- Inequality in India: Definition and Measures; Lorenz Curve, Gini Coefficient, Income held by Top 10%
- Income Inequality in India: Causes, Remedies and Consequences
The India Constitution is quasi-federal in nature, and the country has three tier government structure.
To avoid any disputes between the centre and state the Constitution envisage following provisions regarding taxation:
Taxes are generally an involuntary fee levied on individuals and corporations by the government in order to finance government activities. Taxes are essentially of quid pro quo in nature. It means a favour or advantage granted in return for something.
| Basis | Direct Tax | Indirect Tax |
| Meaning | The tax that is levied by the government directly on the individuals or corporations are called Direct Taxes. | The tax that is levied by the government on one entity (Manufacturer of goods), but is passed on to the final consumer by the manufacturer. |
| Incidence | The incidence and impact of the direct tax fall on the same person. | The incidence and impact of the tax fall on different persons. |
| Examples | Income Tax, Corporation Tax and Wealth Tax. | VAT, Service tax, GST, Excise duty, entertainment tax and Customs Duty. |
| Nature | They are progressive in nature. | They are regressive in nature. |
| Objective | Both Social and Economical. Social objective of direct tax is the distribution of income. A person earning more should contribute more in the provision of public service by paying more tax. This provision is also known as progressive taxation. | Only Economical. When an indirect tax is levied on a product, both rich and poor must pay at the same rate. A person earning 10 lakh a month pays the same tax on the Wheat purchase as the person earning 3000 Re a month. This principle is called regressive taxation. |
| Impact | Not at all Inflationary. | Is inflationary. |
Government Levies a tax of 5 percent on a pack of 5KG Rice worth Re1000.
Tax Burden on the Pack: 5/100*1000= 50 Re
He buys the rice pack and pays a tax of 50 Re.
The proportion of his income that went on paying tax on Rice is 0.05 Percent (50/100000) of his total earning.
He buys Rice pack and pays a tax of Re 50.
The proportion of his income that went on paying tax on rice is 5 percent (50/1000) of his total earning.
As you can clearly see, a poor individual is paying a higher proportion of his income as indirect tax as compared to the richer individual.
| Ad Valorem Tax | Specific Tax |
| Ad valorem tax is based on the assessed value of the product. In Fact, âAd Valoremâ is a Latin word meaning âAccording to Valueâ. | Specific tax is a fixed amount tax based on the quantity of unit sold. |
| Most Ad valorem taxes are levied based on the value of the item purchased. | Specific tax is levied based on the volume of the item purchased. |
| The tax is usually expressed in percentage. Example GST in India has 5 tax rate slabs- 0, 5. 12, 18 and 28 percent. | The tax is usually expressed in specific sums. Example: Excise Duty on Petrol. |
| Example: GST, Property tax, sales tax. | Example: Excise duty on petrol and liquor products. |
| They are progressive in nature. | They are regressive in nature. |
In India, Taxes are levied on income and wealth. Taxes are broadly classified into two main categories: Direct Tax and Indirect tax. Direct taxes are levied directly on individuals and entities, with income tax and corporate tax being prime examples. These taxes are based on the taxpayer’s ability to pay. Indirect taxes, on the other hand, are imposed on goods and services, such as Goods and Services Tax (GST) and excise duty. Each type of tax plays a crucial role in government revenue and economic regulation, contributing to national development.
Direct taxes in India are levied directly on individuals and corporations based on their income or profit. Key types include Income Tax, imposed on individual earnings; Corporate Tax, charged on company profits; and Wealth Tax (though currently abolished), which taxed an individual’s wealth. These taxes ensure equitable distribution of wealth and provide significant revenue for the government.
| Income Slab (less than 60 years) | Tax Rate |
| Up to 2,50,000 | No Tax |
| Up to 2,50,000 to 5,00,000 | 5% |
| Up to 5,00,000 to 10,00,000 | 20% |
| Excess of 10,00,000 | 30% |
| Â | Â |
Surcharge of 10% of income tax where the total income exceeds Rs 50 lakh up to Rs 1 Crore.
