CHAPTER 02

REVIEW OF LITERATURE

Neeraj Katoch Income Tax - Articles- Trending 14 Nov 2021 The concept of TDS was
introduced by government through Chapter-XVII-B with an aim to collect tax from the very
source of income. As per this concept, a person (deductor) who is liable to make payment of
specified nature to any other person (deductee) shall deduct tax at source and remit the same
into the account of the Central Government. The deductee from whose income tax has been
deducted at source would be entitled to get credit of the amount so deducted on the basis of
Form 26AS or TDS certificate issued by the deductor.

And also he conclude in his article that Considering the different penalty and prosecutions
provisions of Chapter-XVII-B of the Income Tax Act, we can say timely and accurate
compliance of TDS/TCS provisions is one of crucial activity for any business in today
environment.

In recent years, department become more cautious and active on the tracking of TDS non-
compliances through the aid of technology, data mining, survey etc. Therefore, it is advisable
to follow the provision of TDS/TCS compliance in true spirt with proper care and advice.

Ram Dutt Sharma Year Of Publication: 2020

He has return in his book “Deduction Of Tax At Source (TDS) & Collection Of Tax At Source
(TCS)”

In the present scenario, the provisions of the Income Tax Act relating to Tax Deduction at
Source “TDS” are of immense importance when TDS collections account for almost 40% of
total collection of Direct Taxes. TDS is a mechanism of collecting tax which combines twin
concepts of “pay as you earn” and “collect as it is being earned.” It is one of the modes or
mechanisms of collecting tax under the Indian Income Tax Act, 1961. It facilitates the
Government with a continuous flow of funds and at the same time, eases the burden on the
taxpayer.

This book deals with all the legal aspects of Tax deduction at source and Tax collection at
source under the Income Tax Law. It brings out all the essential aspects of TDS and TCS and
will be of very great use to the all concerns. It will also be a comprehensive aid to all the
concerns for understanding the complex provisions of TDS and TCS.
Each chapter provides the introduction, conditions and other requirements to be fulfilled. This
book contains all aspects of Tax Deduction at Source (TDS) and Tax collection at source
(TCS), the detailed scheme of TDS and TCS, various deductions under TDS and TCS,
procedural compliances as well as consequences for noncompliance. In the end chapter tax
rates of TDS and TCS have been provided for a ready reference.

Nirmala Dorasamy (2011), in her study propounded that personal income tax administration
reforms as a mechanism to enhance collection of revenue on the one hand and availability of
more pool of fund for welfare of the public on the other. She also found that a comprehensive
tax policy promotes the individual to compliance tax laws other ways they adopt unfair means
to reduce their tax burden.

Ankita Gupta (2009) studied the major trends in the taxation of personal income in India after
the tax reforms initiated in the liberalization era. It was revealed that tax reforms have a
favorable impact on the growth of personal income tax. The study concluded that simplification
of tax rate and broadening of tax base are the important reforms undertaken for reforming the
tax structure and increasing its responsiveness.

Peter (2001), propounded that taxation in its various forms affect the ability and willingness
of individual to work, save and invest but the effect gets vary according to the base of tax, rate
of tax and level of tax burden.

Mansi Bathija July 2, 2019 This article has been edited by Mansi Bathija and written
by Ayushi Yadav, a fourth-year law student from Banasthali Vidhyapith, Rajasthan. In this
article, she has discussed the basics of the Indian income tax act of 1961. And she conclude
that ,Tax is a mandatory charge levied on a person by the government, as we have discussed
what taxes are paid by a person and how he can calculate his payable tax. There are a number
of Provisions provided under law for taxpayers as per their requirements. The government has
provided various forms to pay income tax whether a person is an individual or HUF or a
company or he is an ordinary resident or non-ordinary or non-resident person, as per their
applicability they can file income tax.

Taxmann 2 June, 2021 Income Tax Act, 1961 is an act to levy, administrate, collect & recover
Income-tax in India. It came into force from 1st April 1962.
Income Tax including surcharge (if any) & cess is charged for any person at the rate as
prescribed by Central Act for that assessment year. Income-tax Act has provided separate
provisions with respect to levy of tax on income received in advance as well as the income with
respect of which the amount has not yet been received. A person also has to keep track of his
TDS deducted while calculating his final tax liability at the end of the year.

