“A REPORT ABOUT TAXATION”

PROJECT REPORT

Submitted by
Reg. No - P21BA017
Batch 2021 -2023
In partial fulfillment for the award of the degree
of
MASTER OF BUSINESS ADMINISTRATION

Under the supervision and guidance of

DR A. BALAMURUGAN

DEPARTMENT OF MANAGEMENT STUDIES

BHARATH INSTITUTE OF HIGHER EDUCATION AND
RESEARCH
Selaiyur, Chennai – 73.
JANUARY 2023
 DEPARTMENT OF MANAGEMENT STUDIES
BHARATH INSTITUTE OF HIGHER EDUCATION AND
RESEARCH
Selaiyur, Chennai – 73

BONAFIDE CERTIFICATE

This is to certify that the project report on “A REPORT ABOUT TAXATION” is

a bonafide work submitted by S EMMANUEL in partial fulfillment of the degree
of Master of Business Administration in the Department of Management Studies,
Bharath Institute of Higher Education and Research during 2021-2023. This
certificate is issued based on the declaration by the candidate.

HEAD OF THE DEPARTMENT

INTERNAL EXAMINER EXTERNAL EXAMINER

Company Certificate
 CERTIFICATE OF THE SUPERVISOR

I, certify that the Project titled “A REPORT ABOUT

TAXATION” for the Degree of Master of Business Administration by

EMMANUEL S (REGISTER No. P21BA017) is the record of research

work carried out by him during the period of (From December 22 To

January 23) 2023 under my guidance and supervision and that this work

has not formed the basis for the award of any degree, diploma,

associateship, fellowship, titles in this or any other University or other

similar institutions of higher learning.

Place :

Date : Supervisor
 DECLARATION

I, EMMANUEL S (REGISTER No. P21BA017), declare that the summer

internship project titled “A REPORT ABOUT TAXATION submitted by me

during the period 2021-2023 under the guidance of DR A. BALAMURUGAN and

has not formed the basis for the award of any degree diploma, associateship,

fellowship, titles in this or any other University or other similar institutions of higher

learning.

Place: Chennai EMMANUEL S

Date: 03/01/2023 Roll No : P21BA017

 ACKNOWLEDGEMENT

I wish to express my heart full thanks to, Dr. J. Sundeep Aanand, President and Dr

Sweetha Sundeep Aanand, Managing Director, Bharath Institute of Higher Education and

Research, for their encouragement that we are receiving for our academic career.

I am also indebted to Dr J Hammed Hussain, Dean Engineering who encouraged me at

each and every step of this project work

I express my sincere thanks to Dr S Praveen Kumar, Dean, School of Commerce &

Management Studies and Dr Magdalene Peter, Head of the Department, Management

Studies, I devote my thanks to esteemed (Guide name), for their encouragement and the valuable

guidance throughout the project work.

I thank my company guide, Emmanuel Associates, Stalin C his support to complete this project.

My love, affection and thanks to my parents for their impeccable support and constant

encouragement that took me a long way in completing my project.

I also thank all my friends for their help and support during the course of the project.
 TABLE OF CONTENTS

SNO: CONTENTS PAGE NO:

1 CHAPTER – I
History of Taxation

2 CHAPTER – II
History of Taxation in India

3 CHAPTER – III
Direct Taxation in India

4 CHAPTER – IV
Indirect Taxation in India

5 CHAPTER – V
Tax Regime in India

6 CHAPTER – VI
Conclusion
7 Bibliography
 CHAPTER – I
History of Taxation
History of Taxation:
A tax is a compulsory financial charge or some other type of levy imposed on a
taxpayer (an individual or legal entity) by a governmental organization in order
to fund government spending and various public expenditures (regional, local, or
national), and tax compliance refers to policy actions and individual behavior
aimed at ensuring that taxpayers are paying the right amount of tax at the right
time and securing the correct tax allowances and tax reliefs. The first known
taxation took place in Ancient Egypt around 3000–2800 BC. A failure to pay in
a timely manner (non-compliance), along with evasion of or resistance to
taxation, is punishable by law. Taxes consist of direct or indirect taxes and may
be paid in money or as its labor equivalent.

Most countries have a tax system in place, in order to pay for public, common
societal, or agreed national needs and for the functions of government. Some levy
a flat percentage rate of taxation on personal annual income, but most scale taxes
are progressive based on brackets of annual income amounts. Most countries
charge a tax on an individual's income as well as on corporate income. Countries
or subunits often also impose wealth taxes, inheritance taxes, estate taxes, gift
taxes, property taxes, sales taxes, use taxes, payroll taxes, duties and/or tariffs.

In economic terms, taxation transfers wealth from households or businesses to

the government. This has effects on economic growth and economic welfare that
can be both increased (known as fiscal multiplier) or decreased (known as excess
burden of taxation). Consequently, taxation is a highly debated topic by some,
although taxation is deemed necessary by general consensus in order for society
to function and grow in an orderly and equitable manner, others such as
libertarians and anarcho-capitalists denounce taxation broadly or in its entirety,
classifying it as theft or extortion through coercion and the use of force.
History

The first known system of taxation was in Ancient Egypt around 3000–2800 BC,
in the First Dynasty of the Old Kingdom of Egypt. The earliest and most
widespread forms of taxation were the corvée and the tithe. The corvée was forced
labor provided to the state by peasants too poor to pay other forms of taxation
(labor in ancient Egyptian is a synonym for taxes). Records from the time
document that the Pharaoh would conduct a biennial tour of the kingdom,
collecting tithes from the people. Other records are granary receipts on limestone
flakes and papyrus. Early taxation is also described in the Bible. In Genesis
(chapter 47, verse 24 – the New International Version), it states "But when the
crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as
seed for the fields and as food for yourselves and your households and your
children". Samgharitr is the name mentioned for the Tax collector in the Vedic
texts. In Hattusa, the capital of the Hittite Empire, grains were collected as a tax
from the surrounding lands, and stored in silos as a display of the king's wealth.

In the Persian Empire, a regulated and sustainable tax system was introduced by
Darius I the Great in 500 BC; the Persian system of taxation was tailored to each
Satrapy (the area ruled by a Satrap or provincial governor). At differing times,
there were between 20 and 30 Satrapies in the Empire and each was assessed
according to its supposed productivity. It was the responsibility of the Satrap to
collect the due amount and to send it to the treasury, after deducting his expenses
(the expenses and the power of deciding precisely how and from whom to raise
the money in the province, offer maximum opportunity for rich pickings). The
quantities demanded from the various provinces gave a vivid picture of their
economic potential. For instance, Babylon was assessed for the highest amount
and for a startling mixture of commodities; 1,000 silver talents and four months
supply of food for the army. India, a province fabled for its gold, was to supply
gold dust equal in value to the very large amount of 4,680 silver talents. Egypt
was known for the wealth of its crops; it was to be the granary of the Persian
Empire (and, later, of the Roman Empire) and was required to provide 120,000
measures of grain in addition to 700 talents of silver. This tax was exclusively
levied on Satrapies based on their lands, productive capacity and tribute levels.

The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written
in three languages "led to the most famous decipherment in history—the cracking
of hieroglyphics".

In the Roman Republic, taxes were collected from individuals at the rate of
between 1% and 3% of the assessed value of their total property. However, since
it was extremely difficult to facilitate the collection of the tax, the government
auctioned it every year. The winning tax farmers (called publicani) paid the tax
revenue to the government in advance and then kept the taxes collected from
individuals. The publicani paid the tax revenue in coins, but collected the taxes
using other exchange media, thus relieving the government of the work to carry
out the currency conversion themselves. The revenue payment essentially worked
as a loan to the government, which paid interest on it. Although this scheme was
a profitable enterprise for the government as well as the publicani, it was later
replaced by a direct tax system by the emperor Augustus; after which, each
province was obliged to pay 1% tax on wealth and a flat rate on each adult. This
brought about regular census and shifted the tax system more towards taxing an
individual's income rather than wealth.

