What Is the History of Taxation in India?

The word tax comes from taxare or taxo. which is Latin and means to determine or identify the worth of something. Governments impose taxes to use the services provided by it. Taxes are imposed and collected by the state. The state then uses the money collected for various welfare schemes or services and runs the government. The economic strength of a nation is dependent on how good the tax systems of the nation are. Some characteristics of tax are that it is compulsory for the public good, it is paid from one’s income and it improves the revenue of the state.

Evolution

 It was in 1850 that Sir James Willson formally introduced the tax in India. He was the finance minister of the pre -Independent India. He introduced the tax during the first union budget session under British rule. The Indian Income Tax act of 1860 marks the watershed moment for taxation in India. It is through this act that centrally organized taxation began in India. The act was introduced to recover the losses the government suffered from the 1857 military mutiny.

Under this act, the taxation was divided into four subgroups. The incomes from land, professions or trade, securities, and salaries/pensions were taxed under this new act.

The Indian Income Tax act formed the basis of taxation laws in India. However, it was revised and replaced over the course of decades. The law was revised in 1886 to improvise on some categories for which tax can be levied. The new categories included net salaries and profits from businesses.

The next revisions came in 1918 and 1922. The act of 1918 repealed the 1886 act and formed many new important changes. The act of 1922 is extremely important since it has since then that India started to have an operational Income Tax Department. This act distinguished various departments of the Income-tax authorities. Over the years the act became more and more complicated over the years due to the amendments made by various governments over the course of decades. The act of 1922 remained in effect in India till 1961. The act was brought by the British and later in 1956 Government of India referred to a law commission to make it simpler.

The Indian Income Tax act of 1961 came into effect after consultation with the Ministry of law. It was brought into force in April 1962. All citizens of India are bound by this act. Since 1962 many amendments have been made to the act annually by the Union Budget. The bills become acts after it is passed by both upper and lower houses of parliament and get presidential assent to it. Currently, five categories of income are considered for tax. They are as follows: salary, property, capital gains, profits from businesses and other sources of income.

The Income Tax act of 1961 is long. It has 23 chapters, 298 sections and 14 schedules in it.

Conclusion

Direct tax is in the form of taxation in which tax is paid directly by people to the authority which imposes this tax. The word tax comes from the Latin word taxare or taxo. It means to assess the worth of something. Governments impose taxes to use the services provided by it. Some characteristics of tax are that it is compulsory, for the public good, it is a contribution, it is paid from one’s income and it improves the revenue of the state. Some characteristics of tax are that it is compulsory, for the public good, it is a contribution, it is paid from one’s income and it improves the revenue of the state.