Taxation is the primary means by which governments fund their expenditures,

and its design and implementation are important for both economic stability
and public satisfaction. The term canons of taxation refers to the
fundamental principles or characteristics that de ne a well-structured tax
system. These canons serve as guidelines to ensure that taxes are fair,
ef cient, and effective.
The concept of the canons of taxation dates back to the 18th century when
the renowned economist Adam Smith rst introduced them. Over time, these
principles have been expanded and re ned by other economists, but the core
ideas remain relevant even today.

The Fundamental Canons of Taxation by Adam Smith often referred to as

the father of modern economics, introduced the rst set of tax principles in his
seminal work, The Wealth of Nations, published in 1776. The fundamental
canons of taxation by Adam Smith are:

Canon of Equity - also known as the canon of equality, is based on the

principle of fairness. According to this canon, the tax burden should be
distributed among individuals according to their ability to pay. This means that
wealthier individuals, who have a higher capacity to pay, should contribute a
larger share of their income in taxes than those with lower incomes. The goal
is to achieve an equitable distribution of the tax burden, ensuring that the
sacri ce imposed by taxation is proportionate across different income levels.

Importance of the Canon of Equity

• It promotes social justice by ensuring that taxes do not

disproportionately burden the less af uent.
• It enhances the perceived fairness of the tax system, which can
increase compliance and reduce tax evasion.
• It helps in reducing income inequality by imposing a higher tax rate on
the wealthy, which can then be redistributed to fund public services that
bene t the broader population.

Canon of Certainty - emphasises that taxpayers should be certain about

their tax obligations. This includes knowing how much tax they need to pay,
when it is due, and how it should be paid. Tax laws should be clear and
unambiguous, leaving little room for interpretation or discretion. This certainty
is important not only for taxpayers but also for the government, which needs
to forecast its revenue accurately.
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 Importance of the Canon of Certainty

• It reduces the likelihood of disputes between taxpayers and tax

authorities, which can be costly and time-consuming.
• It enables taxpayers to plan their nances better, as they can predict
their tax liabilities with con dence.
• It helps the government in budgeting and nancial planning by providing
a predictable stream of revenue.

Canon of Convenience According to the canon of convenience, taxes

should be levied and collected in a manner that is most convenient for
taxpayers. This means aligning tax payment methods and schedules with the
taxpayers’ ability to pay. For example, income taxes are often deducted at
source from salaries, which is convenient for salaried employees as they do
not have to set aside funds separately for tax payments. Similarly, agricultural
taxes might be collected post-harvest when farmers have liquid assets.

Importance of the Canon of Convenience

• It minimises the compliance burden on taxpayers, making it easier for

them to ful ll their tax obligations.
• It reduces the administrative costs for the government, as convenient
payment methods often involve automated processes.
• It enhances compliance rates by simplifying the tax payment process,
leading to higher revenue collection.

Canon of Economy The canon of economy asserts that the cost of collecting
taxes should be kept as low as possible. The administrative expenses
associated with tax collection should not be so high that they consume a
signi cant portion of the tax revenue. An economical tax system is one where
the cost of administration is minimised, ensuring that the maximum possible
amount of tax revenue is available for public expenditure.

Importance of the Canon of Econom

• It ensures that the resources collected through taxation are used

ef ciently and not wasted on excessive administrative costs.
• It helps maintain public trust in the tax system, as taxpayers are more
likely to comply when they know their contributions are used effectively.
• It maximises the funds available for government projects and services,
thereby enhancing the overall welfare of society.
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 Additional Canons of Taxation introduced by later economists to
address the complexities of modern economies.

Canon of Productivity The canon of productivity states that a tax system

should be designed to generate a suf cient amount of revenue for the
government. Taxes should be productive in the sense that they contribute
signi cantly to the public treasury without discouraging economic activity. This
means selecting tax bases and rates that optimise revenue collection while
minimising negative impacts on production and investment.

Importance of the Canon of Productivity

• It ensures that the government has suf cient funds to provide essential
public goods and services such as education, healthcare, infrastructure,
and defense.
• It helps avoid placing taxes on activities that could be discouraged due
to the tax, thus maintaining the economy’s productive capacity. For
example, overtaxing corporate pro ts could reduce business investment
and job creation.
• It aims to balance revenue generation with economic growth,
preventing tax policies from inadvertently slowing down business or
consumer activity.