Parthasarathi Shome, Pawan K. Aggarwal, Kanvvarjit Singh , December 1996

Tax deduction at source (TDS) is an instrument designed for quick and smooth collection of
tax due to the authorities from the taxpayer. The objective of TDS could be said, in general, to
be maximisation of revenue collection while minimising the cost of collection.1 For example,
it should be easier to deduct tax from all employees by one employer than for the tax
administration to collect from each individual separately. This is so especially for wage and
salary income; and this is why such income is subject to TDS in a wide cross section of
countries. The problem of tax evasion is a fundamental reason for expanding the scope of TDS.
Tax evasion is a universal phenomenon. It takes place in all societies, all social classes, all
professions, all industries, and all economic systems. It depends on the economic and tax
structures, types of income, and social attitudes. The economic theory of tax evasion has
limitations since it rests solely on attitudes towards risk, with full information regarding the tax
administration’s behaviour. In reality, the latter itself can vary, based on a well planned strategy
or suffering from negligence or selective indulgence. Commonly, however, tax administration
measures to contain tax evasion include withholding (TDS), presumptive and minimum taxes,
selective auditing, penalties, and cross checks of returns filed by a taxpayer for different taxes
such as the income tax and the value added tax (Shome, 1992).

Narayanan (1967) highlighted some important aspects of corporate taxation in India

focusing super profit tax, liberalisation of investment allowance etc. Data from 1965 to 1971

are used for the study purpose. The author opined that liberal investment allowances under

corporate tax system along with high marginal tax rates got to subsidise non profitable

investment. The established companies shall get immediate benefit of investment allowance

where a new company shall have to wait for many years. The author added that investment

allowances coupled with high and progressive tax rates would promote excessive investment

and unwarranted mechanism. The paper suggested that tax holiday can avoid the
disadvantages of investment allowances.

Leuthold & N’Guessan (1986) have studied the buoyancies and elasticity of the major taxes

of Ivory Coast. The authors have used Ordinary Least Square (OLS) method for such

research work. GDP has been taken as regressand. Data from 1970 to 1979 is processed in

this literature.

The researchers found that the overall elasticity of Ivorian taxes is .961 which describes that

one percentage increase of GDP responds .961 percentage increase of tax. They concluded

that “an elastic tax system is desirable in a developing economy because it means that tax

receipts will grow automatically with growing income without the need for politically

sensitive increases in tax rates”.

Mansfield (1988) worked out a theoretical paper on tax administration in selected developing

countries focusing tax evasion as a sole of tax reform. The author added an increase in the tax

rate would increase tax evasion. Though a high penalty rate for evasion is imposed on the

evaded tax the offender tax payer because of higher penalties may be lead to pay tax at higher

rate. The paper suggested tax evasion model as follows:

EU = (1 -p)U(y + x) + pU(y - Fx), where EU = expected utility of tax evasion U = utility

function p = probability of being audited y = taxpayer's legal after-tax income x = undeclared

taxes F = the penalty rate on undeclared taxes plus 1.

The tax reform administrators should be cautious that Strict adherence to a cost-benefit,

revenue-maximizing strategy would worsen efficiency distortions in the present tax structure

and would eventually undermine voluntary compliance.

The author quoted “tax reformer should strive to balance immediate revenue objectives with

customer (tax payer) benefit”.

Dahl & Mitra (1991) described three applications of tax policy models developed by the
World Bank during the course of its economic study in Bangladesh, China and India. The

Bangladesh model narrates upon shifting of tax burdens in influencing the relative attractions

of different options for raising revenue. The China model depicts broad uniformity of tax

rates for a large number of sectors with a dual price system.

The Indian model focussed more upon liberalisation policy for tax reform. It is also reviewed

about the cost of constructing tax policy models.

Sury (1993) made an historical analysis of the various aspects of income tax in India. The

author rivets on tax rate structure, exemptions, concessions and evasion. The author brought
in, changes the Income Tax Act 1886, Income Tax Act 1918, Income Tax Act 1922, Income

Tax Act 1939, and Income Tax Act 1961. The specifically analysed the post globalisation

effects on tax reform.

