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Tax structure and economic growth: a study of selective Indian States


The relationship between tax structure and growth performance has assembled a lot of consideration from policymakers, academicians, and administrative circles for a long time. Firstly, the arising economies require an enormous volume of expense incomes for the smooth and effective working of the state at both the public and sub-public levels. Globalization has set out the establishment of Goods and Service Tax (GST) in many developing nations. Secondly, tax collection and its structure of it make distortionary impacts in the economy through taxation rate.

In a financial plan imperative economy like India, examination of tax growth relationship empowers to figure out the reasonable arrangement measure for a more comprehensive and impartial development process. The financial plan emergency is generally settled through the cut down of public spending or an expansion in tax revenues. A quick decrease in spending or increase in taxes is destructive in the long run development execution.

India embraced the GST strategy in 2017 expecting to raise indirect collection and transform the indirect tax structure into a single market to keep away from tax evasions and twofold tax collection. GST is viewed as one of the significant assessment strategy changes in free India, however, this arrangement isn’t the main approach that shaped in independent India. Changes in tax policy strategy likewise change in the expense structure in the economy and India saw these progressions at both levels of the government.[1]

Indian Tax structure

The government of India imposed a progressive income tax on taxable pay of people, Hindu Undivided Families (HUFs), organizations (firms), co-operative societies, and trusts. The Income Tax office is represented by the Central Board for Direct Taxes (CBDT) and is important for the Department of Revenue under the Ministry of Finance.

In 1991 tax system in India saw a decrease in extract and custom obligations. Excise obligation forced on items, for example, engine vehicles, aerated drinks, climate control systems, pan masala, and biting tobacco. Petroleum with extra excise duty per liter. Central VAT (CENVAT) is applicable to all manufactured products, in order to avoid cascading effects on duty.

Since joining the WTO in 1995, India has encountered outrageous financial development, rising as one of the leading foreign investment tickets in Asia. This drastically affected the local talent market, local companies, and multinationals, not just seeking similar clients but additionally, going after similar individuals. Thus, remunerating execution adequately was a vital differentiator for Indian organizations as they hope to draw in, hold and spur representatives.[2]

Value Added Tax (VAT) is an indirect added tax that was brought into the Indian tax collection framework on 1st April 2005. VAT is a utilization charge collected on a commodity at whatever value it adds to the supply chain. How much VAT that the buyer pays depends on the expense of the item, minus any already available expenses of items utilized in the item. VAT replaced Sales Tax. VAT was acquainted to make India a solitary coordinated market. On 2nd June 2014, VAT was executed in all states and association regions of India, with the exception of Andaman and Nicobar Islands and Lakshadweep Islands. For highway supplies, CST or Central Sales Tax was forced. CST applies to the offer of products required by the Central Government. It is gathered and held by the state where the expense is gathered.[3]

In India, adopting GST was first recommended by the Atal Bihari Vajpayee Government in 2000. The state finance ministers framed an Empowered Committee (EC) in order to plan a structure for GST. Delegates from the Center and States were mentioned to look at different parts of the GST proposition and make reports about the edges, exceptions, tax assessment from between state supplies, and taxation of services. In 2011 government drove by the Congress party advanced the Constitution (115th Amendment) Bill for the introduction of GST. In 2017 four Bills connected with GST become Act, following approval in the parliament and the President’s consent:

  • Central GST Bill
  • Integrated GST Bill
  • Union Territory GST Bill
  • GST (Compensation to States) Bill

The GST Council additionally concluded on the GST rates and GST rules. The Government proclaimed GST Bill to be applicable from 1 July 2017, following a short pause that is credited due to lawful issues.[4]

Professional Tax is a direct tax which is required on people acquiring a pay via either practicing a profession, business, calling, or exchange. Dissimilar to income tax which is imposed by the Central Government, professional tax is demanded by the government of a state or union territory in India. Larger parts yet not all of the Indian states impose the professional tax. As this tax is a state subject the rate of professional tax varies from one state to another. While certain states may charge it as a certain value, other states will charge a fixed amount based on income slabs. Professional Tax Is Deductible Under Section 16 (iii) Of the Income Tax Act, the professional tax paid by a representative is permitted as a deduction from his/her gross salary pay.