Islamic rulers-imposed Zakat (a tax on Muslims) and Jizya (a poll tax on

conquered non-Muslims). In India this practice began in the 11th century.
Trends

Numerous records of government tax collection in Europe since at least the 17th
century are still available today. But taxation levels are hard to compare to the
size and flow of the economy since production numbers are not as readily
available. Government expenditures and revenue in France during the 17th
century went from about 24.30 million livres in 1600–10 to about 126.86 million
livres in 1650–59 to about 117.99 million livres in 1700–10 when government
debt had reached 1.6 billion livres. In 1780–89, it reached 421.50 million livres.
Taxation as a percentage of production of final goods may have reached 15–20%
during the 17th century in places such as France, the Netherlands, and
Scandinavia. During the war-filled years of the eighteenth and early nineteenth
century, tax rates in Europe increased dramatically as war became more
expensive and governments became more centralized and adept at gathering
taxes. This increase was greatest in England, Peter Mathias and Patrick O'Brien
found that the tax burden increased by 85% over this period. Another study
confirmed this number, finding that per capita tax revenues had grown almost
sixfold over the eighteenth century, but that steady economic growth had made
the real burden on each individual only double over this period before the
industrial revolution. Effective tax rates were higher in Britain than France the
years before the French Revolution, twice in per capita income comparison, but
they were mostly placed on international trade. In France, taxes were lower but
the burden was mainly on landowners, individuals, and internal trade and thus
created far more resentment.

Taxation as a percentage of GDP 2016 was 45.9% in Denmark, 45.3% in France,

33.2% in the United Kingdom, 26% in the United States, and among all OECD
members an average of 34.3%.
 CHAPTER – II
History of Taxation in India
History of Taxation in India:

The word ‘tax’ is derived from the Latin word taxare or taxo. It means ‘to assess

the worth of something’. Taxes are imposed by government for the use and

service of the State. They are levied and collected by the State for the purchase

or sale of merchandise or a service. Taxes provide revenue to the state, and is

therefore one of the most significant aspects of any system of administration by

any form of government.

The strength of an economy depends upon how good the tax system is. A just tax

system can propel the economic growth of a country and lead to its prosperity.

This in turns makes its citizens happy and more productive. An efficient taxation

policy leads to growth in GDP; it is considered sound if it performs allocative,

distributional and stabilization function in the economy.

There are two types of taxes – direct and indirect. Direct taxes are those that an

entity remits to the government directly, and include income tax, property tax,

etc. indirect taxes are those that an entity remits through third parties. Service tax

is an example of indirect tax imposed by the government of India.

Any tax imposed by the government (Central, state or local) has the
following important characteristics:

It is mandatory:

Since any form of tax is imposed by the government for the benefit of the country,
it is required by law to pay taxes.

It is a contribution:

Tax is a contribution made by citizens for the betterment of their country. The
government of India provides basic healthcare, infrastructure, defence, etc. with
the money collected from taxes

It is for public benefit:

The purpose of collecting taxes is for the benefit and upliftment of the society in
general. Taxes are not supposed to favour specific individuals. Disaster
maintenance and rescue is an important aspect of the money collected in the form
of taxes

It is paid out of income earned or wealth:

You pay tax only when you generate income. If an individual does not generate
a minimum threshold income (defined and modified from time to time by the
government), they need not pay some taxes like income tax.

It boosts economy:

This is one of the most important aspects of collecting taxes. Since the
government provides for infrastructure in the form of roads, trains, power
stations, damns, etc., it utilizes the tax revenue for economic growth of the nation
History of Taxation in India

Income is the money that an individual or business receives in exchange for

providing a good or services. A formal tax system was in existence in India since
the time of Maurya dynasty. The higher class of citizens contributed 1/6th of their
income as tax. It is said that even before the Mauryas, tax was mentioned in Manu
Smruti, one of the most ancient scriptures of India. The subsequent Mughal
invaders brought with them their own taxation system. The infamous Jezia was a
tax imposed on the non-Islamic people of the land. In India, it was abolished by
Akbar.

The income tax as we know today was first introduced in India in 1860 by the
British. It was introduced to compensate for the losses sustained by the
government due to the rebellion of 1857. Income tax is defined as the annual
charge levied on both earned income (wages, salaries or commission) and
unearned income like dividends, interest or rent. In addition to financing a
government’s operations, progressive income taxation is designed to distribute
wealth creation more evenly in a population and to serve as buffer in case of
fluctuations in the economic cycle. There are two basic types of income tax:
personal income tax and corporation income tax.

The Income Tax Act was passed in India in 1886, and there have been constant
revisions and refinements in the Act since then. After the first World War, a new
Income Tax Act was passed, in 1918, again to counter the residual effects of
economic devastation caused by the war. This income tax Act was in place till
1922, when it was replaced by another Act. After 40 years, and 15 years after
India gained freedom from the British, the income tax Act was modified again.
The current Income Tax Act has been adopted in 1961, and bought into force with
effect from April 1, 1962. It encompasses the whole of India, including Sikkim,
Jammu and Kashmir. The Central Board of Revenue bifurcated and created a
separate Board for Direct Taxes called as the Central Board of Direct Taxes under
the aegis of Central Board of Revenue Act, 1963.

Currently, there are five broad heads under which income is taxed by the
govt. of India:

 Income from salary

 Income from business or profession
 Income from capital gains
 Income from property
 Income from other sources

Each successive government amends the Act with an aim to finance government
operations, and to try and distribute wealth more evenly. A noticeable feature of
the Income Tax Act of India is that agricultural income in India is not taxable.
Income tax in India (and all other countries) is assessed annually for the previous
financial year.

India currently has a three tier setup for taxation. The central government and the
state government can both impose tax. The State government in turn can delegate
taxation to the local governing bodies like the municipal corporations and
grampanchayats. It is said that that the Indian tax system is one of the most
complex in the world, including the likes of income tax, wealth tax, property tax,
gift tax, sales tax, VAT, custom duty, excise duty (now replaced by GST),
corporate tax, income tax and a plethora or other taxes? Indeed, it is one of the
reasons why there is a high demand in India for income tax consultants, GST
consultants, auditors, and other professionals.

As a nation evolves, its needs change. India is no exception. No doubt as the

nation progresses, the tax structure of India will undergo many refinements. For
example, the Goods and Services Tax (GST), which has replaced the Central and
State indirect taxes such as VAT, excise duty and service tax, was implemented
in India on July 1, 2017. GST has been already introduced in more than 160
countries, starting from France where it was introduced way back in 1954. So, it
can be safely said that GST is a tired and tested taxation solution; India need not
worry unnecessarily about its effectiveness.
 CHAPTER – III
Direct Taxation in India
Direct Taxation in India:

The Government of India levies two types of taxes on the citizens of India –
Direct Tax and Indirect Tax. Indirect taxes are usually transferred to another
person after being initially levied as a direct tax. Common examples of an indirect
tax include Goods and Services Tax (GST) and VAT. GST is levied on the
manufacturers or service providers as a direct tax, which is then transferred to the
consumers when it is part of the final price of the goods or services, thus, making
it an indirect tax for the consumers.

On the other hand, the burden of the direct taxes cannot be transferred to another

person, such as Income Tax, which every individual is supposed to pay directly

to the tax authorities in India. Both indirect and direct taxes are vital components

that play an essential role in changing the course of the Indian economy.

What is a Direct Tax?

Direct taxes, usually levied on a person’s income are paid directly by taxpayers

or an organization to tax authorities of the Government of India. The person or

the organization in question cannot transfer this type of tax to another person or

entity for payment. Some of the examples of direct tax include income tax and

corporate tax.
History of Direct Taxation:

It is a matter of general belief that taxes on income and wealth are of recent origin
but there is enough evidence to show that taxes on income in some form or the
other were levied even in primitive and ancient communities. The origin of the
word "Tax" is from "Taxation" which means an estimate. These were levied either
on the sale and purchase of merchandise or livestock and were collected in a
haphazard manner from time to time. Nearly 2000 years ago, there went out a
decree from Ceaser Augustus that all the world should be taxed. In Greece,
Germany and Roman Empires, taxes were also levied sometime on the basis of
turnover and sometimes on occupations. For many centuries, revenue from taxes
went to the Monarch. In Northern England, taxes were levied on land and on
moveable property such as the Saladin title in 1188. Later on, these were
supplemented by introduction of poll taxes, and indirect taxes known as "Ancient
Customs" which were duties on wool, leather and hides. These levies and taxes
in various forms and on various commodities and professions were imposed to
meet the needs of the Governments to meet their military and civil expenditure
and not only to ensure safety to the subjects but also to meet the common needs
of the citizens like maintenance of roads, administration of justice and such other
functions of the State.

