Difference Between Tax and Fee In Income Tax Act, 1961

Tax is levied compulsorily by the government on its citizens to defray the expenses of the government. A tax, by definition, is a payment in return for which no direct and specific quid pro quo is rendered to the taxpayer. From the definition of a tax, we can pinpoint some of the important charac­teristics of tax.

Firstly, a tax is a compulsory payment levied by the government on its citizens and various business firms. As payment of tax is compulsory, refusal to pay tax invites punishment.

Secondly, there is no direct quid pro quo relationship between the taxpayer and the tax-levying authority. That is to say, a taxpayer cannot demand any reciprocal benefits for paying taxes.

Thirdly, a tax is levied to incur public expenditure for the benefit of the country as a whole.

Fourthly, the basis of taxation cannot be the same for all periods. It is reviewed periodically by the taxing authority.

On the other hand, a fee is a voluntary payment to the government for the special services rendered by it in the public interest, but conferring a specific advantage on the person paying it.

Now, it is possible to mention some of the important differences between tax and fees:

In the first place, a tax is a compulsory contribution made by a taxpayer. A fee, by definition, is a voluntary payment.

Secondly, as far as tax is concerned, there is no direct give-and-take relationship between the taxpayer and the tax-levying authority.

A taxpayer cannot demand any special favour from the authority in return for taxes paid by him. A fee is a direct payment by those who receives some special advantages or the government guarantees the services who pays fees. Fees are, therefore, deemed to be the by-products of the administrative activities of the government.

Thirdly, fees are mostly imposed to regulate or control various types of activities. But the objectives of taxation are many. It has no separate objective. Taxes are levied in the greater interests of the country.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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