This article is written by VAIBHAV SINGH, Student of BALLB (3rd year) of ASIAN LAW COLLEGE during his internship at Ledroit India
Abstract
The term tax refers to the process of determining the worth of something. Direct tax is a type of taxation in which people pay tax directly to the authority that imposes the tax. Governments levy taxes on people who use their services. It is paid from one’s income and contributes to the state’s revenue, which leads to the state’s development. This article discusses the history of taxation laws in India.
Keywords: Taxation, tax, laws, Manusmriti, Arthashathra, Income.
Introduction
The word tax originates from a Latin word taxare or taxo, which means to determine or define the value of something. To use the services provided by the government, taxes must be paid. The state imposes and collects taxes. The state then controls the government and spends the money gathered on various welfare programmes or services. The quality of a country’s tax structure determines how strong its economy is. Taxes have a variety of attributes, including the fact that they are required for the general welfare, that they are paid from one’s income, and that they increase state revenue.
Evolution of taxation laws in India
Sir James Wilson was responsible for the initial introduction of tax laws in India. James Wilson, the pre-independence finance minister, presented India’s first “Union Budget” on April 7, 1860 and also introduced the Indian Income tax act,1860. These included tobacco duty, licencing tax, and income tax. The Indian Income Tax Act of 1860 was put into effect to compensate for the losses the government suffered as a result of the military mutiny of 1857. The ‘Income tax’ was to be levied in four different categories. These are:
(1) Landed-property income,
(2) Income from jobs and trades
(3) Securities Income
(4) Earnings from Salary and pension.
The foundation of India’s tax laws was the Indian Income Tax Act of 1860. However, it was revised and replaced over the course of decades. In the year 1918, a new Income tax act was passed and again it was replaced by the another act knows as income tax act of 1922. The income tax act,1922 remained in operation till 1961-62. In 1962 ministry of finally came with a Income tax act,1962. This act came into force on 1 april,1962 and its applicable to whole of India including the areas of Jammu and Kashmir and sikkhim. Since 1962, many amendments were made in the Income tax act by the union budget.
History of Income tax in India in Ancient times.
In India, the direct taxation system has existed in some form or another since ancient times. A variety of taxation methods are stated in both the Manu Smriti and the Arthasastra. According to the information provided by Manu Smriti and Arthasastra, we can say that a logical taxation system existed even in ancient times. In addition to this, taxes were levied on a number of various types of people, including performers, dancers, singers, and even dancing girls. In the past, taxes may be paid with gold coins, cattle, cereals, raw resources, or by offering personal service.
- Manu Smriti
The Manusmrti is the first and most important source of tax laws. Manusmrti places a strong emphasis on the subjects’ strategic imposition and regulation of income tax. Manu Smriti states that the tax should not be a painful experience for the subject or the tax payers. The taxation must be fair enough to both achieve a reasonable revenue goal and be acceptable to the general public.
The Manusmrti’s provisions for income tax are as follows:
- Traders and artisans both would pay 20% of their respective incomes as income tax.
- Farmers would pay 1/6, 1/8, or 1/10 of the production’s overall worth. Depending on the factors affecting crop output, the rates change. Additionally, income tax had to be paid by traders and artists in the form of gold or silver.
- Arthashastra
Another important source of Indian tax laws and rules is the Arthashastra. It is one of the Indian works that mentions public finance, financial management, and financial rules in an organised fashion is the Arthashastra.
Kautilya wrote the text somewhere around 2300 BC. It was said to have had a significant impact on the expansion of India’s income tax system. Kautilya hinted the taxation system as per the principle of “greatest welfare to the society”.
The establishment of a clear taxation code was discussed in the text. The book contains predetermined rules on tax slabs, tax obligations, and tax collector duties. Additionally, the amount and kind of acceptable commodities, as well as the timetable for each payment and the payment due dates, were all encoded. The book also talks about the toll taxes, merchandise import and export taxes, and other taxes.
According to the Arthashastra, the Income Tax provisions are as follows:
- Farmers would pay a set rate of 1/6 of their yield as land taxes.
- Privileged individuals would pay greater taxes, and less privileged individuals would pay lower taxes.
- Strict adherence to the law and little flexibility for tax collectors.
- The Indian Income Tax Act of 1860
The tax policies formed by the British-India government during the 1860 had the most impact on the the country’s current tax structure or tax laws. The Indian Income Tax Act was introduced in the year 1860 to make up for the losses suffered by the government as a result of the military mutiny of 1857.
The main features of the Income Tax Act 1860 are-
- Tax-free treatment of agricultural produce earnings.
- Tax exemption was granted for life insurance premium payments.
- Hindu Undivided Families were treated separately as a taxable unit.
- The Income Tax Act of 1918
In 1918, a separate Income tax act was passed which repealed the earlier act of 1886. The act of 1918 made some major changes in the Indian system of tax. For the first time, the receipts and deductions of casual or non-occurring nature were also included in the computation of taxable income.
The following are the main characteristics of the Income Tax Act of 1860:
- When calculating net income, non-recurring receipts that occurred during commercial or professional operations were also taken into account.
- Non-recurring deductions were taken into account while calculating taxable income.
- The Income Tax Act of 1922
The most significant turning point in the development of India’s income tax system was the income tax of 1922. The Act is recognised as the main organised system of income tax in India.
The Act of 1922 provided India’s income tax system with the much-needed flexibility. Additionally, it established a reliable system of tax administration in India that was in use for the following 40 years.
The Income Tax Act of 1922 has the following features:
- The tax rate was chosen in accordance with the budgetary demands of the time period in question. It was no longer necessary to amend the Act in order to alter the rate of tax imposition.
- The Income Tax Act of 1961
Until 1962, the Income Tax Act of 1922 was the primary law for the collection of income tax in India. Since its inception, the Act has undergone multiple changes. The act of 1922 has undergone multiple changes since it was enacted. The Indian government after consultation with law ministry came up with a new act, the Income tax act of 1961. It came into force in April,1962. With the enactment of this act, the history of Income tax in India entered into the new era.
The following are the characteristics of the Income Tax Act of 1961:
- Income tax was levied on five categories of income, which are as follows:
- earnings from earnings
- Business and professional earnings
- Capital gains as a source of income
- Earnings from real estate
- Earnings from other sources
- For the first time in India, a revenue audit system was presented to compute taxes.
- The evaluation system for the duties performed by income tax officers came into effect.
Conclusion
The History of Income Tax in India can assist you in understanding the origin of current income tax practises . The intuitive legacy of ancient taxation rules serves as a guiding light for India’s current tax administration. The ancient tax system was based on the principle of maximum social welfare.