In India, the system of direct taxation as it is known today, has been in force in
one form or another even from ancient times. There are references both in Manu
Smriti and Arthasastra to a variety of tax measures. Manu, the ancient sage and
law-giver stated that the king could levy taxes, according to Sastras. The wise
sage advised that taxes should be related to the income and expenditure of the
subject. He, however, cautioned the king against excessive taxation and stated
that both extremes should be avoided namely either complete absence of taxes or
exorbitant taxation. According to him, the king should arrange the collection of
taxes in such a manner that the subjects did not feel the pinch of paying taxes. He
laid down that traders and artisans should pay 1/5th of their profits in silver and
gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce
depending upon their circumstances. The detailed analysis given by Manu on the
subject clearly shows the existence of a well-planned taxation system, even in
ancient times. Not only this, taxes were also levied on various classes of people
like actors, dancers, singers and even dancing girls. Taxes were paid in the shape
of gold-coins, cattle, grains, raw-materials and also by rendering personal service.

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".

However, it is Kautilya's Arthasastra, which deals with the system of taxation in

a real elaborate and planned manner. This well known treatise on state crafts
written sometime in 300 B.C., when the Mauryan Empire was as its glorious
upwards move, is truly amazing, for its deep study of the civilisation of that time
and the suggestions given which should guide a king in running the State in a
most efficient and fruitful manner. A major portion of Arthasastra is devoted by
Kautilya to financial matters including financial administration. According to
famous statesman, the Mauryan system, so far as it applied to agriculture, was a
sort of state landlordism and the collection of land revenue formed an important
source of revenue to the State. The State not only collected a part of the
agricultural produce which was normally one sixth but also levied water rates,
octroi duties, tolls and customs duties. Taxes were also collected on forest
produce as well as from mining of metals etc. Salt tax was an important source of
revenue and it was collected at the place of its extraction.

Kautilya described in detail, the trade and commerce carried on with foreign
countries and the active interest of the Mauryan Empire to promote such trade.
Goods were imported from China, Ceylon and other countries and levy known as
a vartanam was collected on all foreign commodities imported in the country.
There was another levy called Dvarodaya which was paid by the concerned
businessman for the import of foreign goods. In addition, ferry fees of all kinds
were levied to augment the tax collection.

Collection of Income-tax was well organised and it constituted a major part of the
revenue of the State. A big portion was collected in the form of income-tax from
dancers, musicians, actors and dancing girls, etc. This taxation was not
progressive but proportional to the fluctuating income. An excess Profits Tax was
also collected. General Sales-tax was also levied on sales and the sale and the
purchase of buildings was also subject to tax. Even gambling operations were
centralised and tax was collected on these operations. A tax called yatravetana
was levied on pilgrims. Though revenues were collected from all possible
sources, the underlying philosophy was not to exploit or over-tax people but to
provide them as well as to the State and the King, immunity from external and
internal danger. The revenues collected in this manner were spent on social
services such as laying of roads, setting up of educational institutions, setting up
of new villages and such other activities beneficial to the community.

The reason why Kautilya gave so much importance to public finance and the
taxation system in the Arthasastra is not far to seek. 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 emphasised 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
Arthasastra, each tax was specific and there was no scope for arbitratiness.
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 advalorem 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 over all
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 total revenue of the State was collected from a large number
of sources as enumerated above. There were also other sources like profits from
Stand land (Sita) religious taxes (Bali) and taxes paid in cash (Kara). Vanikpath
was the income from roads and traffic paid as tolls.

He placed land revenues and taxes on commerce under the head of tax revenues.
These were fixed taxes and included half yearly taxes like Bhadra, Padika, and
Vasantika. Custom duties and duties on sales, taxes on trade and professions and
direct taxes comprised the taxes on commerce. The non-tax revenues consisted
of produce of sown lands, profits accuring from the manufacture of oil, sugarcane
and beverage by the State, and other transactions carried on by the State.
Commodities utilised on marriage occasions, the articles needed for sacrificial
ceremonies and special kinds of gifts were exempted from taxation. All kinds of
liquor were subject to a toll of 5 precent. Tax evaders and other offenders were
fined to the tune of 600 panas.

Kautilya also laid down that during war or emergencies like famine or floods, etc.
the taxation system should be made more stringent and the king could also raise
war loans. The land revenue could be raised from 1/6th to 1/4th during the
emergencies. The people engaged in commerce were to pay big donations to war
efforts.

Taking an overall view, it can be said without fear of contradiction that Kautilya's
Arthasastra was the first authoritative text on public finance, administration and
the fiscal laws in this country. His concept of tax revenue and the on-tax revenue
was a unique contribution in the field of tax administration. It was he, who gave
the tax revenues its due importance in the running of the State and its far-reaching
contribution to the prosperity and stability of the Empire. It is truly an unique
treatise. It lays down in precise terms the art of state craft including economic and
financial administration.
History of Taxation Post 1922

1. Preliminary:

The rapid changes in administration of direct taxes, during the last decades,
reflect the history of socio-economic thinking in India. From 1922 to the present
day changes in direct tax laws have been so rapid that except in the bare outlines,
the traces of the I.T. Act, 1922 can hardly be seen in the 1961 Act as it stands
amended to date. It was but natural, in these circumstances, that the set up of the
department should not only expand but undergo structural changes as well.

2. Changes in administrative set up since the inception of the

department:

The organisational 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 foundation of a proper system of
administration was thus laid. In 1924, Central Board of Revenue Act constituted
the Board as a statutory body with functional responsibilities for the
administration of the Income-tax Act. Commissioners of Income- tax were
appointed separately for each province and Assistant Commissioners and
Income-tax Officers were provided under their control. The amendments to the
Income tax Act, in 1939, made two vital structural changes: (i) appellate functions
were separated from administrative functions; a class of officers, known as
Appellate Assistant Commissioners, thus came into existence, and (ii) a central
charge was created in Bombay. In 1940, with a view to exercising effective
control over the progress and inspection of the work of Income-tax Department
throughout India, the very first attached office of the Board, called Directorate of
Inspection (Income Tax) - was created. As a result of separation of executive and
judicial functions, in 1941, the Appellate Tribunal came into existence. In the
same year, a central charge was created in Calcutta also.

2.1 World War II brought unusual profits to businessmen. During 1940 to 1947,
Excess Profits Tax and Business Profits Tax were introduced and their
administration handed over to the Department (These were later repealed in 1946
and 1949 respectively). In 1951, the 1st Voluntary Disclosure Scheme was
brought in. It was during this period, in 1946, that a few Group 'A' officers were
directly recruited. Later on in 1953, the Group 'A' Service was formally
constituted as the 'Indian Revenue Service'.

2.2 This era was characterised by considerable emphasis on development of

investigation techniques. In 1947, Taxation on Income (Investigation)
Commission was set up which was declared ultra vires by the Supreme Court in
1956 but the necessity of deep investigation had by then been realised. In 1952,
the Directorate of Inspection (Investigation) was set up. It was in this year that a
new cadre known as Inspectors of Income Tax was created. The increase in 'large
income' cases necessitated checking of the work done by departmental officers.
Thus in 1954, the Internal Audit Scheme was introduced in the Income-tax
Department.

2.3 As indicated earlier, in 1946, for the first time a few Group A officers were
recruited in the department. Training them was important. The new recruits were
sent to Bombay and Calcutta where they were trained, though not in an organised
manner. In 1957, I.R.S. (Direct Taxes) Staff College started functioning in
Nagpur. Today this attached office of the Board functions under a Director-
General. It is called the National Academy of Direct Taxes. By 1963, the I.T.
department, burdened with the administration of several other Acts like W.T.,
G.T., E.D., etc., had expanded to such an extent that it was considered necessary
to put it under a separate Board. Consequently, the Central Board of Revenue
Act, 1963 was passed. The Central Board of Direct Taxes was constituted, under
this Act.

2.4 The developing nature of the economy of the country brought with it both
steep rates of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme
was brought in followed by the 1975 Disclosure Scheme. Finally, the need for a
permanent settlement mechanism resulted in the creation of the Settlement
Commission.

2.5 A very important administrative change occurred during this period. The
recovery of arrears of tax which till 1970 was the function of State authorities
was passed on to the departmental officers. A whole new wing of Officers - Tax
Recovery Officers was created and a new cadre of post of Tax Recovery
Commissioners was introduced w.e.f. 1-1-1972.

