24th July | Income Tax Day – “कोष मूलो दण्डः (Kosh Muloo Dand)”

Kosh Muloo Dand- That which would enable the King to perform his functions of looking after (the welfare of people) and traders to remain with the fruits of their trade (both should get adequate rewards according to their industry); this, having been well-considered the King should levy a tax. (Sloka 128 of Chapter 7 of Manu Smriti).

As mark of celebration of 159^th Income Tax Day on 24^th July,2019, CBDT in a mega event to be held in Delhi to be graced by Hon’ble FM and other distinguished personalities of Finance Minstry, CBDT and Income Tax Department would be launching taxpayer’s e-assistance campaign. Through various programs all over India the taxman along with professional bodies and tax payers will conduct camps, seminars, marathons, etc to educate the masses about Income Tax Act and to mitigate their grievances. 

From 2010, we have started celebrating Income Tax Day on 24^th July every year as year 2010 was 150^th year of Income Tax in India.Income Tax Act, was formally introduced by Sir James Wilson in 1860. A bill was introduced by pre-independence finance minister, Sir James Wilson on 7 April, 1860 “An Act For Imposing Duties On Profits In Arising From Property, Professions, Trades And Offices”. It was enforced to meet the losses sustained by then the British government on account of the military mutiny of 1857.While he gave India an invaluable financial governance tool by way of his budget, his income tax act deeply dismayed businesses as well as the zamindars, the landed class. It received the assent of the Governor General on July 24, 1860, and came into effect immediately and therefore 24^th July is celebrated as Income Tax Day. It was divided into 21 parts consisting of no less than 259 sections. The salient features of the Act were: 

Income was divided into four schedules taxed separately:

(1) Income from landed property;

(2) Income from professions and trades;

(3) Income from Securities;

(4) Income from Salaries and pensions.

Tax was imposed on each of these sources. Exemption limit for the general public was fixed at Rs. 200 against the exemption limit of Rs. 4,980 to the military and police and Rs. 2,100 for the naval and marine officers. Agricultural income was subject to tax. The rate of tax was 2 per cent for incomes ranging from Rs. 200 to Rs. 499. And for incomes above this, 4 per cent. Of the 4 per cent charge, 1 per cent was to be retained by provincial governments and 3 per cent was to go to the Central Government. Except in Calcutta, the administration of the tax was left in the hands of the land-revenue officers.The financial year commenced on 1^st August,1980.

Though it is the introduction of this formal taxation by Sir James Wilson that is marked as introduction of Income Tax in India and which we are celebrating every year on 24^th July,but the taxation in India was present even before that.References to tax can be found both in the Manu Smriti and the Arthashastra. It is pertinent to note that Sir James Wilson while introducing the I-T Act in 1860, quoted from Manu Smriti for levying income-tax in the country.Of the two, Manu Smriti is the older text and contains some broad principles of taxation. An English translation of some of the most relevant slokas contained in Chapter 7 of this text is reproduced below:

Considering the protection of that which is already there, and which is to be increased, the King should levy tax on his traders.(Sloka 127)

That which would enable the King to perform his functions of looking after (the welfare of people) and traders to remain with the fruits of their trade (both should get adequate rewards according to their industry); this, having been well-considered the King should levy a tax.(Sloka 128)

Just like a leech, calf and bee draw only small- but- very- small quantities from their respective feeds (i.e. blood, milk and honey), similarly a King should by his orders, take from his subjects, very small amounts of taxes.(Sloka 129)

The King should not destroy his own roots , and the roots of his subjects by excessive greed, because the King destroying his own roots, and the roots of his subjects, makes himself and his people suffer.(Sloka 139)

Kautilya’s  Arthashastra, written in about 300 B.C.E., dealt with the subject of taxation in a much more comprehensive manner. According to him, the power of the government depended upon the strength of its treasury. He states – “From the treasury, comes the power of the government, and the Earth whose ornament is the treasury, is acquired by means of the Treasury and Army”. However, he regarded revenue and taxes as the earning of the sovereign for the services which were to be rendered by him to the people and to afford them protection and to maintain law and order. Kautilya emphasized that the King was only a trustee of the land and his duty was to protect it and to make it more and more productive so that land revenue could be collected as a principal source of income for the State. According to him, tax was not a compulsory contribution to be made by the subject to the State but the relationship was based on Dharma and it was the King’s sacred duty to protect its citizens in view of the tax collected and if the King failed in his duty, the subject had a right to stop paying taxes, and even to demand refund of the taxes paid.