Surcharge of 15% of income tax, where the total income exceeds Rs 1 Crore.
Estate Duty: First introduced in 1953. It was levied on the total property passing on the death of a person. The whole property of the deceased person constituted his wealth and is liable for the tax. The tax now stands abolish w.e.f 1985.
Wealth Tax: First introduced in 1957. It was levied on the excess of net wealth (over 30,00,00,0 @ 1 percent) of individuals, joint Hindu families and companies. Wealth tax has been a minor source of revenue. The tax now stands abolish wef 2015.
Gift Tax: First introduced in 1958. The gift tax was levied on all donations except the one given by the charitable institution’s government companies and private companies. The tax now stands abolished wef 1998.
Capital Gain Tax: Ay profit or gain that arises from the sale of the capital asset is a capital gain. The profit from the sale of capital is taxed. Capital Asset includes land, building, house, jewellery, patents, copyrights etc.
But this change is not applicable to movable property such as jewellery, debt oriented mutual funds etc. They will be classified as a long-term capital asset if held for more than 36 months as earlier.
Indirect taxes in India are levied on goods and services rather than on income or profits. Key examples include the Goods and Services Tax (GST), excise duty, and customs duty, which impact consumer prices and government revenue.

GST is a comprehensive indirect tax introduced in India on July 1, 2017. It aims to simplify the taxation process by unifying multiple indirect taxes into a single tax structure. GST is applied to the supply of goods and services, with rates varying based on the category of the product or service. The main features of GST include a dual tax structure (Central GST and State GST), seamless input tax credit, and a focus on transparency and efficiency in tax administration. GST has streamlined the tax system, promoting ease of doing business and boosting economic growth in India.
Indirect Taxes in a nutshell
| Tax | Who Levies | Revenue goes to | Nature | Incidence | Levied on |
| Custom Duty | Central Government | Centre Govt | Progressive | Shifts to Final Consumer | Export and Import |
| Excise Duty/CENVAT | Central Government | Both Centre and State | progressive | Shifts to Final Consumer | Domestically Manufactured Goods |
| Service Tax | Central Government | Centre Govt | Regressive | Shifts to Final Consumer | All Services |
| VAT | State Government | State Govt | Regressive | Shifts to Final Consumer | Sale of Goods in the States |
For UPSC aspirants, understanding the intricacies of taxation in India, including its classifications, impacts on the economy, and recent reforms, is essential for comprehensive preparation. This knowledge not only aids in tackling examination questions but also provides insights into India’s fiscal policies and their implications on development.
Understanding direct and indirect taxes is essential for UPSC aspirants as it provides insights into Indiaâs tax system, economic policies, and fiscal responsibilities. This knowledge is vital for answering questions related to taxation in the UPSC exams.
Understanding taxation in India is crucial for UPSC aspirants because it directly influences the economy and public governance. Knowledge of direct and indirect taxes helps candidates analyze fiscal policies, which are often included in the exam syllabus. This understanding is essential for effective exam preparation and for informed decision-making as future civil servants.
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By
Himanshu Arora
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University
If lateral entry is allowed in civil services, it could be a game changing decision. The government has sought recommendations in this regard. This issue can also be linked to GS Mains paper 2 topic i.e. role of Civil service in Democracy. UPSC has asked question on Similar type of issue in Mains 2014(Domain based Civil service!).Thus CD considers this topic as highly probable topic for mains 2017.
Department of Personnel & Training (DoPT) has been asked to prepare a proposition on lateral entries into civil services that deal with economy and infrastructure and prepare a broad outline of modalities for selecting private individuals for appointment in the ranks of deputy secretary, director and joint secretary.
The shortlisting of private sector executives or social workers would be through a matrix of experience and qualification, without taking into account their existing salaries. The final selection would be done by a committee headed by the Cabinet Secretary
Q.1) The governmentâs recent proposal of bringing in lateral entry in civil services comes with its own advantages and criticisms. Discuss.
Q.2) Considering the recommendations made by various committees that there exists a large deficit of civil servants at higher levels, do you suggest the idea of bringing in new recruits at middle and higher level. Critically analyse in view of recent debate going on about lateral entry in civil services.
