Tax and its Importance – Detailed Summary | Samacheer Kalvi 7th Social Science | Term 3 Economics

Tax and its Importance – Detailed Summary

Book: Samacheer Kalvi 7th Social Science

Term: Term 3

Subject: Economics

Unit: Unit 1

Lesson Name: Tax and its Importance

About the Lesson

“Tax and its Importance” is an important Economics lesson in the Samacheer Kalvi 7th Social Science book. This lesson explains the meaning of tax, taxation, principles of taxation, types of tax, importance of tax and the role of tax in public welfare.

Tax is one of the main sources of income for the government. The government uses tax revenue for education, health, transport, defence, roads, water supply, electricity, public welfare schemes and development activities.

Learning Objectives

To understand the meaning of tax and taxation.
To know why taxes are collected by the government.
To learn the principles of taxation.
To understand the different types of taxes.
To differentiate direct tax and indirect tax.
To understand progressive, proportional and regressive taxation.
To know about income tax, corporate tax, wealth tax, gift tax and estate tax.
To understand Goods and Services Tax.
To learn the importance of tax for people’s welfare.
To understand why tax evasion should be avoided.

Detailed Summary of the Lesson

1. Introduction

Every government needs money to run the country smoothly. It has to provide many services to the people.

The government builds roads, schools, hospitals, bridges, transport systems, water supply systems and other public facilities. To do all these works, the government collects taxes from people and organisations.

2. Meaning of Tax

Tax is a compulsory payment made by the people to the government.

It is not a voluntary payment. People pay tax without expecting direct return or direct benefit from the government.

3. Meaning of Taxation

Taxation is a term used when a taxing authority, usually the government, levies or imposes a tax.

Taxation includes different kinds of taxes such as income tax, corporate tax, wealth tax, estate tax, gift tax and taxes on goods and services.

4. Why Government Collects Tax

The government collects tax to meet public expenditure and provide public services.

Tax revenue helps the government carry out welfare and development activities for the people.

5. Uses of Tax Revenue

Education facilities
Health services
Roads and bridges
Public transport
Drinking water supply
Electricity and energy systems
Waste management
Defence and security
Pensions for elderly people
Unemployment benefits
Public welfare schemes

6. Tax and People’s Welfare

Tax is important for people’s welfare because it helps the government provide essential services.

Even if one person does not receive direct benefit immediately, the whole society benefits through public facilities and welfare schemes.

7. Tax as a Compulsory Payment

Taxes are compulsory payments to the government.

Citizens cannot refuse to pay taxes that are legally imposed. Paying tax is an important duty of responsible citizens.

8. No Direct Return for Tax

Tax is paid without expectation of direct return or direct benefit.

For example, a person who pays tax may not directly use every government service, but tax money is used for the welfare of the whole society.

9. Principles of Taxation

Principles of taxation are also called canons of taxation.

A good tax system should be fair, certain, convenient and economical. The four important principles of taxation are:

Canon of Equality
Canon of Certainty
Canon of Convenience
Canon of Economy

10. Canon of Equality

Canon of equality means that the government should impose taxes according to the ability of the people to pay.

It does not mean that everyone should pay the same amount of tax. It means that the tax burden should be fair and just.

11. Canon of Certainty

Canon of certainty means that the taxpayer should clearly know the amount of tax, time of payment and method of payment.

Certainty creates confidence among taxpayers and reduces confusion.

12. Canon of Convenience

Canon of convenience means that taxes should be levied and collected in a way that gives maximum convenience to taxpayers.

The government should make tax payment easy and reduce inconvenience to people.

13. Canon of Economy

Canon of economy means that the cost of collecting tax should be minimum.

The government should spend the minimum possible amount in collecting taxes, and the collected tax should be deposited in the government treasury.

14. Types of Taxation Based on Rate

Taxes may be classified based on the rate of taxation.