Canon of Elasticity The canon of elasticity asserts that a good tax system
should be exible enough to adapt to the changing economic needs of the
country. Tax rates should be adjustable depending on scal requirements. For
instance, during times of war or economic crisis, a government might need to
raise more revenue through higher taxes, while in periods of prosperity, tax
rates can be reduced to encourage spending and investment.

Importance of the Canon of Elasticity

• Elastic taxes are essential for adjusting to economic conditions, helping

governments respond to nancial crises or booms.
• Flexibility allows for policy changes in times of need without
destabilising the economy or causing unnecessary hardship to
taxpayers.
• It helps to stabilise the economy, as taxes can be increased during
in ationary periods and lowered during recessions, serving as a
countercyclical measure.
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 Canon of Diversity The canon of diversity, also known as the canon of
variety, suggests that a tax system should be diversi ed, meaning that it
should not rely on a single type of tax. Instead, there should be a mix of direct
and indirect taxes to spread the tax burden across the population and
economic sectors. For example, income tax, sales tax, property tax, and
corporate tax all target different forms of wealth and consumption.

Importance of the Canon of Diversity

• A diversi ed tax system reduces the burden on any single group of

taxpayers, making the system more equitable.
• It ensures that the government has multiple revenue streams, making
public nances more resilient in times of economic downturns or sector-
speci c shocks.
• It spreads risk across various types of taxes, making it less likely for
revenue collection to drop drastically due to changes in one particular
sector or activity.

Canon of Simplicity The canon of simplicity argues that a tax system should
be simple enough for taxpayers to understand and comply with easily.
Complicated tax codes create confusion, increase compliance costs, and
often lead to tax evasion. Simple tax systems are more likely to result in
higher compliance, as they are easier to administer and for taxpayers to
follow.

Importance of the Canon of Simplicity

• A simple tax system minimises errors, reduces the need for tax
professionals, and lowers administrative costs for both taxpayers and
the government.
• It reduces the opportunities for tax avoidance and evasion, as there are
fewer loopholes and complexities that can be exploited.
• It increases taxpayer trust in the system, as individuals are more likely
to comply with taxes they perceive as transparent and understandable.

Canon of Expediency The canon of expediency refers to the practical

considerations that must be taken into account when implementing taxes.
Taxes should be politically and socially acceptable, and they should not
create excessive resistance or dissatisfaction among the population. In other
words, taxes should be designed and implemented in a way that is feasible
and aligns with the social and political environment.
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 Importance of the Canon of Expediency

• It ensures that taxes do not lead to social unrest or widespread

resistance, as seen in historical instances like the Boston Tea Party or
other tax revolts.
• It aligns tax policies with the political realities of a country, ensuring that
governments do not impose taxes that are overly burdensome or
unpopular.
• Expediency in taxation can also help to win public acceptance, which in
turn promotes higher compliance rates and a more stable revenue
stream.

Canon of Flexibility The canon of exibility asserts that the entire tax system
should be capable of adjusting to the economic conditions of the country.
Taxes should not be rigid but should allow for adjustments in rates and rules
as needed by changing government expenditure or economic conditions.
Flexibility ensures that the tax system can evolve with the needs of the
society and economy.

Importance of the Canon of Flexibility

• A exible tax system helps governments react to new challenges, such

as natural disasters, nancial crises, or pandemics.
• It ensures that tax rates and structures can be reformed to keep pace
with economic changes, technological advancements, or societal shifts.
• Flexibility allows for scal stability by ensuring the government can raise
or reduce taxes without causing large-scale economic disruptions.

Conclusion In conclusion, the canons of taxation serve as guiding principles

for designing and implementing an effective tax system. The fundamental
canons of taxation by Adam Smith are still highly relevant today, providing the
foundation for fair and ef cient tax policies. Modern economists have
expanded upon Smith’s ideas, adding new canons like productivity, elasticity,
and simplicity, to address the complexities of contemporary economies.
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GST COUNCIL
Goods & Services Tax Council (GST Council) is a constitutional body for
making recommendations to the Union and State Government on issues
related to Goods and Service Tax.

Background of the Goods and Services Tax Council

The 101st Amendment Act of 2016 paved the way for the introduction of a
new tax regime (i.e. goods and services tax – GST) in the country.

The smooth and ef cient administration of this tax requires cooperation and
coordination between the centre and the states.In order to facilitate this
consultation process, the amendment provided for the establishment of a
GST Council.

