about as law students require knowledge of their functioning in case they have to deal with these bodies at some point of their career. Apart from these, students ought to engage in the Acts under which taxes such as the Income Tax, Wealth Tax, Gift Tax etc are levied because disputes arising about these taxes cannot be handled unless the Acts are not well known by the legal professional handling the dispute.
A few important taxes must be known about by students, especially during the course of their preparation because the General Knowledge section might carry a question or two and not being able to answer them would be regrettable. Direct Taxes are the ones which are to be directly paid by the taxpayer.
– Income Tax is the most commonly paid of all taxes. Including income from sources such as business, job salaries, house rents etc, this is a tax which is levied by the Central Government and paid (at least some of it) by a majority of the population.– Capital Gains Tax has to be paid when an investment is sold and monetary profit gained from the sale. Anything ranging from a home to an artwork sale can be levied under Capital Gains Tax.– Corporate Income Taxes are the taxes which have to be paid by companies which are registered in India and have a worldwide source of income. Whether the corporation resides in India is not the question as the Indian connection itself is enough for the government to levy the Tax on any particular corporate company.– Fringe Benefit Tax requires an employer to pay tax to the government for any fringe benefit such as perks or allowances given to the employee. Starting from the season 2006-2007, Fringe Benefit tax attempts to extract slightly more Tax from the corporate honchos via taxing the benefits allowed by them to their employers.Charges levied on goods and services are referred to as Indirect Taxes because the taxpayer is not directly paying them, but paying them via a third party and hence the appropriate title.– Amongst Indirect Taxes, Value Added Tax (Or VAT as we are known to pay for our restaurant bills) is a consumption tax which is based on the value added to goods. Everything from production to distribution of goods and services is applicable to be levied under VAT, which is why we all have to (often reluctantly) pay it.– Tax levied on movable goods is known as Sales Tax. Sales Tax has mostly become obsolete since the introduction of VAT given the similarity shared between the two. Most states have used VAT to replace Sales Tax.– Excise Tax has to be paid when any new product is being manufactured in India. Giving shape and name to anything new will result in Excise Tax being levied on the product and has to be paid by the manufacturer.– Customs Duty Tax is levied on goods which are imported from outside India. The tax rate is fixed by the Customs Department and has to be paid accordingly. Customs Tax helps in the prevention of illegal imports and more importantly ensures that imports are a minimum so that the economic interests of the country are self dependent and safe.
Knowing about the above mentioned taxes and a few more won’t hurt a CLAT aspirant as he or she will have an edge over other students when any tax related question crops up in the General Knowledge section of the CLAT question paper. So tax your brains a bit about Tax laws. Might prove to be fruitful after all.