The talk of bank mergers is thicker in the air now, than never before. Government has started with merger of SBI and its subsidiaries. This merger has initiated a debate with some economist calling it a landmark decision while others believe that it will make the financial system more risky.
Recently The boards of State Bank of Bikaner & Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), the unlisted State Bank of Hyderabad (SBH), State Bank of Patiala (SBP) and Bharatiya Mahila Bank approved the scheme of merger with State Bank of India.
Bank consolidation is a tricky issue. While it is said that the long-term benefits of consolidation outweigh the short-term concerns, it must not be made a general policy. It is only to be done with right banks for right purpose with proper safeguards.
(Q) What do You Understand by Bank consolidation? Do Indian Banking sector need banking consolidation? Highlight Pros and cons.
(Q) Examine various implications of proposed merger of the State Bank of India with its five associate banks and the Bharatiya Mahila Bank.
In demographics, the world population is the total number of humans currently living. The World is facing major challenge of rapid increase in human population since last many decades, (UNFPA, 2011). The world population was estimated to have reached 7.5 billion in April 2017. In various parts of globe, there is unparalleled rapid demographic change and the most noticeable example of this change is the vast expansion of human.
It is expected that in near future, it will increase rapidly and give birth to numerous issues in the least developed regions. It is recommended that there is a desperate need to take urgent steps to control population otherwise serious problems can arise such as environment damage and restricted availability of food resources.
Constant growth of population is a major issue and therefore it is significant to understand how policy makers can manage population growth for the benefit of society.
Causes of Over Population:
The two main common causes leading to over population in India are:
The above two causes are interrelated to the various social issues in our country which are leading to over population.
Even after 67 years of independence, the scenario of our country is not good, due to over population. Some major impacts of high population are as follows:
Increasing the welfare and status of women and girls, spread of education, increasing awareness for the use of contraceptives and family planning methods, sex education, encouraging male sterilisation and spacing births, free distribution of contraceptives and condoms among the poor, encouraging female empowerment, more health care centres for the poor, to name a few, can play a major role in controlling population.
Indiaâs strengths in the global world in various fields cannot be ignored, whether in science & technology, medicine and health care, business and industry, military, communication, entertainment, literature and many more. Experts are hopeful that by increasing public awareness and enlisting strict population control norms by the Government will definitely lead the way for the countryâs economic prosperity and control of population.
Population policy followed in India since Independence
After independence, a Population Policy Committee was created in 1952 which suggested for the appointment of a Family Planning Research and Programmes Committee in 1953.
A Central Family Planning Board was created in 1956 which emphasized sterilization. Up till 1960s a rigid policy was not adopted to arrest the fast growth of population. The policy framed in 1951-52 was ad hoc in nature, flexible, and based on a trial and error approach.
When the First Five-Year Plan was formulated, it was enumerated in the plan that the programme for family limitation and population control should:
(a) present an accurate picture of the factors contributing to the rapid increase of population;
(b) discover suitable techniques of family planning and devise methods by which knowledge of these techniques could be widely disseminated; and
(c) give advice on family planning as an integral part of the service of government hospitals and public agencies.
Until the Fifth Plan, family planning programme concerned itself primarily with birth control but in this plan âmaternal and child health and nutrition servicesâ were also included as an integral part of family planning programme. Despite all the Five-Year Plans (from First to Tenth) and policies, the population of India is growing at a faster pace and taking the shape of âpopulation explosionâ.
The striking growth rate of population compelled the government to adopt a relatively more clear and less flexible policy of population which can stabilize the growth rate. In 1961-71, the population growth rate was 2.25% which was highest in any decade after independence. At present (2001-2011), the population growth rate has declined to 1.50%.
In April 1976, the First National Population Policy was framed by the Union Ministry of Health and Family Planning which suggested a wide spectrum of programmes including raising the statutory age of marriage, introducing monetary incentives, paying special attention to improving female literacy, etc.
