Equality and Tax Classification under Article 14

Article 14 requires tax classifications to be reasonable, not identical treatment of every taxpayer. A tax law may distinguish between persons, incomes, transactions or other taxable subjects if the distinction rests on an intelligible differentia and has a rational connection with the law's objective.

The two-part test of reasonable classification

Article 14 guarantees equality before the law and equal protection of the laws to every person. It prohibits class legislation that arbitrarily favours or disadvantages a group, but permits reasonable classification satisfying two cumulative conditions.

• The classification must rest on an intelligible differentia, meaning an identifiable and understandable distinction separating those included in the group from those excluded.
• That distinction must have a rational nexus with the object sought to be achieved by the legislation.
• A distinction is not valid merely because it is clearly identifiable; it must also be relevant to the legislative purpose.

How the test applies to taxation

The legislature enjoys wide latitude in taxation, because fiscal policy involves selecting sources of revenue and accommodating complex economic conditions. Equality therefore does not require a uniform tax rate or identical treatment of all economic activities.

• Different categories of income, property, transactions or taxpayers may receive different tax treatment when the distinction satisfies the two-part test.
• Differential rates and exemptions are not unconstitutional merely because they create unequal tax burdens; the differentiation must be examined against the purpose of the law.
• Mathematical equality is not required, and practical inequalities arising from a tax scheme do not by themselves establish unconstitutional discrimination.
• Taxpayers who are similarly situated in relation to the law's purpose cannot be treated differently without a reasonable basis.

Judicial deference and its limits

Tax legislation carries a presumption of constitutionality, and the person challenging it ordinarily bears the burden of establishing unconstitutional discrimination.

• In R. K. Garg v. Union of India (1981), the Supreme Court emphasised greater latitude for laws concerning economic activities, recognising the need for legislative experimentation.
• Judicial review examines constitutional validity rather than whether another tax policy would be wiser or fairer.
• Legislative discretion is not unlimited: a classification lacking an intelligible basis or a rational connection with the law's objective can violate Article 14.