Indian Income-tax levied on individual taxpayers based on their slab system. The slab system implies different tax rates recommended for different ranges of pay. It implies the tax rates continue to increment with an expansion in the pay of the citizen. This kind of tax collection empowers moderate and fair expense frameworks in the country. Such personal expense sections generally go through a change during each budget. These chunk rates are different for various classifications of citizens. Income tax has ordered three classifications of “person “citizens, for example,

– People (aged less than 60 years) including residents and non-residents

– Residents Senior citizens (60 to 80 years old)

– Residents Super senior citizens (over 80 years)

Personal Tax Slab Rates for FY 20-21 (AY 2021-22 )

In this new system, citizens have an option to pick between:

– To pay income tax at lower rates according to the New Tax system relying on the prerequisite that they swear off specific passable exclusions and allowances accessible under income tax

– To keep on paying charges under the current expense rates. The assessed can benefit from discounts and exclusions by remaining in the old system and paying duty at the current higher rate.[6]

GST revenue collected in the month of March 2021 in India- an overview

The GST incomes during March 2021 are the most noteworthy since the presentation of GST. In accordance with the pattern of recuperation in the GST incomes over beyond five months, the incomes for the month of March 2021 are 27% higher than the GST revenues around the same month last year.

This chart shows figures of GST collected during the month of March 2021 as compared to March 2020.[7]


India has exhibited huge development in the recent times, making it one of the most competitive business sectors in the world. As organizations keep on confronting an unstable business climate aggravated with forceful rivalry and scant ability, the pattern of giving out robust compensation increments will proceed, with organizations continually taking a gander at significant approaches to remunerating their labour force. Progressive organizations will utilize these designs to advance cutthroat situating, upgrade efficiency, and change association and business need to suit the changing business climate.[8]

“In election states of Uttar Pradesh, Manipur and Punjab, more prominent spotlight is being focused on streets and railroads and wellbeing projects while some port area related speculations and choices will help Goa,” an administration official said.

In the current financial budget, the public authority had declared significant national highway works in Tamil Nadu, West Bengal, Kerala, and Assam. Expenditure by states, particularly on investment and framework, is probably going to outweigh everything else in the Budget.

“Income development is a worry for states. Presently with one more wave of Covid coming in and limitations being forced by states, the recuperation requires one more push from spending more. For that, states are expected to set a few changes to funding patterns and acquiring up to have more assets to spend,” an authority said.[9]

[1] Yadawananda Neog and Achal Kumar Gaur, Tax Structure and Economic Growth: a Study of Selected Indian States, 9, J Economic Structures, 38 (2020).

[2] Harsh Vardhan, Jajodia New Dimension to India Taxation Policy, LEGAL SERVICE INDIA (Jan. 19, 2022, 3:56 PM), – :~:text=After Independence,co-operative societies and trusts.

[3] CLEAR TAX’S DIFFERENCES BETWEEN GST AND VAT, (last visited Jan. 19, 2022).

[4] BANK BAZAAR’S HISTORY OF GST, (last visited Jan. 20, 2022).

[5] POLICY BAZAAR’S PROFESSIONAL TAX, (last visited Jan. 20, 2022).

[6] CLEAR TAX’S INCOME TAX SLAB, (last visited Jan. 20, 2022).

[7] PIB GOV’S PRESS RELEASE PAGE,, (last visited Jan. 20, 2022).

[8] Harsh Vardhan, Jajodia New Dimension to India Taxation Policy, LEGAL SERVICE INDIA (Jan. 20, 2022, 8:48 PM), – :~:text=After Independence,co-operative societies and trusts.


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