Though this policy was endorsed by the parliament, it was planned at a time when the Emergency was clamped all over India. Sanjay Gandhi, the then President of Indian Youth Congress, took the programme of sterilization overzealously which made the masses hostile towards the government led by Indira Gandhi as well as the programme. One of the reasons for this was said to be the excesses committed in the programme.
There was an overall resentment among the people (as a result of which the Congress was voted out of power in elections held in March 1977). This incident defeated the whole purpose of the family planning programme. The enthusiasm of the people about birth control was also to some extent slackened. The later governments became extremely cautious about the implementation of programmes of family planning.
The term âfamily planningâ was replaced by âfamily welfareâ. While delivering a talk on âIndian Population in the 1990s,â on February 8, 1991, the noted demographer Ashish Bose said that âfamily planning programme has completely failed in the country and entirely a new approach is needed for its successâ.
The progress to arrest population growth has been extremely slow as is evident when we compare it with China. Through vigorous family planning programme since 1970 and a more rigid policy of having only one child per family in 1980, China has avoided the birth of more than 200 million children and brought the fertility rate down to 2.5 from 5.82 among eligible mothers. This is a classic example of the role of government policy in affecting birth rate.
To check the alarming population growth, an attempt has been made to rejuvenate the National Family Welfare Programme. The Ministry of Health and Family Welfare revised the strategy in the last decade of the 20th century seeking to broaden the area of family planning.
It was emphasized that the population control programme would continue purely on voluntary basis as an integral part of a comprehensive policy package covering education, health, maternity and childcare, and womenâs rights and nutrition, including anti-poverty programme. It was made peopleâs programme based on welfare approach.
This revised strategy particularly focused on the provision of family planning strives at the doorsteps of the people. It is with this objective that the age of marriage is proposed to be raised for women from 18 to 20 years as envisaged in National Population Policy document, 2000, discussed later on.
For raising the status of women, much emphasis on female education is also being given. Efforts are also being made to involve the voluntary organizations to promote family planning. As a part of family welfare and population control, the government has revised the PNDT Act in 2003, which was enacted in 1994. The main aim of the Act is to check female (embryo) infanticide.
The 1990s, however, witnessed a marked shift in the approach of family planning programme in the country. The early years of the decade had seen intensification of womenâs movement, both within and outside the country, in reaction to the overwhelming responsibilities imposed on women in family planning programme for achieving fertility reduction.
The proponents of the movement were very critical of the approach and regarded the prevalent methods of birth control as an infringement on womenâs fundamental rights. It was against this background that an expert group under the chairmanship of Dr. M.S. Swaminathan was appointed in August 1993 to prepare a draft on new population policy.
The New Population Policy:
Government of India introduced first National Population Policy in 1976, which focussed on reducing birth rate, lowering infant mortality rate and improving standard of life. The policy was revised in 1977 which focussed on:
The National Population Policy 2000 provided a comprehensive framework to provide the reproductive and health needs of the people of India for the next ten years. It has fixed short term, medium term and long term goals as follows:
The government implemented the policy with involvement of local level bodies and voluntary sector with funds from central government.
Critical Assessment of Indiaâs Population Policy
Indiaâs national population policies have failed to achieve their objectives as we remain worldâs second largest populated country. The population of India in 1951 was 35 crore, but by 2011, it had increased to 121 crore. There have been few shortcomings.
Conclusion
To summarize, population escalation is a major issue around the world which has adverse impact on numerous environmental and human health problems. Population growth continue to increase in the world at a fast pace. As the population enlarges, many experts are concerned about its dangerous results.
The growth rate of population is a function of migration, birth rate and death rate in a country. The change in population caused by net migration as a proportion of total population of the country is almost insignificant and, therefore, can be easily ignored. That leaves us with birth rate and death rate.
The difference between the birth rate and the death rate measures the growth rate of population. Over populated regions need more resources. Population explosion causes deforestation for food production, urban overcrowding and the spread of horrible diseases.
The effectual way to stop population growth is to implement family planning policies but the exact way to achieve that has created a great deal of disagreement. Several feasible solutions have been proposed by the government to curb population.