History of Income Tax of India

“It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold” –

–Kalidas in Raghuvansh eulogizing KING DALIP.

Taxation of India in Ancient Times.

In India, the system of direct taxation as it is known today, has been in force in one form or another even from ancient times. There are references both in Manu Smriti and Arthasastra to a variety of tax measures. The detailed analysis given by Manu Smriti and Arthasastra on the subject clearly shows the existence of a well-planned taxation system, even in ancient times. Not only this, taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls. Taxes were paid in the shape of gold-coins, cattle, grains, raw-materials and also by rendering personal service.

 

The learned author K.B.Sarkar commends the system of taxation in ancient India in his book “Public Finance in Ancient India”, (1978 Edition) as follows:- “Most of the taxes of Ancient India were highly productive. The admixture of direct taxes with indirect Taxes secured elasticity in the tax system, although more emphasis was laid on direct tax. The tax-structure was a broad based one and covered most people within its fold. The taxes were varied and the large variety of taxes reflected the life of a large and composit population”.

Let’s Take small part from Manu Smriti:

Manu, the ancient sage and law-giver stated that the king could levy taxes, according to Sastras. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation and stated that both extremes should be avoided namely either complete absence of taxes or exorbitant taxation. According to him, the king should arrange the collection of taxes in such a manner that the subjects did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances.

The Establishment of Income Tax in Modern India

The history of Income-Tax in modern India dates back to 1860 when the first Income Tax Act was introduced by James Wilson who became (British) India’s first finance member.

First Income Tax Act came in force on 24th July 1860 with the approval of The Governor General. It was a tax selectively imposed on the rich royalty and Britishers. For the first year of tax the government collect Rs 30 Lakhs. The act lapsed in 1865 and was reintroduced in 1867.

There was need for more revenue to fight Anglo-Russian war. So Governor General Lord Dufferin introduced a comprehensive Income Tax Act in 1886. It was combination of Licence Tax and Income Tax. Taxes were collected in the same manner as land revenue.

The most comprehensive Income Tax Law was the Income Tax Act of 1922. 1919 Chelmsfod reforms made a distinction between the functions and resources of the state and the Central Govt. and Income Tax became a primary source of revenue for the central Government.

Salient features of 1922. Act included the following.

1. Rates of taxes are to be decided every year by a special Finance Act at the time of the Annual Budget.

2. It provided for exparte assessment.

3. T.D.S. (Tax deducted at source) was made compulsory for private employers.

4. Reopening of the assessment was permitted.

Tax Collected in the year 1922 was Rs 22 crores.

After Independence, 1947.

1. Based on the recommendations of Prof. Nicholas  Kaldor, the Wealth Tax Act, 1957, the Expenditure  Tax Act, 1957 and the Gift Tax Act, 1958 were introduced.

- IRS (DT) Staff College started functioning at Nagpur from the year 1957 to train directly recruited ITOs ClassI.

- From1959,directly recruited officers in Class I started attending foundational training alongwith other Central and All India Services at National Academy of Administration, Mussoorie. Law Commission Report on new Income Tax Act was submitted in 1958.

- Direct Taxes Administration  Enquiry Committee was setup in 1958.

2. Income Tax Act, 1961 came into existence with effect from  01.04.1962, based on the recommendations of the Law  Commission and the Enquiry Committee.

- The Central Board of Revenue Act, 1963 replaced the Central  Board of Revenue with two different Boards viz. Central  Board of Direct Taxes (CBDT) and Central Board of Excise and  Customs (CBEC) for administering direct and indirect taxes  respectively

- In 1966, Intelligence Wing was created and placed under the  charge of Directorate of Inspection (Investigation). Committee for rationalization and simplification of tax structure (Bhoothalingam Committee) submitted its report  in 1967.

- Based on its recommendations, Summary Assessment Scheme was first introduced in 1968.

3. The Indian economy moved towards increased globalization in 1990s. In 1993, Authority for Advance Rulings was set up to provide the non- residents with the facility  of ascertaining in advance their Income Tax liability.

4. The Permanent Account Number (PAN), a 10 digit alphanumeric number was launched in 1994. It acts as a unique identifier and enables the  Department to link all transactions like tax payment, TDS / TCS credits, Income Tax Returns, High Value Transactions etc. to individual taxpayers.  More than 12 Crore PANs have been allotted till date.

Modernization and Tax Payer Services

While rationalization of tax rates reflected the first phase of tax-reforms of 90s, modernization and technological upgradation and rolling out of Taxpayer Services constituted the other. Several new initiatives were taken.

1. WEBSITE – The website of the Department http://www.incometaxindia.gov.in was launched in the year 2003 to provide a host of informational, interactive and transactional services to the Taxpayers.

2. E-PAYMENT – Taxpayers have the facility to pay their taxes online, through ATMs, Debit Cards or Cheques at agency bank branches across the country

3. E-FILING – In 2006-07 the high impact and high visibility project for electronic filing (e-filing) of Income Tax Returns was launched. Returns could be filed online using digital signature, without digital signature or through e –Return intermediaries. In the first year 3.63 Lakh taxpayers used this facility. The number has now grown to 3.41 Crore in the year 2014-15.

Direct Tax Collections

Rs. (In Crores)

Future plan of Income Tax of India

Vision

“To partner in the nation building process through progressive tax policy, efficient and effective administration and improved voluntary compliance”

Mission

- To formulate progressive tax policies

- To make compliance easy

- To enforce tax laws with fairness

- To deliver quality services

- To continuously upgrade skills and build a professional and motivated workforce.

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(This article was posted by Karan Khatri on his blog cakagyaan )