2.6 In order to improve the quality of work, in 1977, a new cadre known as IAC
(Assessment) and in 1978 another cadre known as CIT (Appeals) were created.
The Commissioners' cadre was further reorganised and five posts of Chief
Commissioners (Administration) were created in 1981.
2.7 Tax Reforms: Certain important policy and administrative reforms carried out
over the past few years are as follows: -

(a). The policy reforms include: -

 Lowering of rates;
 Withdrawals/reduction of major incentives;
 introduction of measures for presumptive taxation;
 simplification of tax laws, particularly relating to capital gains; and
 widening the tax base.

(b). The administrative reforms include: --

 Computerisation involving allotment of a unique identification number to

tax payers which is emerging as a unique business identification number;
and
 realignment of the available human resources with the changed business
needs of the organisation.

2.8 Computerisation:

Computerisation in the Income-tax Department started with the setting up of the

Directorate of Income tax (Systems) in 1981. Initially computerisation of
processing of challans was taken up. For these 3 computer centers were first set
up in 1984-85 in metropolitan cities using SN-73 systems. This was later
extended to 33 major cities by 1989. The computerized activities were
subsequently extended to allotment of PAN under the old series, allotment of
TAN, and pay roll accounting. These computer centers used batch process with
dumb terminals for data entry.

In 1993 a Working Group was set up by the Government to recommend

computerisation of the department. Based on the report of the Working Group a
comprehensive computerisation plan was approved by the Government in
October, 1993. In pursuance of this, Regional Computer Centers were set up in
Delhi, Mumbai, and Chennai in 1994-95 with RS6000/59H Servers. PCs were
first provided to officers in these cities in phases. The Plan involved networking
of all users on LAN/WAN. Network with leased data circuits were accordingly
set up in Delhi, Mumbai and Chennai in Phase-I during 1995-96. A National
Computer Centre was set up at Delhi in 1996-97. Integrated application software
was developed and deployed during 1997-99. Thereafter, RS6000 type mid-range
servers were provided in the other 33 Computer Centers in various major cities
in 1996-97. These were connected to the National Computer Centre through
leased lines. PCs were provided to officers of different level upto ITOs in stages
between 1997 and 1999. In phase II offices in 57 cities were brought on the
network and linked to RCCs and NCC.

2.9 Restructuring of the Income-tax department: The restructuring of the Income-

tax Department was approved by the Cabinet in its meeting held on 31-8-2000 to
achieve the following objectives: -

 Increase in effectiveness and productivity;

 Increase in revenue collection;
 Improvement in services to tax payers;
 Reduction in expenditure by downsizing the workforce;
 Improved career prospects at all levels;
 Induction of information technology; and
 Standardization of work norms
The aforementioned objectives have been sought to be achieved by the
department through a multi-pronged strategy of:

a) redesigning business processes through functionalization;

b) increasing the number of officers to rationalize the span of control for
better supervision, control and management of workload and to improve
tax-payer services and
c) re-orient, retrain and redeploy the workforce with appropriate incentives in
the form of career advancement.

3. Important events affecting the administrative set up in the Income-tax

department:

1939

 Appellate functions separated from inspecting functions.

 A class of officers known as AACs came into existence.
 Jurisdiction of Commissioners of Income tax extended to certain classes of
cases and a central charge was created at Bombay.

1940

 Directorate of Inspection (Income-tax) came into being.

 Excess Profits Tax introduced w.e.f. 1-9-1939.

1941

 Income-tax Appellate Tribunal came into existence.

 central charge created at Calcutta.

1943

 Special Investigation Branches set up.

1946

 A few officers of Class-I directly recruited.

 Demonetisation of high denomination notes made.
 Excess Profits Tax Act repealed.

1947

 Business Profits Tax enacted (for the period 1-4-1946 to 31-3-1949).

1951

 Report of Income-tax Investigation Commission known as Vardhachari

Commission received.
 Voluntary Disclosure Scheme introduced.

1952

 Directorate of Inspection (Investigation) set up.

 Inspector of Income-tax declared as an I.T. authority.

1953

 Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953.

 Act XXV of 1953 gave effect to the recommendations of Commission
appointed under Taxation of Income (Investigation Commission) Act,
1947.

1954

 Internal Audit Scheme in the Income-tax Department introduced.

 Taxation Enquiry Commission known as John Mathai Commission set up.
1957

 The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957.

 I.R.S.(DT) Staff College started functioning at Nagpur and much later four
R.T.Is. stationed at Bombay, Calcutta, Bangalore and Lucknow opened.

1958

 LI>The Gift-tax Act, 1958 introduced w.e.f. 1-4-1958.

 Report of Law Commission received.

1959

 Direct Taxes Administration Enquiry Committee submitted its report.

1960

 Directorate of Inspection (Research, Statistics & Publications)was set up.

 Two grades of Inspectors - selection and ordinary grades - merged into one
single grade.

1961

 Direct Taxes Advisory Committee set up - Direct Taxes Administrative

Enquiry Committee constituted.
 Income-tax Act, 1961 came into existence w.e.f. 1-4-1962.
 Revenue Audit introduced for the first time in the Department.
 New system for evaluation of work done by Income-tax Officers
introduced.

1963, 1964

 Central Board of Revenue bifurcated and a separate Board for Direct Taxes
known as Central Board of Direct Taxes (CBDT)constituted under the
Central Board of Revenue Act, 1963.
  For the first time an officer from the department became Chairman of the
CBDT w.e.f. 1-1-1964.
 The Companies (Profits) Sur -tax Act, 1964 was introduced.
 Annuity Deposit Scheme, 1964 introduced.

1965

 Voluntary Disclosure Scheme came into operation.

1966

 Functional Scheme introduced.

 Special Recovery Unit created.
 Intelligence Wing created and placed under the charge of Directorate of
Inspection (Investigation).

1968

 Valuation Cell came into existence in the Income tax Department.

 Report of rationalisation and simplification of tax structure
(Bhoothalingam Committee) received.
 Administrative Reforms Commission set up.

1969

 Direct Recruitment to Class II Income-tax Officers made.

 The post of IAC (Audit) created in the Income-tax Department.

1970

 The posts of Addl. Commissioner of Income-tax created and abolished

after one year.
 Recovery functions which were hitherto performed by Income- tax
Officers, given to Tax Recovery Officers. Prior to that State Government
officials exercised the functions of a Tax Recovery Officer.
1971

 A new cadre of posts known as Tax Recovery Commissioners introduced

w.e.f. 1.1.1972.
 Report of Direct Taxes Enquiry Committee received.
 Summary Assessment Scheme introduced w.e.f. 1-4-1971.

1972

 A Special Cell within the Directorate of Inspection (Investigation) created

to oversee the cases of big industrial houses.
 A new cadre of posts known as IAC(Acq.) created and IAC appointed as
Competent Authority with the insertion of new Chapter XXA in the
Income Tax Act, 1961 on the acquisition of immovable properties in
certain cases of transfer to counter evasion of tax.
 Directorate of Organisation & Management Services (Income- tax)
created.
 The post of I.T.O. (Internal Audit) created.
 Bradma Scheme in the Income-tax Department introduced.
 System of Permanent Account Number introduced.
 Valuation Officers given statutory powers under the Income-tax Act, 1961
and Wealth-tax Act, 1957.

1974

 Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced.

 Action Plan for the Income-tax Officers introduced for the first time.
 Concept of M.B.O introduced.
1975

 Voluntary Disclosure Scheme for Income and Wealth implemented.

 Special Cell for dealing with Smugglers' cases created.

1976

 Settlement Commission created and Taxation Laws (Amendment)

Act,1975 inserted a new Chapter XIXA in the Income Tax Act w.e.f.1-4-
1976.
 Smugglers and Foreign Exchange Manipulators (Forfeiture of Property)
Act, 1976 introduced w.e.f. 25-1-1976.
 A new scheme for departmentalization of accounts introduced.
 Chokshi Committee submitted its interim report.

1977

 A new cadre of posts known as IAC (Assessment) created.

1978

 Appellate functions given to a new cadre of Commissioners known as

Commissioner (Appeals).
 Directorate of Inspection (Recovery) set up.
 A new directorate known as Directorate of Inspection (Vigilance) came
into existence by bifurcating the functions of Directorate of Inspection
(Investigation).
 Chokshi Committee submitted its final report.