Progressive taxation
Proportional taxation
Regressive taxation
Degressive taxation

15. Progressive Taxation

Progressive taxation is a method in which the rate of tax increases as income increases.

Under this system, people with higher income pay tax at a higher rate, while people with lower income pay tax at a lower rate.

16. Proportional Taxation

Proportional taxation is a method in which the rate of tax is the same regardless of the size of income.

In this system, everyone pays the same tax rate, but the amount of tax differs according to income.

17. Regressive Taxation

Regressive taxation is opposite to progressive taxation.

In regressive taxation, the tax burden becomes heavier on lower-income people compared to higher-income people.

18. Degressive Taxation

Degressive taxation is a system where the rate of tax increases up to a certain limit and then becomes constant.

It is a modified form of progressive taxation.

19. Direct Tax

Direct tax is a tax whose burden is directly borne by the person on whom it is imposed.

In direct tax, the tax burden cannot be shifted to others. Income tax is an example of direct tax.

20. Indirect Tax

Indirect tax is a tax whose burden can be shifted to others.

It is usually imposed on goods and services. The seller may pay the tax to the government, but the tax burden is often shifted to the consumer through price.

21. Difference Between Direct Tax and Indirect Tax

Direct tax and indirect tax are two important types of taxes.

Direct tax is paid directly by the person on whom it is imposed. Indirect tax is imposed on goods and services, and its burden can be shifted from one person to another.

22. Income Tax

Income tax is a direct tax.

It is imposed on the income of individuals. People who earn taxable income have to pay income tax to the government.

23. Corporate Tax

Corporate tax is a tax imposed on the income or profit of companies.

Companies pay corporate tax to the government based on their income or profit.

24. Wealth Tax

Wealth tax is a tax imposed on wealth or property.

It is connected with the value of assets owned by a person.

25. Gift Tax

Gift tax is paid to the government by the recipient of a gift depending on the value of the gift.

This is an important fill-in-the-blank point from the textbook-back exercise.

26. Estate Tax

Estate tax is charged from the successor of inherited property.

It is connected with property that passes from one person to another after death.

27. Service Tax

Service tax is raised on the provision of services.

It is connected with services provided to people or organisations.

28. Excise Duty

Excise duty is a tax levied on the manufacture of goods.

In India, excise duty is levied by the Central Government.

29. Goods and Services Tax

Goods and Services Tax is a tax imposed on the sale, manufacture and use of goods and services.

GST was implemented in India from 1st July 2017. It simplified many indirect taxes into a common tax system.

30. GST and Tax System

GST plays an important role in the modern tax system.

It replaced many earlier indirect taxes and made the tax structure more uniform for goods and services.

31. Tax Burden

Tax burden means the actual pressure or responsibility of paying tax.

In direct tax, the burden cannot be shifted. In indirect tax, the burden can be shifted to others.

32. Impact and Incidence of Tax

Impact of tax means the first person on whom the tax is imposed.

Incidence of tax means the final person who actually bears the tax burden. In direct tax, impact and incidence are usually on the same person. In indirect tax, they may be on different persons.

33. Elasticity of Tax

Tax elasticity means the ability of tax revenue to change according to changes in income, production or consumption.

Direct tax is less elastic, while indirect tax is more elastic.

34. Inflation Pressure

Direct tax has no inflation pressure.

Indirect tax has inflation pressure because it may increase the price of goods and services.

35. Tax Evasion

Tax evasion means illegally avoiding the payment of tax.

Tax evasion is harmful to the country because it reduces government revenue and affects public welfare programmes.

36. Why Tax Evasion Should Be Avoided

It is not desirable to avoid payment of taxes.

When people avoid tax, the government loses money needed for public services like roads, schools, hospitals, water supply and welfare schemes.

37. Tax and Good Governance

Governance is an important component in the smooth running of a country.

Tax revenue helps the government perform its duties and maintain administration, law and order, public services and welfare schemes.

38. Public Utilities

Public utilities are services provided for the common benefit of people.