The amendment inserted a new Article 279-A in the Constitution of India. This
article empowered the President to constitute a GST Council by an order.

Accordingly, the President issued the order in 2016 and constituted the
Council. The Secretariat of the Council is located in New Delhi. The Union
Revenue Secretary acts as the ex-of cio Secretary to the Council.

Vision and Mission of the GST Council

While discharging its functions, the Council is to be guided by the need for a
harmonised structure of GST and the development of a harmonised national
market for goods and services.Further, the Council has to determine the
procedure in the performance of its functions.The vision and mission of the
Council are as follows:

Vision: To establish the highest standards of the cooperative federation in the

functioning of the Council, which is the rst constitutional federal body vested
with powers to take all major decisions relating to GST.

Mission: Evolving by a process of wider consultation, a GST structure, which

is information technology driven and user friendly.
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Composition of the Goods and Services Tax Council
The Council is a joint forum of the centre and the states and consists of the
following members:

1. The Union Finance Minister as the Chairperson

2. The Union Minister of State in-charge of Revenue or Finance
3. The Minister in-charge of Finance or Taxation or any other Minister
nominated by each state government
The members of the Council from the states have to choose one amongst
themselves to be the Vice-Chairperson of the Council. They can also decide
his term.

The Union Cabinet also decided to include the Chairperson of the Central
Board of Excise and Customs (CBEC) as a permanent invitee (non-voting) to
all proceedings of the Council.

Working of the GST Council

The decisions of the Council are taken at its meetings. One-half of the total
numbers of members of the Council is the quorum for conducting a meeting.
Every decision of the Council is to be taken by a majority of not less than
three-fourths of the weighted votes of the members present and voting at the
meeting.

The decision is taken in accordance with the following principles:

(i) The vote of the central government shall have a weightage of one-third of
the total votes cast in the meeting.

(ii) The votes of all the state governments combined shall have a weightage
of two-thirds of the total votes cast in that meeting.

Any act or proceeding of the Council will not become invalid on the following
grounds.

(i) Any vacancy or de cit in the constitution of the Council

(ii) Any defect in the appointment of a person as a member of the Council

(iii) Any procedural irregularity of the Council not affecting the merits of the
case.
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Functions of the Goods and Services Tax Council
The Council is required to make recommendations to the centre and the
states on the following matters:

1. The taxes, cesses and surcharges levied by the centre, the states and
the local bodies that would be merged in GST.
2. The goods and services that may be subjected to GST or exempted
from GST.
3. Model GST Laws, principles of levy, apportionment of GST levied on
supplies in the course of inter-state trade or commerce and the
principles that govern the place of supply.
4. The threshold limit of turnover below which goods and services may be
exempted from GST.
5. The rates include oor rates with bands of GST.
6. Any special rate or rates for a speci ed period to raise additional
resources during any natural calamity or disaster.
7. Special provision with respect to the states of Arunachal Pradesh,
Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
8. Any other matter relating to GST, as the Council may decide.

The GST Council holds the authority to recommend various aspects of GST,
including tax rates, exemptions, turnover thresholds, and GST laws. It
convenes periodic meetings to discuss and decide on crucial GST
implementation and regulation matters. The Council's decisions aim to ensure
uniformity in tax rates across the nation and address the speci c needs of
different states.

The GST Council, a crucial body in India's tax landscape, undertakes various
functions to streamline and regulate the goods and services tax (GST)
system. Here's a breakdown of its essential functions:
1. Recommendations on Taxation Matters: One of the primary functions
of the GST Council is to make recommendations on all aspects related
to GST taxation. This includes suggesting the inclusion or exclusion of
goods and services under the GST ambit, determining tax rates, and
proposing exemptions or cesses.
2. Threshold Limits: The Council decides the threshold limits for GST
applicability, delineating the turnover levels at which businesses must
register for GST. These thresholds change based on factors such as the
type of business and the state of operation.
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 3. GST Laws and Principles: The Council formulates and revises GST
laws, ensuring clarity and consistency in tax legislation. Additionally, it
establishes principles governing the levy of GST, the apportionment of
Integrated GST (IGST), and the determination of the place of supply for
goods and services.
4. Special Provisions for States: Recognizing the diverse needs of
different states, the GST Council devises special provisions for states
facing unique challenges or circumstances. This includes requirements
for north eastern states, Himachal Pradesh, Jammu and Kashmir, and
Uttarakhand, aimed at facilitating smoother implementation of GST in
these regions.
5. Other Associated Matters: Beyond taxation, the Council addresses
related matters relevant to GST implementation and regulation. This
encompasses compliance mechanisms, anti-pro teering measures, and
measures to prevent tax evasion and fraud.

