Powers of Taxation under the Constitution of India

 

 

F Introduction

Taxation is an essential function of the State and a primary source of public revenue. In India, the power to levy and collect taxes is derived from the Constitution of India, which lays down clear rules to ensure legality, fairness and balance in the taxation system. The Constitution distributes taxing powers between the Union, the States and local bodies, while also placing constitutional limitations through Fundamental Rights to prevent misuse of power. An understanding of the powers of taxation under the Constitution is therefore necessary to appreciate how revenue is raised and regulated within India’s federal structure.

 

F Powers of Taxation under the Constitution

The power to levy and collect taxes in India is derived from the Constitution of India. This power is mainly governed by Articles 245 to 255 and Article 265. Article 265 clearly states that “no tax shall be levied or collected except by authority of law.” This means that the Government cannot impose or collect any tax unless it is supported by a valid law passed by the legislature. This provision protects citizens from arbitrary and unlawful taxation.

The Seventh Schedule of the Constitution distributes taxing powers between the Union Government and the State Governments. It contains three lists:

Ø  Union List (List I) -Taxes that can be levied only by the Union Government

Ø  State List (List II) -Taxes that can be levied only by the State Governments

Ø  Concurrent List (List III) -Subjects on which both the Union and the States can make laws

To avoid confusion and conflict, taxes are specifically mentioned only in the Union List and the State List. The Concurrent List does not generally contain taxing powers. This clear division ensures a balanced federal structure and smooth functioning of the taxation system in India.

 

F Fundamental Rights and Powers of Taxation

Although the power to levy and collect taxes is a sovereign power of the State, it is not absolute. This power is subject to the Fundamental Rights guaranteed under the Constitution of India, which ensure that taxation laws are fair, reasonable and not arbitrary.

Ø  Article 14 -Right to Equality

Article 14 guarantees equality before the law. Tax laws must not be arbitrary or discriminatory. Persons who are similarly placed must be treated equally for taxation purposes. However, reasonable classification is permitted if it is based on an intelligible difference and has a rational relation to the object of the law.

Ø  Article 19(1)(g) -Freedom of Trade, Business and Profession

This Article guarantees the freedom to practise any profession or carry on any trade or business. Taxation should not impose unreasonable restrictions on this freedom. Excessive or oppressive taxes that seriously affect business activities may be challenged as unconstitutional.

Ø  Article 265 -Authority of Law

Article 265 provides that “no tax shall be levied or collected except by authority of law.” This ensures that taxation must have a legal basis and cannot be imposed by executive action alone. It protects citizens from illegal or unauthorised taxation.

Ø  Article 300A -Right to Property

Article 300A states that no person shall be deprived of his property except by authority of law. Since tax involves compulsory payment of money, it affects property rights. Therefore, taxes can be imposed only under a valid law.

Thus, while the State has wide powers of taxation, such powers must comply with Fundamental Rights and constitutional principles. Tax laws must be reasonable, non-discriminatory and legally valid.

                                                                                                                                                      

F Scope of Taxing Power of the Union

The Union Government has exclusive authority to levy and collect taxes that are specified in the Union List (List I) of the Seventh Schedule of the Constitution of India. These taxes are imposed at the national level to meet the financial needs of the country.

  1. Income Tax (except agricultural income)
  2. Customs Duty
  3. Corporation Tax

4.       Excise duties (limited after GST)

  1. Taxes on inter-State trade (IGST)

The taxes mentioned in the Union List, the Union Parliament enjoys residuary powers of taxation under Article 248 of the Constitution. This means that the Union can impose taxes on matters that are not included in either the Union List or the State List. This residuary power gives the Union a wide and flexible scope in taxation, especially to deal with new and emerging forms of economic activity.

This, the Constitution grants the Union broad taxing powers to ensure uniformity, financial stability and effective governance across the country.

F Delegation of Taxing Powers to State Legislatures

The State Legislatures are empowered under the Constitution of India to levy and collect taxes that are specified in the State List (List II) of the Seventh Schedule. These taxing powers are meant to enable States to meet their own financial requirements and carry out functions within their jurisdiction.

  1. Tax on agricultural income
  2. Stamp duty
  3. Taxes on land and buildings
  4. State excise (on alcohol)

States can levy and collect these taxes only within their territorial limits and subject to constitutional provisions. They cannot impose taxes reserved for the Union.

This clear division of taxing powers helps maintain the federal structure of the Constitution and avoids conflict between the Union and the States.

 

F Delegation of Taxing Powers to Local Bodies

The Constitution of India permits the delegation of limited taxing powers to local bodies such as Panchayats and Municipalities in order to strengthen local self-governance. This delegation is made through:

Local bodies can levy taxes such as:

  1. Property tax

2.       Water tax

  1. Profession tax (subject to limits)

These taxing powers are not original powers of the local bodies. They are delegated by the State Legislatures, which means local bodies can levy taxes only to the extent permitted by the State laws. This system ensures efficient local administration while maintaining constitutional control and financial discipline.

 

F Conclusion

The Constitution of India provides a well-defined and balanced framework for the levy and collection of taxes. The power of taxation flows from constitutional provisions, particularly Article 265, which ensures that no tax can be imposed or collected without the authority of law. Through the Seventh Schedule, taxing powers are clearly distributed between the Union and the States, thereby maintaining the federal structure and avoiding conflicts.

While the Union enjoys wide taxing powers, including residuary powers under Article 248, the States are empowered to levy taxes within their jurisdiction under the State List. Further, limited taxing powers are delegated to local bodies through constitutional amendments to promote local self-governance. At the same time, the power of taxation is subject to Fundamental Rights, ensuring that tax laws are fair, reasonable and non-discriminatory. Thus, the constitutional scheme of taxation aims to achieve legality, equity and efficient governance in India.