Energy, water supply, waste management, transport and public infrastructure are examples of public utilities supported by tax revenue.

39. Responsible Citizenship

Paying tax honestly is a sign of responsible citizenship.

People should understand that tax money is used for the progress of the country and the welfare of society.

40. Importance of Tax in Development

Tax helps the government develop the country.

It supports infrastructure, education, health, security, employment schemes, welfare schemes and economic growth.

Central Idea of the Lesson

The central idea of the lesson is that tax is a compulsory payment made to the government. The government uses tax revenue for public welfare and development. A good tax system should follow the principles of equality, certainty, convenience and economy. Taxes may be direct or indirect, and citizens should pay taxes honestly because tax evasion affects the welfare and progress of the country.

Tax and Taxation – Important Points

Term	Meaning
Tax	Compulsory payment made by people to the government.
Taxation	Process by which the government levies or imposes tax.
Taxpayer	Person or organisation that pays tax.
Tax Revenue	Income received by the government through taxes.
Tax Evasion	Illegal avoidance of payment of tax.

Principles of Taxation

Principle	Meaning
Canon of Equality	Tax burden should be fair and according to the ability of people to pay.
Canon of Certainty	Taxpayer should clearly know the amount, time and method of payment.
Canon of Convenience	Tax should be collected in a manner convenient to taxpayers.
Canon of Economy	Minimum possible amount should be spent in collecting taxes.

Types of Taxation Based on Rate

Type	Meaning
Progressive Taxation	Tax rate increases as income increases.
Proportional Taxation	Tax rate is the same regardless of the size of income.
Regressive Taxation	Tax burden becomes heavier on lower-income people; opposite of progressive taxation.
Degressive Taxation	Tax rate increases up to a limit and then becomes constant.

Direct Tax and Indirect Tax

Direct Tax	Indirect Tax
Tax burden is borne directly by the person on whom it is imposed.	Tax burden can be shifted to others.
Impact and incidence are the same.	Impact and incidence are different.
It is imposed on personal income and corporate income.	It is imposed on goods and services.
It has no inflation pressure.	It has inflation pressure.
It is less elastic.	It is more elastic.
Example: Income tax.	Example: Goods and Services Tax.

Important Taxes

Tax	Meaning / Point
Income Tax	Direct tax imposed on personal income.
Corporate Tax	Tax imposed on income or profit of companies.
Wealth Tax	Tax connected with the value of wealth or assets.
Gift Tax	Paid by the recipient of gift depending on the value of gift.
Estate Tax	Charged from successor of inherited property.
Service Tax	Raised on the provision of services.
Excise Duty	Tax levied on manufacture of goods.
Goods and Services Tax	Tax imposed on goods and services.

Importance of Tax

Use of Tax	Explanation
Education	Tax helps the government run schools, colleges and educational schemes.
Health	Tax supports hospitals, medicines and public health services.
Transport	Tax helps build roads, bridges and public transport systems.
Security	Tax supports police, defence and public safety.
Public Welfare	Tax helps fund pensions, benefits and welfare schemes.
Infrastructure	Tax helps build dams, electricity systems, water supply and waste management systems.

Important Exam Points from the Lesson

Question Focus	Answer
Taxes are	Compulsory payment.
Minimum possible amount should be spent in collection of taxes	Canon of economy.
Opposite of progressive taxation	Regressive taxation.
Income tax is	Direct tax.
Tax raised on provision of service	Service tax.
Government levies or imposes tax	Taxation.
Same tax rate regardless of size of income	Proportional taxation.
Paid by recipient of gift depending on gift value	Gift tax.
Tax burden cannot be shifted by taxpayers	Direct tax.
Indirect tax is	More elastic.
Direct tax has	No inflation pressure.
Indirect tax has	Inflation pressure.
Estate tax is charged from	Successor of inherited property.
Excise duty in India is levied by	Central Government.
GST implemented in India from	1st July 2017.