1979

 A new directorate designated as Directorate of Inspection (Publication &

Public Relations) created out of the Directorate of Inspection (RS&P).
1980

 Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981.

1981

 Economic Administrative Reforms Commission set up.

 Three new Directorates viz. Directorate of Inspection (Intelligence),
Directorate of Inspection (Survey) and Directorate of Inspection (Systems)
created.
 Within the Directorate of Inspection (Income Tax and Audit), a separate
Director of Inspection (Audit) appointed.
 Directorate of Inspection (RS&P) re-organised and Directorate of
Inspection (P&PR) re-designated as Directorate of Inspection (Printing &
Publications).
 I.R.S.(DT) Staff College, Nagpur, re-designated as National Academy of
Direct Taxes.
 Special Bearer Bonds (Immunities & Exemptions) Act promulgated.
 Director General (Special Investigation) and Director General
(Investigation) appointed to control the functioning of various Directorates
under the control of Central Board of Direct Taxes.
 Five posts of Chief Commissioner (Administration) created.
 A few posts of Commissioner of Income-tax were earmarked as
Commissioner of Income-tax (Inv.) and Commissioner of Income- tax
(Recovery).
1982

 Special Cell within the Directorate of Inspection (Investigation) converted

into a separate Directorate and re-designated as Directorate of Inspection
(Special Investigation).
 DIT (Systems) appointed in the Directorate of Income-tax (Organisation
and Management Services) to coordinate efforts in introducing electronic
data processing in the IT Dept. A microprocessor based EDP system along
with data entry system was installed heralding the era of computerisation.
 Levy of Hotel Receipts Tax discontinued.
 Regional Training Institute at Nagpur started functioning under the control
of the National Academy of Direct Taxes.

1983

 The vigilance set up reorganised and the strength of Dy. Director

(Vigilance) and Asstt. Director(Vigilance) augmented.
 Computerised systems for processing challans and PAN designed and
developed.

1984

 Taxation Laws(Amendment) Act 1984 passed to streamline procedures in

the interest of better work management; avoid inconvenience to tax payers;
reduce litigation; remove anomalies and rationalise some provisions.

1985

 Post of Director General (Investigation) created for more effective

checking of tax evasion.
 E.D.(Amendment) Act 1985 discontinues levy of estate duty on deaths
occurring on or after 16.03.1985.
  Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinued
w.e.f. 1.4.1985.
 Interest Tax Act, 1974 discontinued w.e.f. 31.3.1985
 A new "Reward Scheme" for motivating officers introduced w.e.f.
1.4.1985.

1986

 The I.T. Act and W.T. Act amended by Taxation Laws (Amendment and
Miscellaneous Provisions) Act :-
 Established Settlement Commission.
 Introduced Block assets concept for depreciation.
 Four offices of Appropriate Authority for acquiring property in which
unaccounted money is invested set up in metropolitan cities.

1987

 Government's approval obtained to set up three new benches of Settlement

Commission.
 L.K. Jha Committee set up for simplification and rationalisation of tax
laws.
 Office of Directorate General (Tax Exemption) set up at Calcutta.
 The Direct Tax Law(Amendment) Act 1987 introduced uniform previous
year and redesignated the following authorities :-
 Director of Inspection
 Insp. Asstt. Commissioner of I.Tax
 Appellate. Asstt. Commissioner
 Income tax Officer Gr. A
 Income tax Officer Gr. B
 Director of Income Tax
  Dy. Commissioner of Income Tax.
 -Do- (Appeals)
 Asstt. Commissioner of I.Tax
 Income tax Officer
 Expenditure Tax Act 1987 brought into force.

1988

 Benami Transactions Prohibition Act 1988 introduced.

 The Government announced a "Time Window Scheme" which allowed tax
payers 50% rebate of interest u/s 220(2) if they pay the tax and balance
interest. The scheme was in operation between 1.7.88 to 30.9.88.
 CIT (Central) placed under the control and supervision of Director General
(Investigation).
 Government decided that cadre control for Group 'C' and 'D' posts would
be with Chief Commissioner and with CBDT for Group 'A' and 'B'posts.
 Extension of Direct Tax Law to the State of Sikkim by a notification of the
President of India dated 7.11.1988.

1989

 Creation of an attached office of DGIT (Management Systems) to

supervise Directorate of I.Tax(Research, Statistics, Publication & Public
Relations) and Directorate of I. Tax (Organisation and Management
Services) from Sept. 1989.

1990

 Gift tax Bill introduced on 31.5.1990.

 Creation of 65 posts of Dy. Commissioner of I.Tax by upgradation of equal
number of posts of Asstt. Commissioner of I.Tax.
1991

 Interest Tax Act, 1974 revived.

 Directorate of I.Tax(Systems) started reporting directly to Board.

1992

 Rs. 1400 Presumptive Taxation scheme introduced as a measure to widen

tax base.
 The post of Director General of Income-tax (Management Systems) was
abolished.

1993

 40 additional posts of Commissioner of Income-tax (Appeals) created.

 Authority for Advance Rulings set up.
 A comprehensive phased cadre review for Group B, C and D initiated.

1994

 2068 additional posts in Group B, C and D sanctioned.

 New PAN introduced.
 Regional Computer Centres (RCCs) were set up in Chennai, Delhi and
Mumbai.

1995

 New procedure for search assessment introduced.

 50 years of training commemorated and "Seminar Twenty-Five"
introduced by National Academy of Direct Taxes.

1996

 77 posts of Commissioners of Income-tax created.

 Infrastructure for operational needs strengthened.
  Study report on 4th cadre review of Group 'A' officers (IRS) of the
Department prepared by Directorate of Income Tax (Organisation and
Management Services).

1997

 Rates of Income-tax reduced significantly.

 Legal measures to widen tax base on certain economic indicators
introduced in selected cities.
 Presumptive tax scheme discontinued.
 Voluntary Disclosure Scheme 1997 introduced.
 Minimum Alternate Tax introduced.
 National Computer Centre (NCC) was set up in Delhi.

1998

 Sec. 260A introduced enabling direct appeals to High Court.

 1/6 Scheme & penalty for non-filing of return introduced to widen tax base.
 Gift-tax abolished for gifts made after 1.10.1998.
 Kar Vivad Samadhan Scheme 1998 introduced.
 Silver Jubilee of Regional Training Institutes celebrated.
 Designation of Asstt. Commissioner (Senior Time Scale) changed to Dy.
Commissioner and that of Dy. Commissioner (Junior Administrative
Grade) to Joint Commissioner.

1999

 Furnishing details of bank account and credit cards in the prescribed form
made mandatory for refund purpose.
 Prima-facie adjustments to return done away with; acknowledgments to
serve as intimations.
 Samman Scheme introduced in 1999 to honour deserving tax payers.
2000

 The process of implementation of restructuring of the Department

commenced to increase efficiency and to deal with increased workload.
 Total sanctioned work force reduced from 61,031 to 58,315.
 Certain rationalisation measures at structural levels introduced.
 Interest-tax Act terminated with effect from 1-4-2000.

2001

 The restructuring of the Department resulted in reducing the stagnation at

all levels and large number of personnel were promoted in various grades.
 Jurisdiction pattern was revamped.
 New posts were created at the level of DGIT/DIT in the areas of Research,
International Taxation and Infrastructure.

2002

 Computerised processing of returns all over the country introduced.

 Kelkar Committee Report, inter alia, recommended :-
 Outsourcing of non-core functions of the department ;
 Reduction in exemptions, deductions, reliefs, rebates etc.
 The National Website of the Income Tax Department
(www.incometaxindia.gov.in) was launched to provide a vital interface
between the Department and taxpayers.

2003

 TheNational Website of the Department (www.incometaxindia.gov.in)

won the Silver Medal in the category of the 'Government Websites'under
the National e-Governance Awards.
2004

 As a measure of widening of tax base, the concept of AIR (Annual

Information Return) was introduced.
 Fringe Benefit Tax (FBT) was introduced as a major step towards widening
of tax base and bolstering of the Direct Tax Collection.
 Securities Transaction Tax (STT) was introduced.

2005

 Tonnage Tax was introduced for the Shipping Companies.

