Tax Base

Reviewed by Anjaneyulu | Updated on Aug 27, 2020

Introduction

The government cannot collect taxes from every citizen of the state or country. The citizens who are considered as assessees under various laws have to pay the tax at the prescribed tax rate.

What is Tax Base

The tax base is the total amount of assets or revenue that a government can charge tax on. For example, the assessed value is the tax base for property taxes and taxable income is the tax base for income tax. It can also be defined as the total of taxable income, taxable assets, and the assessed value of property within the government tax jurisdiction.

Tax Base in India

The tax base is different for direct tax and indirect tax. Direct taxes include income tax and property tax, whereas indirect taxes include GST, excise duty, and customs duty.

The Income Tax Act under direct tax laws lays down the regulations of income tax. For example, an individual and HUF assessees with income more than Rs.2.5 lakh has to pay tax under the income tax. But there is no such income limit for other assessees like companies, partnership firms. The total of taxable income from all taxpayers constitutes the tax base.

The Goods & Services Tax Act decides the GST base under indirect tax laws. For example, a registered person whose turnover is above Rs.40 lakh has to pay GST. The turnover of all taxpayers will constitute the tax base.

To arrive at the tax liability, we should multiply the tax base with the respective tax rate.

The size and growth (increase or decrease) of the tax base is crucial to the planning of local, state, or central government. The tax base size influences the taxable revenues which are available to a government. There is a direct correlation between the economic condition of the country and the budget of the government. The government has to always consider how their decisions will affect their tax base.