Vocabulary to Remember

Tax – compulsory payment made to the government.
Taxation – process of levying or imposing tax.
Taxpayer – person or organisation that pays tax.
Revenue – income received by the government.
Public Welfare – activities done for the benefit of people.
Canon – principle or rule.
Canon of Equality – tax should be fair and according to ability to pay.
Canon of Certainty – taxpayer should know amount, time and method of payment.
Canon of Convenience – tax should be convenient to pay.
Canon of Economy – collection cost should be minimum.
Progressive Tax – tax rate increases as income increases.
Proportional Tax – same tax rate for all income levels.
Regressive Tax – tax burden is heavier on lower-income people.
Direct Tax – tax whose burden cannot be shifted.
Indirect Tax – tax whose burden can be shifted.
Income Tax – tax on personal income.
Corporate Tax – tax on company income or profit.
Gift Tax – tax paid by recipient of gift based on gift value.
Estate Tax – tax on inherited property.
Excise Duty – tax on manufacture of goods.
GST – Goods and Services Tax.
Tax Evasion – illegal avoidance of paying tax.
Inflation – rise in general price level.
Public Utilities – public services such as water, energy, transport and waste management.

TET / Exam Focus Areas

Very Important Focus: These are the most expected textbook-based areas from this lesson.

What is tax?
What is taxation?
Why does the government collect tax?
Write briefly about the principles of taxation.
What is canon of equality?
What is canon of certainty?
What is canon of convenience?
What is canon of economy?
What is progressive taxation?
What is proportional taxation?
What is regressive taxation?
Differentiate direct tax and indirect tax.
What is income tax?
What is gift tax?
What is estate tax?
What is Goods and Services Tax?
Why should tax evasion be avoided?
Write about the importance of tax for people’s welfare.

Short Answer Questions and Answers

1. What is tax?

Tax is a compulsory payment made by people to the government without expecting direct return or direct benefit.

2. What is taxation?

Taxation is a term used when the government levies or imposes a tax.

3. Why does the government collect tax?

The government collects tax to provide public services such as education, health, roads, transport, water supply, defence and welfare schemes.

4. What are the principles of taxation?

The four important principles of taxation are canon of equality, canon of certainty, canon of convenience and canon of economy.

5. What is canon of equality?

Canon of equality means that the tax burden should be fair and people should pay according to their ability.

6. What is canon of certainty?

Canon of certainty means that the taxpayer should clearly know the amount of tax, time of payment and method of payment.

7. What is canon of convenience?

Canon of convenience means that taxes should be collected in a way that gives maximum convenience to taxpayers.

8. What is canon of economy?

Canon of economy means that minimum possible amount should be spent in the collection of taxes.

9. What is progressive taxation?

Progressive taxation is a method in which the rate of tax increases as income increases.

10. What is proportional taxation?

Proportional taxation is a method where the rate of tax is the same regardless of the size of income.

11. What is regressive taxation?

Regressive taxation is opposite to progressive taxation. In this system, the tax burden becomes heavier on lower-income people.

12. What is direct tax?

Direct tax is a tax whose burden is directly borne by the person on whom it is imposed. Its burden cannot be shifted to others.

13. What is indirect tax?

Indirect tax is a tax whose burden can be shifted to others. It is usually imposed on goods and services.

14. Give one example of direct tax.

Income tax is an example of direct tax.

15. What is income tax?

Income tax is a direct tax imposed on the income of individuals.

16. What is corporate tax?

Corporate tax is a tax imposed on the income or profit of companies.

17. What is gift tax?

Gift tax is paid to the government by the recipient of a gift depending on the value of the gift.

18. What is estate tax?

Estate tax is charged from the successor of inherited property.

19. What is service tax?

Service tax is a tax raised on the provision of services.

20. What is Goods and Services Tax?

Goods and Services Tax is a tax imposed on the sale, manufacture and use of goods and services.

21. When was GST implemented in India?

GST was implemented in India from 1st July 2017.

