States should have power to levy and collect income tax

According to the Constitution of India, income tax is a central subject. The Central Govt has only a few offices in states that too in cities and large towns. On the other hand state governments have offices even in remote villages. For example Village Administrative offices (VAO) which issue various certificates like income certificates, Community Certificates, Nativity Certificates etc, are located in all revenue villages. So, it is easy for state governments to know if any particular individual or company may have taxable income. The VAOs can maintain and update data on those having taxable income. This will minimize and almost eliminate the need for raids by income tax officers.

Further, instead of the central government collecting income tax and transferring part of the same to states, the state governments themselves can levy and collect the same. In order that the people are not taxed too much, the Finance Commission can suggest maximum central and state tax rates which together should not exceed the current or reasonable level. This is similar to the central and state GST.

In this context, it will be appropriate to state that the income which is invested for productive purposes like establishment of factories, transport organizations, commercial farming, service industries etc. which generate considerable employment, should be exempted from tax. After all the governments which collect taxes, are expected to use the money mostly for employment generating activities.

It may be added that in United States, most of the states levy income tax in addition to the Federal Government.

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