Kautilya has also described in great detail the system of tax administration in the Mauryan Empire. It is remarkable that the present day tax system is in many ways similar to the system of taxation in vogue about 2300 years ago. According to the Arthashastra, each tax was specific and there was no scope for arbitrariness. Precision determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on ad valorem basis. The import duties on foreign goods were roughly 20 per cent of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed. Kautilya’s concept of taxation is more or less akin to the modern system of taxation. His overall emphasis was on equity and justice in taxation. The affluent had to pay higher taxes as compared to the not so fortunate. People who were suffering from diseases or were minor and students were exempted from tax or given suitable remissions. The revenue collectors maintained up-to-date records of collection and exemptions.

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”.

But we consider the year 1860 as the birth year of Income Tax Law in India as it was in this year that it was formally introduced. Time to time this act was replaced by several license taxes.

This Act continued for five years before lapsing in 1865. The Act lapsed in 1865.There was need for more revenue to fight the Anglo-Russian war. So Governor General Lord Dufferin introduced a comprehensive Income Tax Act in 1886. It was a combination of Licence Tax and Income Tax. Taxes were collected in the same manner as land revenue. Under the Indian Income Tax Act of 1886, income was divided into four schedules taxed separately:

(1) Salaries, pensions or gratuities;

(2) Net profits of companies;

(3) Interests on the securities of the Government of India;

(4) Other sources of income.

1918- A new Income Tax was passed. The Indian Income Tax Act of 1918 repealed the Indian Income Tax Act of 1886 and introduced several important changes.It replaced the scheduler Income Tax by a total Income Tax.Income Tax Filing was made compulsory.

1922- Again it was replaced by another new act which was passed in 1922. The novelty introduced by the Income Tax Act of 1922 relative to the Indian Income Tax Act of 1918 was to allow tax rates to be fixed by the annual Finance acts rather than being embodied in the text of the Income Tax Act. The organizational history of the Income-tax Department starts in the year 1922. The Income-tax Act, 1922, gave, for the first time, a specific nomenclature to various Income-tax authorities. The Income Tax Act of 1922 remained in force until the year 1961.

The Income Tax Act of 1922 had become very complicated on account of innumerable amendments. The Government of India therefore referred it to the law commission in1956 with a view to simplify and prevent the evasion of tax

1961– In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed.  The Income Tax Act 1961 has been brought into force with 1 April 1962. It applies to the whole of India (including Jammu and Kashmir).

Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the Union Budget every year which also contains Finance Bill. After it is passed by both the houses of Parliament and receives the assent of the President of India, it becomes the Finance act.

At present, there are five heads of Income:

(1) Income from Salary;

(2) Income from House Property;

(3) Income from Profits and Gains of Business or Profession;

(4) Income from Capital Gains;

(5) Income from Other Sources.

There are XXIII Chapters, 298 Sections and Fourteen Schedules in the Income Tax Act.

As scheduled on 31^st July 2019 the task force on Direct Tax Code would also submit its report on direct tax code and soon the Income Tax Act,1961 would be replaced by Direct Tax Code.

We as citizens of the country should pay proper, timely tax because कोश–मूलो हि दण्डः

These words are part of the original Sanskrit phrase कोश-मूलो हि दण्डः as appearing in Kautiliyan Arthshastra Part 8, Chapter 1, Sentence or verse number 47 (।। ०८.१.४७ ।।). This part of Arthshastra deals with the topic “Concernig Vices and Calamities”. In the discussion Kautilya has considered many prakritis of the state (king) and has concluded that relatively Finance is the most important prakriti of them all because with it can be achieved all that is required.Therefore, the treasury is foundation of administration

While collection of taxes is utmost important for the smooth running and progress of the country but even the income tax department and policy makers should remember the words of –Kautilya in Arthashastra 

“A tax collector should collect taxes from a taxpayer just like a bee collects honey from a flower in an expert manner without disturbing its petals.”

Hope that with digitalization , projects insights, e-sahita, cpgrams, the Vision 2020 document adopted by the Income Tax Department which envisages a non adversarial and effective tax administration, with progressive tax policy and improved tax compliance.Proper, just and effective tax is collected in a smooth manner and together we all should contribute our just share of taxes timely and pay a role in building India of our dreams.