प्रजानामेव भूत्यर्थं स ताभ्यो बलिमग्रहीत्।
सहस्रगुणमुत्स्रष्टुमादत्ते हि रसं रविः॥ १-१८
‘That king Dilipa takes only one sixth part of people’s income as tax, that too for the sake of a welfare state, indeed, like the sun taking earthly water-drops only to indemnify her with multiples of raindrops thereof.’ [1-18]
-Raghuvamsha of Kalidasa,
where he is eulogising King Dilip
Ancient Taxation System
The general concept of taxation refers to the government mandatorily charging or levying a certain amount from each individual, to make a pool of funds to be used for the public welfare, such as providing for better infrastructure, better resources, better security measures etc. in other words, it is to fund the government, to work for the welfare of the people.
It is a general understanding that taxation is a modern concept; however, it might be surprising for you to find out that there are references to taxation as a concept in sources as old as the Manu Smriti, Mahabharata, Kautilya’s Arthashastra, etc. There is even evidence of taxation existing in the Indus Valley civilisation. Archaeological evidence, however, is limited, but studies suggest that some form of produce/products, such as agricultural produce, crafts and trade goods, were served as taxes to support public infrastructure.
How Ancient India Saw Taxes
Taxation wasn’t just about collecting revenue — it was tied to Dharma (righteousness), the moral duty of rulers, and it emphasised fairness and ethical collection. All of the above-mentioned scriptures provide a guideline for kings taxing their subjects, and emphasising the moral duty of levying them fairly and using them responsibly. In fact, ancient texts such as Manu Smriti warned kings not to squeeze their subjects dry. Instead, it talked about how tax collection should be done in a way that the payer doesn’t feel the pinch of paying taxes. It also cautioned the kings against levying exorbitant taxes or not levying taxes at all. Chanakya, while mentioning taxation in the Arthashastra, balanced economic development with social justice. He mentioned the principles of Equity and Justice and how richer people should pay more in taxes. He supported a progressive taxation system, much like today. All these principles, as mentioned above, were simple enough but highly efficient as well.
This taxation system was subject-friendly, and there were even reliefs provided. It focused on economic stability, sustainability, public welfare, and encouraged domestic/international trade, as well as equitable wealth distribution. Although the tax structure varied across different dynasties, all of them were designed to be fair and rational. Some common features across the taxation systems of ancient times included fair and proportional taxation, multiple revenue sources, efficient administration, ethical governance and utilisation for the public good.
Modern Taxation System
Today’s Tax Code: Complex but Familiar
The modern taxation system is divided into direct and indirect taxation systems, which are codified in different acts. The direct tax system mainly follows the Income Tax Act, 1961. The indirect ones follow a few different acts, but a major one of those is the Goods and Services Act, 2017. The authority of the government to levy taxes is given to it in the Constitution of India. It gives the power of levying taxes to the Union and State governments under the VIIth schedule of the Constitution.
The purpose of modern taxation remains, more or less, the same as the ancient systems, which is to support the government and raise revenue for government expenditures, support economic development, reduce income inequalities, fund social welfare programs, and regulate economic activities to ensure sustainable growth and stability.
Non-compliance with the tax laws, from not filing within the due date to willful tax evasion, makes you subject to penalisation under the Income Tax Act, 1961, either with a fine or imprisonment or both, depending on the nature of the default that one has committed.
Analysis
As read above, the modern tax laws have many more layers to them, and they cater to the wide array of defaults and loopholes that people have come up with over time. The law is much more nuanced now than it was in ancient times. The ancient laws were much more straightforward and simpler. A research paper named ‘The Ancient Indian Taxation System and Its Lessons for Modern Fiscal Policies’ by Prof. Sheikh Mohsin and Prof. Rahul Rathod, published in April 2025, provided a comparison table between the Ancient as well as modern Taxation systems.
| Basis | Ancient Indian Taxation | Modern Indian Taxation |
| Basis of Taxation | Economic capacity and social responsibility | Income, consumption, and corporate earnings |
| Tax Collection System | Direct collection by government-appointed officers | Bureaucratic institutions with digital systems |
| Transparency & Simplicity | Simple and clear taxation rules | Complex tax codes with frequent amendments |
| Utilisation of Revenue | Infrastructure, welfare, defence | Welfare programs, infrastructure, and debt servicing |
| Ethical Considerations | Dharma-based taxation policies | Ethical considerations vary by country |
Conclusion
The way that the modern tax laws work and are structured reflects a bit of the essence that they derived from the ancient tax laws. It shows that they have evolved into what they are today from the ancient laws through such features as Progressive taxation, sustainability and economic stability, and Revenue utilisation for public welfare. Some other facets of the modern tax laws, which could take inspiration from the ancient tax laws, include making the laws a bit simpler and transparent to reduce evasion and increase compliance. Another major point which could be inspired by ancient laws is the ethical taxation and governance practices that were followed in ancient times. Ancient India emphasised ethical collection and utilisation of taxes and making sure the funds were used for public welfare. A major problem that India faces right now is corruption and officials pocketing the money. Modern policies should incorporate such considerations in order to make the whole procedure much more transparent and ethical.
Perhaps, the biggest lesson from history is this — taxation works best not when people fear the law, but when they trust it. Ancient India understood that. Can we, today, bring that trust back?
References
Agarwal, A. (2013). Royal Income and Expenditure System during the Gupta Period: An Assessment of Literary and Inscriptional Data. History Today, Vol 14.
Bandedkar , B., & memon, A. (2023). The Evolution of Taxation in India: From Ancient Civilizations to. International Journal of Research Publication and Reviews, 2578-2581.
BHOSALE, V. (2016). TAX SYSTEM – ANCIENT AND MODERN. Bulletin of the Deccan College Post-Graduate and Research Institute, 145-150.
Ismail, s. M., & Rathod, R. N. (2025). ANCIENT INDIAN TAXATION SYSTEM AND ITS LESSONS FOR. Vidyabharati International Interdisciplinary Research Journal, 8-10.
Mishra, A. (2018). TAX SYSTEM IN INDIA FROM CHANAKYA TO ARUN JAITLEY. International Journal of Creative Research Thoughts, 233-246.
R.Subramanian. (2022). Taxation and State Finance in Ancient India. IJLMH, 252-262.
Sharma, S. K., & Mamta. (2014). RELEVANCE OF ANCIENT MODELS OF ECONOMIC GOVERNANCE: RE-VISITING ANCIENT INDIAN FINANCIAL ADMINISTRATION AND TAXATION. The Indian Journal of Political Science, 237–254.
Singh, P. (2019). Tax Revenue in India:. The Institute for Social and Economic Change.
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