 Banking Cash Transaction Tax (BCTT) was introduced w.e.f. 01-06-2005.

2006

 A project for enabling electronic filing (e-filing) of Income Tax Returns

was launched.
 Tax Return Preparer Scheme (TRPS) was launched to assist individuals
and HUF taxpayers to file their Return of Income.
 The institution of Income Tax Ombudsman set up in 12 cities throughout
the country to look into tax related grievances of the common public.

2007

 The Refund Banker Scheme was launched in Delhi and Patna charges.
 Sevottam Scheme was launched to standardize service delivery to the
taxpayers.
 The first citizen-friendly single window Aayakar Seva Kendra (ASK)was
setup, for centralized receipt and registration of specified categories of
documents, including income tax returns.
 The Income Tax Department became the biggest revenue mobiliser for the
Government in 2007-08, with its share increasing from 34.76%in 1997-98
to 52.75%in 2007-08.
  All India Tax Network (TAXNET) was setup connecting more than 700
offices in more than 500 cities. Consolidation of 36 (RCC) independent
regional databases into a single centralized database (PDC or Primary Data
Centre) was carried out.
 Integrated Taxpayer Data Management System (ITDMS) for drawing of
360° taxpayer profile was launched.

2008

 Cyber Forensic Labs were setup to identify relevant digital data during
search and survey operations, recover hidden or password protected or
deleted data and store retrieved data in a manner so that it could be used as
evidence in judicial proceedings.
 Electronic filing of Income Tax Returns Project was awarded Silver Award
in the category "Outstanding Performance in Citizen Centric Service
Delivery" under the National e-Governance Awards for the year 2007-08.

2009

 Centralized Processing Centre was setup in Bengaluru for bulk processing

of e-filed and paper returns. The Centre operates without any interface with
taxpayers in a jurisdiction – free manner.

2010

 Integrated Tax Payer Data Management System (ITDMS) was conferred

the Prime Minister's Award for 'Excellence in Governance and
Administration'.
 CPC Bengaluru awarded the Gold Award for 'Excellence in Government
Process Re-engineering' under the National e-Governance Awards for the
year 2010-2011.
  To simplify the 50 years old Income-tax Act, 1961,'The Direct Taxes Code
Bill, 2010' was introduced in the Parliament.

2011

 Foreign Tax Division of CBDT was strengthened to effectively handle the

increase in tax information exchangeand transfer pricing issues.
 Various IT initiatives were taken for efficient tax administration. These
include e-filing and e-payment of taxes, adoption of 'Sevottam' concept by
CBEC and CBDT, web based facility for tax payers to track the resolution
of refunds and credit for pre-paid taxes and augmentation of processing
capacity.
 A new simplified form 'Sugam' was introduced to reduce the compliance
burden of small tax payers falling within presumptive taxation.

2012

 Senior Citizens (not having any income from business/profession), were

exempted from payment of advance tax.
 TRACES (TDS Reconciliation, Accounting and Correction Enabling
System) launched to serve an integrated one-stop platform for the
stakeholders to facilitate the services related to TDS operations.

2013

 The Government approved the Cadre restructuring of the Department for

the creation of 20,751 additional posts and for carrying out various
measures to increase the effectiveness of the Department.
 Briefly, the salient features of the approved restructuring are as under:
a) Number of assessment units (AUs) increased by 1080 from 3420 to
4500, for strengthening the tax-administration;
b) Each Range to have one more Assessing Officer;
 c) Increase in the number` of Administrative CsIT deployed on assessment
related functions to increase from 228 to 250;
d) 114 Special Ranges to be created, with adequate supporting manpower;
e) Creation of reserves numbering 620 created in the IRS cadre;
f) Bifurcation of the posts of the CITs in the HAG and SAG scales, on
functional basis;
g) Upgradation of all existing 116 posts of CCsIT in HAG+ and Apex
scales along with an increase of their number by 1 post;
h) Strengthening of the training set-up with creation of three more RTIs;
i) Strengthening the Appellate/Advocacy Structure by increasing the
number of CIT Appeals and providing them supporting manpower.
Advocacy structure in the ITAT to be strengthened.

2014

 New National Website of the Income Tax Department

www.incometaxindia.gov.in launched with enhanced new features and
content.
 SIT to investigate Black Money in Swiss Bank Accounts formed
 Tax Administrative Reforms Commission (TARC) headed by Dr.
Parthasarathi Shome submitted its report of reviewing the applicability of
tax policies and tax laws in the context of global best practices and
recommending measures for reforms required in tax administration to
enhance its effectiveness and efficiency.
Types of Direct Taxes in India

The various types of direct taxes levied on citizens by the Government Of India
are as follows:

1) Corporate Tax

Under the Indian Income Tax Act, 1961, both Indian as well as foreign
organizations are liable to pay taxes to the government. The corporate tax is levied
on the net profit of domestic firms. Also, foreign corporations whose profits
appear or are deemed to emerge through their operations in India are also liable
to pay taxes to the Government of India. The income of a company, be it in the
form of dividends, interest and royalties, is also taxable.

At present, companies having gross turnover up to Rs.250 crore are liable to pay
corporate tax at 25% of the net profit while companies with a gross turnover of
more than Rs.250 crore are liable to pay the corporate tax at 30%. Apart from
this, other types of corporate tax include the following:

Minimum Alternative Tax (MAT): MAT is imposed on “zero tax companies”,

which typically refer to companies that declare little or no income in order to save
tax.

Fringe Benefits Tax (FBT): The FBT tax is imposed on the fringe benefits like
drivers and maids provided/paid for by companies to their employees.

Dividend Distribution Tax (DDT): An amount that is declared, distributed or

paid as dividend to the shareholders by a domestic company is taxed under the
Dividend Distribution Tax. It is applicable to domestic companies only. Foreign
companies distributing dividends in India do not pay this tax (such dividends are
taxable in the hands of the shareholder).
Securities Transaction Tax (STT): The SST is imposed on the income which
the companies get through taxable securities transactions. This tax is free of any
surcharge.

2) Income Tax

Income tax is perhaps the most well-known direct tax imposed by the government
on annual income generated by businesses and individuals. The income tax on
income generated by the business houses is known as Corporate Tax. Income tax
is calculated as per the provisions of Income Tax Act, 1961 and is directly paid
to the central government on an annual basis. The income tax rate depends on the
net taxable income or the tax bracket. Income tax may be deducted in the form of
TDS (tax deducted at source) in case of salaried employees. However, in case of
self-employed individuals, the tax is payable on the basis of declared income as
per their Income Tax Return subsmission. ITR is basically a statement of income
and the tax liability (on the basis of income declared) which is submitted to the
Income Tax Department in the prescribed format.

3) Capital Gains Tax

The capital assets of an individual refer to anything owned for personal use or for
the purpose of an investment. For businesses, the capital asset is anything that can
be used for more than a year and is not intended to be sold or liquidated during
the course of business operation.

Machinery, cars, homes, shares, bonds, art, businesses and farms are some of the
examples of capital assets.

The capital gains tax is imposed on the income derived from the sale of
investments or assets. On the basis of the holding period, capital tax is categorised
under short-term gains and long-term gains. The formula to calculate the capital
gains is:

Capital Gains = Sale Value – Purchase Value

Benefits of Direct Tax

The direct taxation has its share of benefits. Some of them are listed as
follows :

1) Economic:

The direct tax such as the income tax is collected annually and is mostly deducted
at the source. For example, the income tax is deducted from an employee’s salary
every month. This saves a great amount of administrative costs as here the
employer acts as the tax collector. This system makes the direct tax more
economical than other types of taxes where a lot of administrative costs are
involved.

2) Productive:

The direct taxes are also very productive. The revenue generated from the direct
tax is directly proportional to the changes in the national wealth of the country.
In simple words, the increase in a country’s population and/or prosperity will
consequently increase the returns on direct tax.

3) Certain:

In the case of direct taxes, a taxpayer is certain about the amount of tax to be paid.
In addition, the tax authorities can also precisely estimate the revenue they can
expect from the direct tax. There is no ambiguity in the tax amount as it is decided
before the tax submission date. This certainty on the tax amount from both the
sides helps in eliminating corruption from the tax collection system.
4) Equitable:

The direct taxes are imposed on the basis of a taxpayer’s income. The taxpayers
with high income need to pay more taxes compared to the taxpayers with lesser
income. In other words, the rich pay more taxes than the poor. This is, however,
applicable to all the sections of the society. People belonging to similar economic
conditions are taxed at the same rate. The equitable trait of the direct tax serves
the purpose of equality and justice across all sections of the population.