In addition, the council shall also recommend the date on which the GST may
be levied on petroleum crude, high-speed diesel, petrol, natural gas and
aviation turbine fuel.

The Council also has to recommend the compensation to the states for the
loss of revenue arising on account of the introduction of GST for a period of
ve years. Based on the recommendation, the Parliament determines the
compensation.
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TAX AUTHORITIES

Entry 82 of the Union List of Schedule VII of the Indian Constitution grants
the Central Government of India the authority to impose taxes on all types of
income other than agricultural income.

The major source of government revenue is the Income Tax Department.

Income tax is the primary source of funding for the government’s operations
and to provide services to the public.

Income tax authorities are required to prevent assessment of assesses, tax

evasion, etc. In order to implement the Income Tax Act e ectively and
manage the Income Tax Department, the Government of India has
established several authorities.

Classes of Income Tax Authorities

Section 116 of the Income Tax Act provides the following classes of income
tax authorities:

1. The Central Board of Direct Taxes

2. Directors General of Income Tax or Chief Commissioners of Income

Tax

3. Directors of Income Tax or Commissioners of Income Tax or

Commissioners of Income Tax (Appeals)

4. Additional Directors of Income Tax or Additional Commissioners of

Income Tax or Additional Commissioners of Income Tax (Appeals)

5. Joint Directors of Income Tax or Joint Commissioners of Income Tax

6. Deputy Directors of Income Tax or Deputy Commissioners of Income

Tax or Deputy Commissioners of Income Tax (Appeals)

7. Assistant Directors of Income Tax or Assistant Commissioners of

Income Tax

8. Income Tax O cers

9. Tax Recovery O cers

10. Inspectors of Income Tax

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 Who Appoints Income Tax Authorities?

According to section 117 of the Income Tax Act, the central government has
the power to appoint such persons as it deems t to income tax authorities.
The central government has the power to choose o cials up to and above
the rank of Assistant Commissioner of the Income Tax.

The central government, can further, authorise the appointment of income

tax o cials below the rank of a Deputy Commissioner or Assistant
Commissioner by the Board, a Director-General, a Chief Commissioner, a
Commissioner, or a Director. However, the appointment by such authorities is
made according to the rules and regulations of the central government
regulating the conditions of service of persons in public services and posts.

Central Board of Direct Taxes

The Central Board of Direct Taxes (CBDT) is a statutory body constituted

under the Central Board of Revenue Act of 1963. It functions under the
jurisdiction of the Ministry of Finance, Government of India. The Board
initially handled both direct and indirect taxes. However, when the
administration of taxes became too burdensome for one to handle, the
Board was divided into two: the Central Board of Direct Taxes and the
Central Board of Excise and Customs.

It has the power to control and supervise all the o cers of the income tax
department. Along with this, the Central Board of Direct Taxes has the power
to make such rules as are necessary for the administration and
implementation of the provisions of the Income Tax Act. The rules made by
the Board are controlled and approved by the central government.

Composition of Central Board of Direct Taxes

The Central Board of Direct Taxes comprises a chairman and six other
members. The chairman is the head of the Board. The other six members
must be ex o cio special secretary to the government of India.

The six members of the Central Board of Direct Taxes deal with:

1. Income Tax & Revenue

2. Administration

3. Legislation
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 4. Audit and Judicial

5. Investigation

6. TPS & System

Powers of the Central Board of Direct Taxes

The Central Board of Direct Taxes has been empowered with the following
powers by the Income Tax Act of 1961:

1. Power to appoint income tax authorities: Section 117 of the Income Tax
Act gives the Board the power to appoint income tax authority below the
rank of Deputy Commissioner or Assistant Commissioner if authorised by
the central government.

2. Power to control and supervise: Section 118 of the Income Tax Act
empowers the Board to control all the Income Tax Authorities subject to an
overall framework of the Central Government.

