Reviewed by Sep 30, 2020| Updated on
'Levy' is more often used in taxation domain. In its noun form, the term 'levy' implies a charge such as a tax, duty, fine, or any other fee that is imposed on something. As a verb, it refers to an act of imposing or collecting the charge.
Levy is defined as a legal capture of property to satisfy an outstanding debt. In India, the Central Board of Indirect Taxes and Customs (CBIC) and Department of Income Tax are authorities that have the power to levy taxes. There are laws like the Income Tax Act, 1961, the Goods and Services Tax Act, 2017, and Customs Act, 1962. The related statutes and rules are amended from time to time. These regulations define the scope of levying taxes: the assessable income on which tax is levied, the transactions, exemptions, deductions, and consequences of non-discharge of taxes along with punishment.
There are both direct tax and indirect taxes in India. The period of assessment is usually one financial year that begins in April and ends in March of the following year.
Under the direct tax, the incidence of tax is on the person earning income from any source. It is not passed onto any other person. You can understand this with the help of an example. A person earning salary will pay tax on his gross income and not on the net income left after deducting his expenses. Whereas, the tax incidence is passed onto the final consumer of goods or services by the person who sells the goods or service through the supply chain under the indirect tax. Indirect tax comprises of multiple taxes in India such as GST, customs duty, and excise duty in some cases. Therefore, the person on whom tax is levied will accordingly vary with tax laws applicable.
'Levy' of tax brings responsibility on the shoulders of taxpayers or assessees to report the details of income and transactions with the tax authorities. The adjudicating body will verify these in their respective jurisdictions. Also, an audit may be carried out to get an assurance for larger accounts. Different forms and returns are prescribed under various tax laws. The yearly income tax returns under income tax laws and periodical GST returns, such as GSTR-1, GSTR-3B, or the new GST returns (ANX-1, ANX-2, and RET-1/2/3) are mostly used across India. Customs law operates with forms filed for every import and export transaction.
When it comes to direct tax, every person in India who is a resident individual or having a place of business in India should comply. He is required to pay tax on his income and file income tax returns. Depending upon the type of person or business structure, the levy of tax occurs. An individual must only file if the income he earns during a financial year exceeds the basic exemption limit. He pays tax after considering the eligible exemptions and deductions.
The basic exemption limit differs based on age bracket and filing may be mandatory for certain types of income too. The tax rates are also defined for different kinds of people or business structure such as company, firms, associations and trusts.
GST functions differently. It single-handedly monitors the movement of goods and supply of services within India. In addition to other taxes such as the excise duty and the central sales tax, it applies to only some items. GST is the tax levied on the supply of goods and services. There is a basic threshold limit of annual turnover to reckon the applicability of GST and its registration. Apart from this, there are mandatory cases where registration is required. Similar to income tax, there are exemptions present under GST laws too.
Customs duty is a levy on the import and export of goods. The scope of customs law is wide to cover even illegal movement of goods across Indian borders such as smuggling. Further, it extends to baggage belonging to the passengers going out or coming to India.