Constitutional Provisions Relating to Taxation in India
Constitutional Provisions Relating to Taxation in India
1. Division of Taxing Powers Between the Union and the States
India follows a federal structure with a clear distribution of legislative and taxing powers between the Union Government and the State Governments as provided in the Constitution.
Key Provisions:
a) Article 246 – Subject-Matter of Laws Made by Parliament and Legislatures of States
Grants exclusive legislative powers to the Union and States in their respective areas listed in the Union List and State List (Seventh Schedule).
Tax laws fall under these lists; taxes are categorized accordingly.
b) Seventh Schedule – Distribution of Powers
| List | Taxes Covered | Who Can Levy & Collect |
|---|---|---|
| Union List (List I) | Income Tax (except agricultural income), Customs duties, Corporation Tax, Excise duty on goods, Estate duty, Wealth tax, etc. | Union Government |
| State List (List II) | Agricultural income tax, Land revenue, Stamp duty, State excise (alcohol), Taxes on vehicles, etc. | State Governments |
| Concurrent List (List III) | No direct taxation; tax matters are either Union or State | N/A |
c) Article 265 – No Taxation Without Authority of Law
Taxes cannot be levied or collected except by authority of law.
Ensures legal sanction for all taxes.
d) Article 268 to 281 – Special Provisions Relating to Certain Taxes
Covers taxes levied by the Union but collected and appropriated by the States (e.g., stamp duties).
Provides for distribution of tax revenues between Union and States.
Includes provisions on grants-in-aid, finance commissions, and dispute resolution mechanisms between Union and States on tax matters.
2. Types of Taxes and Their Constitutional Basis
| Type of Tax | Constitutional Provision | Levying Authority |
|---|---|---|
| Income Tax (except agricultural) | Union List (Entry 82) | Central Government |
| Agricultural Income Tax | State List (Entry 46) | State Governments |
| Customs Duties | Union List (Entry 35) | Central Government |
| Excise Duties on Goods | Union List (Entry 52) | Central Government |
| State Excise (on alcohol) | State List (Entry 60) | State Governments |
| Stamp Duty on Instruments | State List (Entry 63) | State Governments |
| Sales Tax (now subsumed under GST) | State List (Entry 54) | State Governments |
| Goods and Services Tax (GST) | Article 246A (introduced by 101st Amendment) | Both Union and States (Concurrent levy) |
3. Goods and Services Tax (GST): A Constitutional Innovation
Introduced via the 101st Constitutional Amendment Act, 2016.
Inserted Article 246A granting concurrent power to Union and States to levy GST.
GST replaced multiple indirect taxes levied by both Union and States.
GST Council regulates GST rates and policies.
4. Important Constitutional Safeguards in Taxation
No Taxation Without Law (Article 265): Ensures all tax impositions have legislative backing.
No Retrospective Taxation Without Clear Law: Though courts have allowed some retrospective taxation, it remains controversial.
Prohibition on Double Taxation: Constitution and tax treaties seek to avoid multiple taxation on same income.
5. Key Case Laws Related to Constitutional Taxation Provisions
✅ CIT v. Raja Benoy Kumar Sahas Roy (1953)
Supreme Court held that Agricultural Income Tax is a state subject and thus can be taxed only by states.
Reinforced the division of taxing powers under the Constitution.
✅ K.C. Srinivasan v. Union of India (1961)
Upheld the constitutional validity of Union excise duties on manufactured goods.
Clarified the scope of Union’s power under Entry 52 of the Union List.
✅ Bachhaj Nahar Singh v. Union of India (1968)
Confirmed that no tax shall be imposed except by law, emphasizing Article 265.
Illegal taxation demands can be challenged in courts.
✅ State of Bombay v. R.M.D. Chamarbaugwala (1957)
Upheld state’s power to levy tax on lotteries.
Discussed limits of state taxation under the Constitution.
✅ Union of India v. Azadi Bachao Andolan (2003)
Dealt with retrospective taxation and foreign companies.
Court held retrospective tax laws should be reasonable and fair.
✅ Union of India v. McDowell & Co. Ltd. (1996)
Clarified difference between levy of tax and penalty.
Reinforced that taxes must be imposed strictly by law.
6. Summary
| Article/Provision | Purpose/Taxing Power |
|---|---|
| Article 246 | Legislative powers on taxation divided between Union and States |
| Seventh Schedule | Lists taxes for Union and States |
| Article 265 | No tax without law |
| Articles 268-281 | Special provisions on taxes like stamp duties and revenue sharing |
| Article 246A | Concurrent power for GST (Union + States) |
7. Quick Recap Question
Which Article in the Constitution specifically prohibits taxation without the authority of law?
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