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The Income Tax collection system can be traced back to be continuing from the period of ancient civilizations. Interestingly, the history of Income tax in India is also deeply rooted in ancient times.
At present, taxes in India fall under two categories. Income tax is categorized in the direct taxation type of tax in India, the other being the category of Indirect Taxes. The current Income tax structure in India is governed under the Income Tax Act 1961.
In this post, we will discuss and analyze the provenance of the Income Tax system prevailing in India. At the same time, we will study their influence of old taxation systems on the modern-day taxation regime of India.
The main points of analysis in this article are as follows;
Table of Contents
The prevailing Income Tax Act 1961 is the apex rule book for governing income tax in India. However, the current tax system can be traced to ancient sources in origination. The income tax in India is no exception to this phenomenon.
The current income tax provisions are a result of periods of progression right from ancient Indian kingdoms to the pre-economic liberalization era.
The incredible insight of the discussion is how provisions prevailing back to 2000 BC are still useful in modern-day taxation practices.
The Prominent sources of Income-tax provisions are
The Manusmrti is the ancient and prevalent source of income tax provisions. Manusmrti emphasized the strategic imposition and regulation of income tax on the subjects.
As per it, the taxation should not be an aching experience for the subjects. The taxation should be right enough that it should fulfill a reasonable revenue target as well as feels justified to the masses.
The Income Tax provisions as prescribed by the Manusmrti are as follows;
The rates vary according to the conditions influencing crop production. Additionally, the traders and artisans were required to pay Income tax in the form of gold or silver.
The Arthashastra is another prominent source of taxation laws and provisions in India. The Arthashastra can be considered as the first Indian text addressing public finance, financial administration, and fiscal laws in a structured manner.
The book was written by Kautilya in around 2300 BC. It is credited to have an enormous impact on the development of the Income Tax system in India.
Kautilya coded the taxation system according to the principle of “maximum welfare to the society.”
The text focused on establishing a defined taxation code. The policies, tax slabs, and responsibility of tax collectors were pre-determined in the book.
Moreover, the schedule of each payment, due dates of payment, quantity, and kind of commodities accepted were all encoded.
Not just this, the book also mentions the taxation for export & import of goods, toll taxes, etc.
The Income Tax provisions as prescribed by the Arthashastra are as follows;
The tax policies enacted by the British government of India have made the most influencing effect of the present-day taxation system of India.
The enactment of income tax laws structured under British India rule can be credited to the famous event of mutiny. The mutiny of 1857 by Indian soldiers of the British army caused heavy losses to the British government of that time.
The Income Tax Act was introduced in the year 1860 to meet the losses incurred as a result of mutiny. The Act of 1860 was implemented for a period of 5 years and quashed consequently.
The subsequent Act to be enacted was the Income Tax Act 1867
The prominent features of the Income Tax Act 1860 are as followed;
The Income Tax Act of 1918 brought some major changes in the income tax system. For the first time, the receipts and deductions of casual or non-occurring nature were also included under the computation of taxable incomes.
The income tax of 1922 was the most significant milestone in the history of income tax system in India. The Act is credited to represent the first organized income tax structure in India.
The Act of 1922 provided the much-needed flexibility in the taxation system of India for Income Tax. Moreover, it laid a proper system of tax administration in India that remained in function for the next 40 years.
The prominent features of the income tax act 1922 are as follows;
The Income Tax Act of 1922 was the governing book for income tax in India until 1962. The Act met with several amendments ever since its enactment.
However, a new act, the Income Tax Act of 1961, was enacted by the government in the year 1961. The history of income tax in India entered in to a new era after enactment of the same.
The Act of 1961 is the regulatory Act for income tax India till now. The income tax rules of 1962 followed the Act.
The prominent features of the Income Tax Act 1961 are as follows;
a. Income from salaries
b. Income from business and profession
c. Income in the form of capital gains
d. Income from house property
e. Income from other sources
In the year 1994, PAN (Permanent Account Number) was launched. PAN aimed to accredit a unique identification number to the taxpayer.
Permanent Account Number is being used to track the taxation correspondence of the taxpayer. It is also being utilized to record TDS/TCS credits, high-value transactions of the linked taxpayer.
The present income tax system is governed by the provisions of the Income Tax Act 1961. However, the prevailing tax system underwent a lot of changes and amendments since the implementation of the Act of 1961.
Although the organizational structure of the tax system is derived from 1961, the provisions changed at regular intervals. The moves were inspired by the advisory of tax committees as well to suit the needs of the hour.
The income tax slab of a year can be inconsistent in comparison to the previous years. There can be changes in the list of direct taxes as well as the type of taxes that can be further defined by the government.
The present income tax system addresses the need for modern-day taxpayers. The taxation structure went through multiple changes to make taxation a hassle-free experience for the subjects as well as the tax collection authorities.
Modernization of the tax payment system was a result of the same legacy.
Prominent features of the contemporary taxation system are dominated by the confluence of technology and taxation system. They are as follows;
The official website of the Income Tax Department was launched in the year 2003. The website became a one-stop solution to gather all income tax-related information for the taxpayers.
The Income Tax department facilitated the taxpayers to pay taxes through electronic payment gateways. They can pay their taxes via online banking, debit cards, credit cards, e-challan, etc.
The e-filing portal was launched in the year 2006-2007. The e-filing option facilitated the taxpayer to submit their tax returns online.
The ancient sources of taxation code have a considerable influence on the present taxation system. Many taxation policies and procedures can be sourced back to ancient times.
Manusmrti advised having a flexible taxation system. The rate of taxation should not be excessive to a level that the subjects feel compel to exempt tax liabilities.
Additionally, the text also mentions having different taxation slabs for people engaged in a different occupation. At the same time, the circumstances of taxpayer should be taken into account for computing taxable income.
The aspect of flexibility found in the present tax system can be traced from the given text.
The Arthashastra laid down the principle of maximum social welfare for tax administration. The book also mentions the principle of justice and equity. Both of the policies were duly adopted in our present taxation system.
As per the code book, the fortunate should pay higher taxes as compared to the less privileged sections of the state.
People deemed unfit for paying income tax such as diseased or students were duly exempted from tax liabilities or were provided with remissions.
Similarly, the elderly are imposed with a lower rate of taxation as per the existing tax slab of the income tax.
The Income Tax Act enacted during the British regime in India laid the foundation for future statutory acts for Income Tax. The income tax policies framed during the period laid down a strong foundation for organized income tax administration in India.
The flexibility of tax rate as per the budgetary needs of the state as prevailing in the current system was first mentioned in this period. These policies had great impact on the history of income tax in India.
The income tax rate slab at present is as follows;
The striking resemblance between the ancient taxation systems and the prevailing one is impressive. Taxation system prevalent 2300 years ago are still in practice in their evolved version.
The study of the History of income tax in India helps to understand the origin of contemporary income tax practices. The insightful legacy of ancient taxation regimes is a guiding light for present tax administration.
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