It’s interesting to see how the income tax system evolved over the time. India practiced Taxation as a subject for a well functioning of the society and is being followed many parts of the world. Let’s take a look at how it evolved ?
During Ancient Times
Taxation in India has existed since ancient times. Taxation was considered a sacred duty in Vedic times. It finds its references in many ancient books like “Srimad Bhagavatam”, “Manu Smriti” and “Arthasastra”.
Kautilya’s “Arthashstra” deals with taxation in an elaborate and planned manner suggesting ways to guide a king in running the state in an efficient and fruitful manner. According to him, treasury is the root of administration.
Medieval Time To Modern Time
The system of progressive taxation perhaps owes its origin to emperor Krishnadevraya of Vijayanagar who maintained that taxes should not be levied at flat rates and the amount of tax levied must depend on the income of the farmer. Tax administration was further refined by Sher Shah Suri and later by Akbar. The treaty of 1765 gave Britishers the right to collect taxes on behalf of the emperor. Well before the dissolution of the Mughal Empire in 1857, the British system of District Collectors of land revenue was established.
In the aftermath of the First War of Independence in 1857, the period of British rule in India witnessed many remarkable changes in the taxation system. Although it was highly in favor of the British government and its exchequer, it incorporated the modern and scientific method of taxation tools and systems.
1860 To 1990
The 1860s to up to 1910s
Income Tax in India was introduced by Sir James Wilson on 24 July 1860. It was a tax selectively imposed on the rich, royalty and Britishers, and hence was not liked by the powerful. In its first year, the exchequer collected a princely sum of Rs. 30 lakh. Income Tax Collection for the year 1918-19 stood at Rs. 11 Crore.
The 1920s and 1930s
The most comprehensive Income Tax law was brought about through the Income Tax Act of 1922. Enacted amidst a highly charged atmosphere of the Non-cooperation Movement, the Act of 1922, laid the ground for the growth of the Income Tax Department. In the period between the two world wars, many institutional changes were made to increase the efficacy of the Department. For the first time, tax administration was effectively centralized in the hands of the Central Board of Revenue in 1924. Income Tax Collection for the year 1939-40 stood at Rs. 19.82 Crore.
A shortage of manpower in the Department necessitated direct recruitment of the first batch of Income Tax Officers (Class I) Service in 1945 through the Indian Accounts and Audit Examinations. This Service later came to be known as the Indian Revenue Service. Income Tax Collection for the year 1945-46 stood at Rs. 57.12 Crore
The 1950s and 1960s
The Estate Duty Act, 1953 came into existence. Law Commission Report on new Income Tax Act was submitted in 1958. Direct Taxes Administration Enquiry Committee was set up in 1958. 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. Direct Taxes Collection for the year 1960-61 stood at Rs. 287.47 Crore.
In the year 1970, recovery functions for the collection of Direct Taxes dues performed by State Government officials were assigned to Tax Recovery Officers. Direct Taxes Collection for the year 1974-75 stood at Rs. 1632.02 Crore.
L.K Jha Committee was set up for simplification and rationalization of tax laws in 1987. The Direct Tax Law (Amendment) Act, 1987 introduced uniform previous year and brought about redesignation of ITO Group A as Assistant Commissioner of Income Tax, etc. Direct Taxes Collection for the year 1983-84 stood at Rs. 4232.38 Crore.
1990 To 2010
The 1990s to 2010s
The Indian economy moved towards increased globalization in the 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.
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.
Sec. 260A was introduced in 1998 enabling direct appeals to High Court. Some other changes were also made in that year e.g. 1/6 Scheme & penalty for non-filing of return were introduced to widen the tax base. Gift-tax was abolished. Direct Taxes Collection for the year 1996-97 stood at Rs. 38895 Crore
The Income Tax Department became the biggest revenue mobilizer for the Government in 2007-08, with its share increasing from 34.76%in 1997-98 to 52.75%in 2007-08. Direct Taxes Collection for the year 2004-05 stood at Rs. 132771 Crore.
Modernization in the Income Tax department
Portal: The Department of Taxes launched a portal http://www.incometaxindia.gov.in in the year 2003 to provide a host of informational, interactive and transactional services to the Taxpayers.
e-FILLING: In India, e-filing of income tax was introduced in September 2004, initially on a voluntary usage basis Page 2 380 Mukesh Kumar and Mohammad Anees for all categories of income tax assessee. But from July 2006, it was made mandatory for all corporate firms to e-file their income tax returns.
TAX NETWORK: An All India Tax Network (TAXNET) was set up in 2007 by consolidating 36 independent regional databases into a single centralized database (PDC or Primary Data Centre) at Delhi with a Business Continuity site at Mumbai & limited Disaster Recovery site at Chennai. It created a 2.5 TB consolidated database which was one of the largest databases of Government of India. 718 Income Tax offices in 520 cities are part of this network.
e-PAYMENT: Taxpayers have the facility to pay their taxes online, through ATMs, Debit Cards or Cheques at agency bank branches across the country.
TRPS: Tax Return Preparer Scheme was launched in 2006 to assist individual and HUF taxpayers to file their Return of Income. The Department trained nearly 4700 unemployed or underemployed graduates at 100 centers across the country to enable them to prepare Returns of taxpayers at marginal cost. The scheme used Online Learning Management System for distance learning for the first time.
REFUND: The Refund Banker Scheme was launched in January 2007 in Delhi and Patna charges. Data of Refunds determined by the Assessing Officer gets transferred to the Refund Banker (State Bank of India) which issues refund through Electronic Clearing System (ECS) in cases where MICR code is available or through Cheque if MICR is not available. The scheme has now been extended to the whole country and introduced online refund to the assessee bank account.
ITDMS: Integrated Taxpayer Data Management System (ITDMS) for drawing of 360° taxpayer profile was launched in 2007. The system creates 360° profile by using the huge volume of data available from internal and external databases and builds individual profiles, family relationship by using sophisticated data mining tools and search engine.
CPC: Centralized Processing Centre was set up in Bengaluru in 2009 for bulk processing of e-filed and paper returns. The Centre operates without any interface with taxpayers in a jurisdiction – free manner.
Echo System: As being largest possible tax collection effort in India, Govt of India decided to use the route of enabling private entities to help the tax payers in the country thru ERI mechanism. ERI stands for e-Return Intermediary to facilitate systems to make taxes easy for the end tax payers. EZTax.in is a portal of such kind to help tax payers file their returns and facilitate a way to Save on Taxes.
To replace the 50 years old Income-tax Act, 1961, simplified ‘The Direct Taxes Code Bill, 2010’ was introduced in the Parliament in 2010. Direct Taxes Collection for the year 2017-18 stood at Rs. 10.03 Lakh Crore
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Source: collected from various sources