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Article 276 of the Indian Constitution: Taxes on Professions, Trades, Callings, and Employments

Part: XII
Shorthand Notes: State Prof/Trade/Call/Emp Tax, Cap Rs. 2500, No limit on Parliament Income Tax

The Indian Constitution establishes a federal system with clear distribution of legislative and financial powers between the Union and the States. Taxation is a crucial aspect of this distribution, with specific subjects allocated to the Union List, State List, and Concurrent List in the Seventh Schedule. Article 276 deals with the power of State Legislatures to impose taxes on professions, trades, callings, and employments, a subject listed in the State List.

However, this taxing power of the States is not absolute and is subject to a specific limitation imposed by Article 276 itself. This article carves out an exception or a specific condition regarding the maximum amount that can be levied by a State government under this head, ensuring a degree of uniformity and limiting the burden on individuals and entities engaged in these activities.

Original Text

Article 276 of the Constitution of India:

(1) Notwithstanding anything in article 246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.

(2) The total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two thousand and five hundred rupees per annum.

(3) The power of the Legislature of a State to make laws with respect to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings and employments shall not be construed as limiting in any way the power of Parliament to make laws with respect to taxes on income for the purposes of the Union.

Detailed Explanation

Article 276 deals with the State’s power to tax professions, trades, callings, and employments, which is derived from Entry 60 of List II (State List) of the Seventh Schedule. The article primarily serves two purposes: clarifying the nature of this tax vis-à-vis income tax and imposing a quantitative limitation on the amount collectible.

Clause (1) addresses a potential conflict with the Union’s power to levy income tax (Entry 82 of List I). It clarifies that a State law imposing a tax on professions, trades, callings, or employments for the benefit of the State or a local authority shall not be held invalid merely because it resembles or relates to a tax on income. This is important because taxes on professions etc., although often levied based on income or turnover slabs, are constitutionally distinct from a general income tax. This clause essentially validates the State’s power under Entry 60, List II, even if the tax has characteristics that might otherwise be construed as a tax on income, which is a Union subject. The phrase “notwithstanding anything in article 246” emphasizes that this State power is valid even if Article 246 (which distributes legislative powers based on Lists) might otherwise lead to confusion or conflict with the Union’s income tax power.

Clause (2) imposes a critical quantitative limitation. It mandates that the total amount payable by any one person in respect of taxes on professions, trades, callings, and employments to the State or to any single local authority within the State cannot exceed two thousand and five hundred rupees per annum. This cap applies regardless of the individual’s income, turnover, or the nature of their profession or trade. The original cap was Rs. 250 per annum, which was increased to Rs. 2,500 by the Constitution (Sixtieth Amendment) Act, 1988. This limit is crucial for preventing excessive taxation under this head and distinguishes it sharply from income tax, which is progressive and based on actual income.

Clause (3) clarifies that the State’s power to levy taxes under this article does not, in any manner, limit or curtail the power of the Parliament to make laws with respect to taxes on income for the purposes of the Union. This ensures that the existence and exercise of the State’s power under Article 276 and Entry 60 of List II do not encroach upon or diminish the Union’s exclusive power to levy income tax under Entry 82 of List I. The two taxes are distinct, and the State tax is subject to a specific cap, while the Union income tax is not.

In essence, Article 276 grants States the power to levy a specific type of tax related to engaging in certain economic activities, validates this power against potential income tax overlap, but strictly limits the maximum annual amount that can be collected from any single individual under this head.

Detailed Notes

  • Source of Power: Article 276 is linked to Entry 60 of List II (State List) of the Seventh Schedule, which allows States to levy “Taxes on professions, trades, callings and employments”.
  • Purpose: Grants State Legislatures the power to impose taxes on persons exercising professions, trades, callings, or employments within the State.
  • Beneficiaries: The tax can be levied for the benefit of the State government or for the benefit of a municipality, district board, local board, or other local authority within the State.
  • Nature of Tax (Clause 1):
    • Clarifies that such a tax is not invalid merely because it relates to a tax on income.
    • Distinguishes this tax from general income tax levied by the Union.
    • Validates the State’s power under Entry 60, List II, despite potential overlap with Entry 82, List I (Union List - Taxes on income other than agricultural income).
    • The phrase “notwithstanding anything in article 246” gives this article overriding effect over the general distribution of powers in Article 246 concerning this specific tax.
  • Quantitative Limitation (Clause 2):
    • Imposes a strict cap on the total annual amount payable by any one person.
    • The maximum cap is two thousand and five hundred rupees (Rs. 2,500) per annum.
    • This amount includes taxes paid to the State government and any local authority within the State.
    • The cap applies to the total amount from all sources under this head for a single person in a year.
    • The original cap was Rs. 250, amended to Rs. 2,500 by the Constitution (Sixtieth Amendment) Act, 1988.
    • This cap prevents the State tax on professions etc. from becoming an onerous burden or a disguised income tax.
  • Relationship with Union’s Income Tax Power (Clause 3):
    • Explicitly states that the State’s power under this article does not limit the Parliament’s power to make laws regarding taxes on income for the purposes of the Union (under Entry 82, List I).
    • Confirms that the Union’s power to levy income tax is distinct and remains unaffected by the State’s power to levy profession tax.
  • Application: The tax is typically levied on individuals engaged in various professions (doctors, lawyers, CAs, etc.), trades, callings, and on persons in employment. The method of levy (e.g., based on income slabs, fixed amount) is decided by the State Legislature, but the annual cap of Rs. 2,500 must be adhered to.
  • Importance: This article provides a specific source of revenue for States and local bodies while simultaneously protecting citizens from excessive taxation under this particular head through the prescribed annual limit.

Additional Comments

  • The Rs. 2,500 annual cap, while increased from the original Rs. 250, is still considered relatively low in the current economic context and limits the potential revenue generation from this source for States.
  • State laws often prescribe different tax slabs based on income or profession, but the total payable amount per person per year cannot exceed Rs. 2,500.
  • This tax is distinct from Stamp Duties on bills of exchange etc. (Entry 91, List I) and taxes on documents (Entry 63, List II).
  • The Constitution makers deliberately placed the power to tax professions etc. in the State List but subjected it to a constitutional limit via Article 276 to balance the fiscal needs of states with the potential for regressive or excessive local taxation.
  • The term “person” under this article includes individuals, firms, companies, corporations, or other body of individuals, whether incorporated or not (referencing the definition under the relevant State Professional Tax Acts, consistent with the General Clauses Act).

Summary

Article 276 of the Indian Constitution empowers State Legislatures to levy taxes on professions, trades, callings, and employments for the benefit of the State or local authorities. Clause (1) clarifies that such a tax is not invalid merely because it might be construed as related to a tax on income, asserting the State’s power under Entry 60, List II, notwithstanding Article 246. Clause (2) imposes a crucial limitation, capping the total amount payable by any one person to the State or any single local authority to a maximum of two thousand and five hundred rupees per annum. Clause (3) ensures that this State power does not limit the Parliament’s power to levy income tax for the Union under Entry 82, List I. This article thus balances the State’s taxing power with a protective ceiling for the taxpayer and maintains the distinction between State profession tax and Union income tax.
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