Introduction:-
Taxation is an integral part of any economy for financial management of any Government. Such taxes are not of recent origin rather there is evidence that taxes were levied since ancient times in various forms which may be in kind like grains, gold and forest produce or it may be in the form of money. The word tax has been derived from the latin word Taxare or taxo which means to assess the worth of something.
Need for Taxation
Manu the great law giver of the country in Manusamriti has described the policy behind the taxes thus “As the leech the calf and bee take their food little by little even so must the king draw from his realm moderate annual taxes.” Kalidas in relation to King Dalip has said the taxes should be collected as the sun draws moisture from the earth to give it back a thousand times.
Kautaliya had said that 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 Kautaliya 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 protect them and to maintain law and order. Government also requires huge revenue to manage and run its administration, spend money on essential public services such as health and education and infrastructure such as roads, railways etc. Apart from this the government needs to manage the country’s defence uplift it’s economically weaker sections by providing subsidies and pay its employees.
Indian Taxation History
As we all know that evolution means the process of developing by gradual changes. Taxation history in India as it stands today has developed over the years since ancient times to modern day tax laws. The first Income tax Act was introduced in India in Feb 1860 by James Wilson who was India’s first Finance Minister under the British Rule. He also quoted the authority of Manu for levying Income Tax in India. The salient feature of the then Income Tax Act was that it consisted of 259 sections and other salient features of the Act were as under:-
“Income was classified under four schedules as follows:
i) Income from landed property;
ii) Income from professions and trade;
iii) Income from securities, annuities and dividends;
iv) Income from salaries and pensions.
A tax was imposed on each one of these sources.
The exemption limit for the general public was fixed at Rs. 200, against the exemption limit of Rs. 4980 to the military and the police officials, and Rs. 2100 for the naval and marine officers.
Agricultural income was subject to tax. The rate of tax was 2 percent for income between rs. 200 and Rs. 499 and over that, 4 percent, out of the 4 percent charge 1 percent was to be retained by the provincial Governments and 3 percent was to go to the Central Government. Compulsory returns were required to be submitted by all who were liable to tax. The administration of the tax was left in the hands of the land revenue officers except in Calcutta and the financial year commenced on 1st of August, 1860.”
In addition to above certain other taxes were levied like Custom tax, Salt tax. The Salt Tax was abolished after Salt Satyagrah started after Dandi March by Mahatma Gandhi.
Urban local bodies’ taxation was brought by Lord Rippon in 1882 which was aimed at decentralization which gave power to municipal taxes for development and infrastructure of local areas.
The Act of 1860 was revised in 1886 to improve on some categories for which tax can be levied.
The next important revision was in the form of Income Tax Act 1922 which was very important because it was only then that Income Tax Department came into existence.
After independence the Indian Income Tax Act 1961 came into existence after consultation with the Ministry of Law effective from 1st April 1962. This Act was amended from time to time through Union Budgets and amendments Acts.
It is noteworthy that in the tax history of India at one time the rate of personal income tax was as high as 97.5 percent which has gradually been brought down to 30 percent with additional surcharges etc which varied from time to time. The rate of tax at 30% is lower even than some advanced countries in the world. The corporate taxes has also been reduced considerably upto 15% for certain categories of corporate tax payers.
Amnesty Schemes
It is a well-known fact that people have tendency to under- report their income to avoid paying Income Tax, which lead to loss in tax revenue. To counter the tax evasion the Government from time to time announces the tax Amnesty Schemes. Such schemes generally allow the tax payers to voluntarily disclose their income in exchange for avoiding penalty for tax evasion and sometimes interest also. The waiver of penalty and interest is beneficial to those taxpayers who had hidden their assets and income. Sometimes the schemes are also launched to resolve the disputes and to reduce the litigation and to collect the due taxes. The various schemes which were announced in the past are as under:-
- High currency notes demonetization in 1946
- VDS 1951.
- VDS 1976.
- High currency notes demonetization 1978
- Special bearer bonds 1981
- 1985 Amnesty Scheme.
- Remittance of Foreign Exchange and investment in foreign exchange bonds (immunities and exemptions) Act, 1991
- Voluntary Deposits (immunities and exemptions) Act, 1991.
- Gold Bonds Act (immunities and exemptions). 1993
- Voluntary Disclosure of income Scheme, 1997.
- Kar Vivad Samadhan Scheme 1998
- Income Declaration Scheme 2016
- Direct Taxes Vivad se Vishwas Scheme 2020.
Some of these schemes were aimed at resolution of tax disputes and realization of due taxes. These schemes were also challenged in High Courts and Supreme Court being violative of Article 14 and 123 of the Constitution. When the Voluntary Discloser Income Scheme 1997 (VDIS) was challenged by AIFTP the Honorable Supreme Court sought commitment from the Government that in future Government would not resort to such schemes favoring dishonest taxpayers.
Demonetization:-
The present Government also demonetized Rs. 500/- and Rs. 1000/- notes to curtail the shadow economy, to increase cashless transactions and to reduce to use of counterfeit cash used to fund illegal activity and terrorism. This scheme also had very limited impact but failed to achieve the desired results. Out of total demonetized currency notes of Rs. 15.44 lakh crore, currently worth Rs. 15.28 lakh crore had returned to the RBI Treasury. The reasons are well known to each of us.
Direct and Indirect Taxes
The foregoing discussion mainly related to Income Tax which is a direct tax. Taxes can be broadly categorized into Direct Taxes and Indirect Taxes. Direct Taxes are mainly those taxes which are paid by the people to the authority which imposes the tax and are based on income or spending power.
Direct Taxes are currently levied by the Centre and State separately.
Central Direct Taxes
1) Personal Income Tax
2) Corporate Income Tax
The Central Board of Direct Taxes (CBDT) is the statutory body which deals with the levy and collection of Direct Taxes under the Ministry of Finance.
State Direct Taxes
1) Land Revenue Tax
2) Property Tax
Indirect Taxes
In contrast to Direct Taxes, Indirect Taxes are levied on transactions relating to Goods and Services.
Goods and Services tax (GST) was introduced w.e.f. 1st of July 2017. A large number of Indirect Taxes levied and collected by the Central Government and various State Governments were subsumed into this single tax. Some of the goods and services are still out of the purview of GST Act. The Central Board of Indirect Taxes & Customs (CBIC) is now the statutory body which deals with the levy and collection of GST. GST Council constituted under Article 279-A of the Constitution of India is the governing body for the implementation of GST in India. GST Council is headed by the Ministry of Finance and includes the other members from the Centre and the States. GST Council has the duty to make recommendations about GST to the Union Government as well as the State Governments regarding creation of Laws and principles of implementation and administration of GST.
Conclusion
It is the sacred duty of every citizen to honestly pay the direct and indirect taxes for the smooth functioning of the Government. It is only then that the country can prosper and have strong defence system, education system, health system and a strong infrastructure which is necessary for development of the Country.
Author Bio
It is very interesting to note that the basic limit was Rs. 200 in 1890 and higher limits were there for military and police officials.