22. What is tax evasion?

Tax evasion means illegally avoiding the payment of tax.

23. Why should tax evasion be avoided?

Tax evasion should be avoided because it reduces government revenue and affects public welfare and development activities.

24. What is the difference between impact and incidence of tax?

Impact of tax is on the person on whom the tax is first imposed. Incidence of tax is on the person who finally bears the tax burden.

25. Why is tax important for people’s welfare?

Tax is important because the government uses tax revenue for education, health, roads, transport, water supply, pensions, public utilities and welfare schemes.

How to Write This in Exam

For a short answer, write the direct definition first. For example, if the question asks “What is tax?”, write “Tax is a compulsory payment made by people to the government.”

For a long answer, divide the answer into headings such as meaning of tax, principles of taxation, types of taxation, direct tax, indirect tax, GST, importance of tax and conclusion.

Sample Exam Answer

“Tax and its Importance” is an important Economics lesson in 7th Social Science. Tax is a compulsory payment made by people to the government. It is not a voluntary payment. People pay tax without expecting direct return or direct benefit from the government. Taxation is the process by which the government levies or imposes tax.

The government collects tax to provide public services and welfare schemes. Tax revenue is used for education, health, roads, bridges, public transport, water supply, electricity, defence, pensions, unemployment benefits and waste management. Thus, tax is very important for people’s welfare and national development.

A good tax system should follow certain principles. The four important principles of taxation are canon of equality, canon of certainty, canon of convenience and canon of economy. Canon of equality means tax should be fair and according to the ability of people to pay. Canon of certainty means the taxpayer should know the amount, time and method of tax payment. Canon of convenience means tax should be easy to pay. Canon of economy means minimum possible money should be spent in tax collection.

Taxes are divided into direct tax and indirect tax. Direct tax is a tax whose burden is directly borne by the person on whom it is imposed. Its burden cannot be shifted. Income tax is an example of direct tax. Indirect tax is a tax whose burden can be shifted to others. It is imposed on goods and services. Goods and Services Tax is an important example of indirect tax.

Taxation may also be progressive, proportional, regressive or degressive. Progressive taxation means the tax rate increases as income increases. Proportional taxation means the tax rate is the same regardless of income size. Regressive taxation is opposite to progressive taxation. Tax evasion is illegal and harmful to the country. Therefore, every responsible citizen should pay tax honestly.

One Mark Important Points

Tax – Compulsory payment
Taxation – Government levies or imposes tax
Canon of Economy – Minimum possible amount should be spent in tax collection
Canon of Equality – Tax according to ability to pay
Canon of Certainty – Clear amount, time and method of tax payment
Canon of Convenience – Tax should be convenient to pay
Opposite of Progressive Taxation – Regressive taxation
Same Tax Rate Regardless of Income – Proportional taxation
Income Tax – Direct tax
Service Tax – Raised on provision of service
Gift Tax – Paid by recipient of gift depending on gift value
Direct Tax Burden – Cannot be shifted
Indirect Tax Burden – Can be shifted
Indirect Tax – More elastic
Direct Tax – Less elastic
Direct Tax – No inflation pressure
Indirect Tax – Has inflation pressure
Estate Tax – Charged from successor of inherited property
Excise Duty – Levied by Central Government
GST – Goods and Services Tax
GST Implemented From – 1st July 2017
Tax Evasion – Illegal avoidance of tax payment
Tax Revenue Used For – Public welfare and development

Short Conclusion

“Tax and its Importance” teaches us that tax is a compulsory payment made to the government. Tax revenue is used for public welfare, education, health, transport, defence, infrastructure and development schemes. A good tax system follows equality, certainty, convenience and economy. Taxes may be direct or indirect. Citizens should pay taxes honestly because tax evasion affects the welfare and development of the country. This lesson is important for exams because direct questions can be asked from tax, taxation, principles of taxation, direct tax, indirect tax, income tax, GST, gift tax, estate tax and tax evasion.