5) Progressive:

The direct taxes play an important role in reducing the gap of financial
inequalities across the country. These taxes are progressive as the government
imposes a tax on people according to their income. The money collected from
these taxes helps implement policies and rules for the uplift of the poor in the
society, helping achieve the aim of social and economic equality.

6) Anti-inflationary:

Direct taxes can be used as an anti-inflationary tool to stabilize the price level in
the market. It can be used to control the use and demand of products. The increase
in demand of the product and services during inflation can be decreased by
increasing the direct tax. Doing this will force people at large to spend less money
to purchase the products and services, thus, reducing their demand and
consequently the inflation rate.
 CHAPTER – IV
Indirect Taxation in India
Indirect Taxation in India:

Indirect tax is a type of tax that is passed on to another individual or entity.

Indirect taxes are generally levied on a manufacturer or supplier who then passes
that tax to the final consumer. Examples of indirect taxes include sales tax,
entertainment tax, excise duty, etc. These are levied on the sellers of goods or the
providers of service, where it is passed on to the end consumer in the form of
service tax, excise duty, entertainment tax, custom duty etc. One of the common
examples of an indirect tax is the excise tax imposed on alcohol.

What is Indirect Tax?

Indirect tax is the tax levied on a person upon consumption of goods and services.
Indirect tax is not directly levied on the income of a person. He needs to pay the
tax in addition to the actual price of goods or services purchased by the seller.
Indirect is a tax that is passed on to another person. Generally, indirect tax is
levied on sellers who pass it on to the final consumer.

In indirect taxes, the person on which the burden falls and the person who pays
the tax are different. The sellers are required to pay these taxes to the government
(e.g., manufacturers, retailers,). But since they sell goods to the consumers, they
pass the burden of paying the tax to you.

Thus, when you purchase goods, you pay the amount inclusive of tax to the seller.
The seller then pays the tax to the government.

Indirect Tax Examples

Examples of indirect taxes are excise tax, VAT (Value added tax),
service tax, custom duty, sales tax, entertainment tax and Securities Transaction
Tax.
Different Types of Indirect Taxes in India:

There are different types of indirect taxes in India. Listed below are some popular
examples of indirect taxes, explained in brief:

1. Service Tax

Service tax is applicable on the services provided by a company and paid by the
recipient of their services, collected by and deposited with the central
government.

2. Value Added Tax

Value added Tax, popularly known as VAT, is levied on the sale of movable
goods or goods sold directly to the customers. VAT is exacted by the respective
state governments on intra-state sales.

3. Excise Duty

Excise duty is levied on the goods produced or manufactured in India, paid by the
manufacturers of different goods. Excise duty is often recovered from the
customers.

4. Custom Duty

Custom duty is applicable on the goods which are imported into India from other
countries. In some cases, it is also levied on the goods being transported out of
India.

5. Entertainment Tax

Entertainment tax is levied on all financial transactions related to entertainment

such as movie shows, amusement parks, video games, arcades, and sports
activities, and is charged by the respective state governments.
6. Stamp Duty

Stamp duty is levied on the transfer of immovable property located within the
state, and is charged by the State Government and may vary in rates. It is also
applicable on all legal documents.

7. Securities Transaction Tax

Securities Transaction Tax is levied at the time of trade of securities through

Indian Stock Exchange.

Features of Indirect Tax

In India, there are many different Indirect Taxes which are applicable on different
kinds of goods, imports, manufacturing and services. Indirect Tax has some
defining characteristics. These are as follows:

1. Charged on Commodities

Indirect taxes are charged on material things such as goods and services. These
are not levied on the income you earn.

2. Shifts the Burden of Tax

Sellers of the goods are required to pay the indirect taxes to the government. But
they transfer the liability to their consumers.

3. Tax Evasion

Indirect taxes are already included in the price of the commodities. Thus, when
you buy goods or a service, you automatically pay your share of the tax. This can
thus help to reduce tax evasion.

4. Paid by the Consumer

The liability of indirect tax is passed on by the sellers to the consumers. This tax
is thus charged at the point of sales and is paid by the customers.
5. Revenue for Government

Since this type of tax cannot be easily evaded and is applicable on most of the
commodities, it serves as a major revenue source for the govt. Its contribution is
higher than the direct tax.

6. Consumer is not Directly Affected

The main cause of direct tax evasion is that it is charged on the income directly.
Indirect taxes face no such problem as they are not directly affected.

Five Benefits of Indirect Tax

Indirect tax provides many benefits which are not available in the case of direct
taxes.

1. Helps Maintain Equity

Indirect taxes are very equitable. The tax depends on the cost of the goods. The
higher the price of the goods the more can be the indirect taxes involved. Thus,
the people who can purchase high-priced goods pay higher indirect taxes.

2. Easy to Pay/Collect

Indirect taxes are easy to pay for both taxpayers and the authorities. For the tax-
payers: While making payment of direct taxes, you need to file an income tax
return statement, though it can be done by yourself, it generally requires a
Chartered Accountant. But in case of Indirect Taxes, there is no such need as it is
paid when you purchase a good.

For Authorities: It is easier to collect for the authorities. This is because the taxes
are collected in the shop, factories themselves.

3. Convenient

While calculating the income, there are 5 heads to go through. It should include
all the earnings you have made; this is the reason why people evade income tax.
But indirect taxes provide you convenience as these are collected on point of
sales, i.e., when you purchase.

4. Limit Harmful Consumption

Commodities that are harmful to our health such as tobacco, wine, etc include the
highest indirect tax. This makes them highly expensive. The high cost of goods
helps limit their consumption.

5. Has a Broader Scope

Indirect taxes are levied on a range of products and services. It is not the case that
some brands incur taxes and some don’t. Also, unlike direct taxes, where it is a
one-time payment that is high, indirect taxes are paid as and when you purchase
and are much smaller in amount.

Four Disadvantages of Indirect Tax

Despite having many advantages, Indirect taxes have some limitations also. It has
the following disadvantages of Indirect Taxes.

1. Can be Regressive

Regression is a state which pushes a country backward. Indirect taxes are

regressive as they are the same for the commodities. Thus, it doesn’t matter you
are rich or poor, you pay the same tax. Thus, if you have a lower income, a larger
proportion will go towards indirect tax, making your income even lesser.

2. Can be Inflationary

If the indirect taxes are increased by the government, the sellers will add higher
charges to their products, this will increase the prices of goods. Thus, it can lead
to inflation.

3. Discourage Industries
Indirect taxes when are levied on the raw materials, will make them costly, this
can discourage the industry owners to make the product. This can also affect the
competitiveness of the market.

4. Unpredictable Revenue

The indirect tax collection is not fixed. It depends on the purchase of goods and
services. Thus, the government cannot be certain of how much revenue will come
through the indirect tax.

Who is Eligible to Pay Indirect Tax?

The inception of Goods & Services Tax (GST) has consumed almost all the
indirect taxes prevailing in India before this. Let us take a look at the parties who
are eligible to pay GST.

1. Goods & Services Tax (GST)

It stands for Goods and Services Tax. It came into action on 1st July 2017 and
has been used since. In India, there is a slab system under which several rates of
GST are there. Each commodity can be put in a specific slab. GST is levied on
the supply of the goods.

If you buy a product, then you have to pay GST based on the slab rate the product
falls in. If you run a business and your turnover exceeds Rs 20 lakhs per year,
then also you are eligible to pay GST.

Though GST has replaced all the previous taxes, there are still some taxes
prevailing. There are some taxes that are still active. Each of these taxes is
required to be paid by different parties.
2. Customs Duty Tax

If you are involved in international trading then you are eligible to pay customs
duty. This is a tax that is charged on the goods that need to be transported outside
of your country.

3. Excise Duty

Though GST has replaced this tax, but there are still some commodities that are
charged with excise duty. These commodities are Liquor, petroleum, fuel, etc.
Excise is levied at the time when the goods are removed from the warehouse.

How GST is an Indirect Tax?

As there are many different types of indirect taxes levied on the expense incurred
by a buyer, the government has made an effort to simplify the taxing process and
merged all these indirect taxes into a common indirect tax called the Goods and
Service Tax (GST).