Gupta, Lahiri and Mookharjee (1995) made an empirical analysis on income tax

compliance in India from 1965-55 to 1992-93. They found that low tax rates, plethora of

exemptions significantly affect the revenue collection. The loop holes of tax structure

contributed a lot for slow and low tax compliance. They have also identified the negative

effect of declining assessment intensity. They have quoted that best practice of enforcement,

assessment and tax structure policy could have yielded at most a 90 percent revenue increase

leading India’s income tax performance below the average of countries with similar GDP per

capita. This study has been carried out by taking regression equation on compliance and

income tax revenue with variables like income base, inflation rate, vector of tax structure,

vector of enforcement variable and vector of dummy variable for other policy measures.

It is concluded that contrary to the upward trend in real income tax revenue during the study

period, tax compliance appears to be declined appreciably. In addition empirical results

shows that increased average tax rates and exemption limit appear to have reduced

compliance and revenues of the country.

on tax revenue. They have tried to find out the gap between actual revenue and potential

revenue. Three attributable have been taken for the study purpose which are i) the tax rate

structure, ii) deductions, iii) tax evasion. They believed that revenue loss is the sum of tax

rate effect, statutory base effect and evasion effect. Authors concluded that tax reforms in

Indian Context did not have sustainable gain over time. Moreover the magnitude of the gains

from the reform were limited and failed to significantly curtail losses from tax evasion.

Rao (2000) analysed impact of tax reform in pre and post liberalisation period. The author

also studied trend of tax revenue, share of direct and indirect tax revenue in total tax revenue.

Composition of shared and non shared tax of central government is also analysed. The author

opined that “The recent approaches to reform lay emphasis on minimizing distortions in tax

policy to keep the economy competitive.”

Chattopadhyay, Das-Gupta (2002), in their article “The Personal Income Tax in India:

Compliance Costs and Compliance Behaviour of Taxpayers”, empirically studied the reaction

of tax payers in respect to tax avoidance, compliance, tax planning, tax saving etc. The

impact of compliance and non compliance on tax revenue is the nidus of this research paper.

Both primary and secondary data has been used for this purpose. Questionnaire method is

developed for primary data collection. Different dependent and independent variables are

derived from the data collected on the basis of questionnaire. Regression model has been run

to replicate the results

Palande (2011) dig out different income tax problems and recommends certain suggestions

for improvement of income tax revenue, efficient compliance, administration etc. This paper

deals with different problem variants like lower tax-GDP ratio, greater reliance on indirect

taxes, exemptions of agricultural income, widening of tax base etc. The author emphasised on
the simplification of tax structure which ultimately accelerate tax compliance, widening of

tax base to increase tax revenue, improving of tax administration to strengthen tax system,

minimising compliance cost as an austerity measure. It is accented that nullifying the

distortions of economy is the key when tax reforms took place. It is added that simplifications

of tax structure can yield in win-win way for both state and tax payer. Exemptions for both

senior citizens and handicapped should be eliminated including interest on house loan. The

author argued that deduction of interest in respect of housing loan is not a beneficial

multiplier for industries like steel, cement, brick making, tile, wood, sanitary etc. The author

strictly concluded that no government should take money from the people more than what it

needs for genuine capital and revenue generations.

Thomas (2012) published a paper which shows the elasticity taxable income with tax reform

in New Zealand from the 1986 reform. The author used Auten and Carroll (1999) model to

analyse the elasticity. It is argued in support of model that it has also been followed in several

other studies, including: Sillamaa and Veall (2001) for Canada; Hansson (2007) for Sweden;

and Auten, Carroll and Gee (2008) for the US. The author regressed the change in the

logarithm of taxable income against the change in the logarithm of the ‘net-of-tax rate’ (one

minus the marginal tax rate) as well as a number of additional control variables. The

empirical model is as follows:

D lnYi ¼ Dg þ aXi þ bD lnð1 _ tiÞ þ Dei

These results imply a significant behavioural response to tax rate changes well in excess of

that implied by standard labour supply elasticity estimates, and suggest that the welfare costs

of taxation in New Zealand are larger than may have previously been considered.
Sharma (2016) wrote about the tax system and tax collection of ancient India. The book

reflects a detail idea about philosophy of taxation, ways and means of tax collection in

ancient India. The author opined that revenue collection was core aspects of administration

and governance in that period. Further the study concluded that systems, followed in respect

of taxation and revenue collection in ancient India, are still relevant, and if adopted, may

provide the contemporary fiscal system with a humanitarian face.