3. Power to issue instructions and circulars: Section 119 of the Income

Tax Act empowers the Board to issue instructions and circulars to its
subordinate o cials for the proper administration and implementation of the
Income Tax Act. The Board has the power to give the following instructions:

1. Relaxation of certain provisions [sec 119(2)(a) of the Income Tax Act]

2. Extension of time limit [sec 119(2)(b) of the Income Tax Act]

3. Relaxation for claiming deduction [sec 119(2)(c) of the Income Tax Act]

4. Power to decide the powers and functions: Section 120 empowers the
Board to decide on and issue the powers and functions of the other income
tax authorities.

5. Power to issue general or special orders: The Board can issue general
or special orders to relax the provisions of sections 115P, 115S, 139, 143,
144, 147, 148, 154, 155, 234A, 234B, 271 and 273 in order to properly and
e ectively manage the work of assessment and collection of revenue.

6. Power to transfer cases: Section 127 of the Income Tax Act empowers
the transfer of a case from one Assessing O cer to another Assessing
O cer subordinate to him after giving the concerned assessee a reasonable
opportunity to be heard.
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 Income Tax Settlement Commission

The Income Tax Settlement Commission is a quasi-judicial body that was

constituted in accordance with section 245B of the Income Tax Act.

According to section 245B(1) of the Income Tax Act, the income tax
settlement commission is set up for the settlement of cases related to
income tax. It is constituted under the supervision of the Central
Government.

Composition of Income Tax Settlement Commission

The Settlement Commission consists of a Chairman, Vice-Chairman and

other members. The number of Vice-Chairmen and other members is
decided by the central government. The commission comprises individuals
with integrity and who have special knowledge of and experience with issues
involving direct taxes and business accounts.

Powers

The powers of the Income Tax Settlement Commission are:

1. The Income Tax Settlement Commission has been vested with powers
similar to that of the Income Tax Authority in all the proceedings
pending before it.

2. The Income Tax Settlement Commission has the power to grant

immunity from penalty and prosecution to the person who has made
the application.

3. Section 245E of the Income Tax Act empowers the Settlement

Commission to reopen any completed proceeding which is connected
to the case in the proceeding.

Powers of Other Income Tax Authorities

The income tax authorities have the following powers to prevent tax evasion
or to implement the provisions of the Income Tax Act, 1961:

1. Discovery, Production of Evidence, etc. (Section 131): Section 131 of

the Income Tax Act provides the income tax authorities with the same power
as vested in the Civil Court under the Civil Procedure Code.

2. Search and Seizure (Section 132): Section 132 of the Income Tax Act
grants the income tax authorities wide powers of search and seizure.
3. Power to Requisition Books of Account, etc. (Section 132A): The
income tax authorities can direct any o cer or authority to deliver books of
account, other documents or assets to the requisitioning o cer in the
following cases:

1. If a summon or notice has been issued to any person to produce, or

cause to be produced, any books of account or other documents, but
he has either omitted or failed to do so.

2. If any books of account or other documents will be useful for any

proceeding under the income tax act

3. If any assets represent wholly or partly the income or property and

such income or property has not been or would not have been
disclosed by the person from whose possession or control such assets
have been taken into custody by any o cer or authority.

4. Power to call for information (Sections 133): The Deputy Commissioner

(Appeals), Commissioner (Appeals) or Deputy Commissioner have the power
to call for the following information from the concerned person:

1. Direct any rm to provide a return of the addresses and names of

partners of the rm and their shares.

2. Direct any Hindu Undivided Family to provide a return of the addresses

and names of family members and the manager.

3. Direct any person who is a trustee, guardian or agent to provide a

return of the names of persons for or of whom he is an agent, trustee
or guardian and their addresses.

4. Direct any assessee to provide a statement of the names and

addresses of all the persons to whom he has paid rent, interest,
commission, royalty, etc., in any previous year.

5. Power of Survey (Section 133A): Section 133A of the Income Tax Act
grants the power of survey to the income tax authority. The income tax
authority has the power to enter any location within the limits of the area that
has been allocated to him, any location that is occupied by a person under
whom he exercises jurisdiction and any location that he is authorised to
enter.

6. Power to Collect Certain Information (Section 133B): According to

section 133B of the Income Tax Act, the income tax authority can enter any
location within the limits of the area that has been allocated to him or any
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location that is occupied by a person under whom he exercises jurisdiction
for collection of information which may be useful to them for any purpose.

7. Power to Inspect Registers of Companies (Section 134): According to

section 134 of the Income Tax Act, the income tax authority has the power to
inspect and take copies of any register of the members, debenture
holders or mortgagees of any company, if necessary.