Tax is a mandatory liability for every citizen of the country. There are two types of tax in India i.e. direct and indirect. Taxation in India is rooted from the period of Manu Smriti and Arthasastra. Present Indian tax system is based on this ancient tax system which was based on the theory of maximum social welfare.
Taxation is a governmental assessment upon property value, transactions, and estates of the deceased, licenses granting a right and/or income, and duties on imports from foreign countries. It includes all contributions imposed by the government upon individuals for the service of the state. Taxes in India are levied by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such as the Municipality.
The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Central and the State. An important restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law". Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.