Merging of all these taxes has reduced the hassles of compliances associated with
all these indirect taxes, improving tax governance in the country. Introduced in
2017, the GST has eliminated the cascading effect of multiple taxes.

History of GST in India:

The idea of moving towards GST was first mooted by the then Union Finance
Minister in his Budget speech for 2006-07. Initially, it was proposed that GST
would be introduced from 1st April 2010.The Empowered Committee of State
Finance Ministers (EC) which had formulated the design of State VAT was
requested to come up with a roadmap and structure for GST. Joint Working
Groups of officials having representatives of the States as well as the Centre were
set up to examine various aspects of GST and draw up reports specifically on
exemptions and thresholds, taxation of services and taxation of inter-State
supplies. Based on discussions within and between it and the Central
Government, the EC released its First Discussion Paper (FDP) on the GST in
November, 2009. This spelt out features of the proposed GST and has formed the
basis for discussion between the Centre and the States so far.

The introduction of the Goods and Services Tax (GST) is a very significant step
in the field of indirect tax reforms in India. By amalgamating a large number of
Central and State taxes into a single tax, GST will mitigate ill effects of cascading
or double taxation in a major way and pave the way for a common national
market. From the consumers point of view, the biggest advantage would be in
terms of reduction in the overall tax burden on goods, which is currently estimated
to be around 25%-30%. It would also imply that the actual burden of indirect
taxes on goods and services would be much more transparent to the consumer.
Introduction of GST would also make Indian products competitive in the
domestic and international markets owing to the full neutralization of input taxes
across the value chain of production and distribution. Studies show that this
would have a boosting impact on economic growth. Last but not the least, this
tax, because of its transparent and self-policing character, would be easier to
administer. It would also encourage a shift from the informal to formal economy.
The government proposes to introduce GST with effect from 1st July 2017.

GST and Centre-State Financial Relations

Currently, fiscal powers between the Centre and the States are clearly demarcated
in the Constitution with almost no overlap between the respective domains. The
Centre has the powers to levy tax on the manufacture of goods (except alcoholic
liquor for human consumption, opium , narcotics etc.) while the States have the
powers to levy tax on sale of goods. In case of inter-states sales, the Centre has
the powers to levy a tax (the Central Sales Tax) but, the tax is collected and
retained entirely by the originating States. As for services, it is the Centre alone
that is empowered to levy Service Tax. Since the States are not empowered to
levy any tax on the sale or purchase of goods in the course of their importation
into or exportations from India, the Centre levies and collects this tax in addition
to the Basic Customs Duty. This additional duty of customs (commonly known
as CVD and SAD) counterbalance excise duty, sales tax, State VAT and other
taxes levied on the like domestic product. Introduction of GST required
amendments in the Constitution so as to empower the Centre and the States
concurrently to levy and collect GST.

The assignment of concurrent jurisdiction to the Centre and the States for the levy
of GST required a unique institutional mechanism that would ensure that
decisions about the structure, design and operation of GST are taken jointly by
the two. To address all these and other issues, the Constitution (122nd
Amendment) Bill was introduced in the 16th Lok Sabha on 19.12.2014. The Bill
provides for a levy of GST on supply of all goods or services except alcohol for
human consumption. The tax shall be levied as Dual GST separately, but
concurrently the Union (CGST) and the States (SGST). The Parliament would
have exclusive power to levy GST (IGST) on inter state trade or commerce
(including imports) in goods and services. The Central Government will have the
power to levy excise duty in addition to GST, on tobacco and tobacco products.

The constitution Amendment Bill was passed by the Lok Sabha in May, 2015.
The Bill with certain amendments was finally passed in the Rajya Sabha and
thereafter by the Lok Sabha in August, 2016. Further, the Bill has been ratified
by the required number of States and has since received the assent of the President
on 8th September,2016 and has been enacted as the 101st Constitution
Amendment Act, 2016. The GST Council has also been notified w.e.f. 12th
September,2016. GST Council is being assisted by a Secretariat.

The Goods and Service Tax Council (hereinafter referred to as, “GSTC”)
comprises of the Union Finance Minister, the Minister of State(Revenue) and the
State Finance Ministers to recommend on the GST rate, exemption and
thresholds, taxes to be subsumed and other matters. One-half of the total number
of members of GSTC form quorum in meetings of GSTC. Decision in GSTC are
taken by a majority of not less than three-fourth of weighted votes cast. Centre
has one-third weightage of the total votes cast and all the states taken together
have two-third of weightage of the total votes cast.

All decisions taken by the GST Council has been arrived at through consensus.
The option of exercising a vote has not been resorted to till date.

To ensure smooth roll-out of the GST, various Committees and Sectoral groups
has been formed comprising of members from both Centre and States.
 CHAPTER – V
Tax Regime in India
Old Tax Regime – High Rates but Lot of Options to Reduce Taxes
The current tax system is complicated to say the least. While the tax rates are
high, there are a lot of ways to reduce your tax liability.
Over the years the government, through addition of clauses to the Income Tax
Act, has given Indian taxpayers over 70 exemptions and deduction options
through which they can bring down their taxable income and hence pay less.
While exemptions are part of your salary, like the House Rent Allowance
(HRA) and Leave Travel Allowance (LTA), deductions allow you to lower your
tax amount by investing, saving or spending on specific items. The biggest
section for deduction is Section 80c through which you can bring down your
taxable income by Rs.1.5 lakh. Apart from this, there are several other sections
that let you take tax deductions on things ranging from interest on your loans
(home and education) to premiums you pay for health insurance.
Most common exemptions and deductions availed by Indian taxpayers
Exemptions Deductions
House Rent Allowance Public Provident Fund
ELSS (Equity Linked Saving
Leave Travel Allowance
Scheme)

Mobile and Internet Reimbursement Employee Provident Fund

Food Coupons or Vouchers Life Insurance Premium

Principal and Interest component of
Company Leased Car
Home Loan
Standard Deduction Children Tuition Fees
Uniform Allowance Health Insurance Premiums
Leave Encashment Investment in NPS
Tuition fee for Children
Saving Account Interest
The combination of exemptions and deductions can bring down your taxable
income by lakhs. However, it also means every year you have to find ways to
optimize your salary and savings/investments so as to keep your taxable income
at the minimum level.
New tax regime – More slabs, lower tax rate but no way to reduce
taxes

The new tax regime is different from the old tax regime in two aspects.

One, in the new regime, the number of tax slabs have increased, accompanied by
lowering of rates in the sub-Rs. 15 lakh range. Two, all the exemptions and
deductions that were being used by taxpayers in the existing regime won’t be
available in the new regime.

Here is a comparison between the old and new tax slabs

Tax Slab(₹) Old Tax Rates New Tax Rates

0 – 2,50,000 0% 0%
2,50,000 – 5,00,000 5% 5%
5,00,000 – 7,50,000 20% 10%
7,50,000 – 10,00,000 20% 15%
10,00,000 – 12,50,000 30% 20%
12,50,000 – 15,00,000 30% 25%
15,00,000 & above 30% 30%

As you can see under the new system, income between Rs. 5 lakh and Rs. 7.5
lakh would be taxed at 10 percent, while income between Rs. 7.5 lakh to Rs. 10
lakh would be taxed at 15 percent. This was 20 percent flat on the entire range
for the existing regime. The earlier Rs. 10 lakhs+ slab where you paid 30 percent,
has been broken into three parts with rates of 20 percent for Rs. 10-12.5 lakh, 25
percent for Rs. 12.5 lakh-15 lakh and then 30 percent for Rs. 15 lakh and above.
Old vs. New Tax Regime: Which One Should You Pick?
Unfortunately, there is no single answer to this. And the culprit again is the
complexity of the Indian tax rules.
Although looking at the reduction in the tax rates, the first reaction would be that
the new system looks better. However, with these cuts, someone with Rs. 7.5 lakh
income will have to pay Rs. 25,000 and for those who are earning Rs 10 lakh
income, the tax saving will be Rs. 37,500. But as they say, the devil lies in the
detail. For these savings, you will have to let go all the exemptions and deductions
which might nullify these gains.
While figuring out whether to choose the old or the new tax regime might look
complicated, if you approach it in a systematic way, it is not that difficult to figure
out.
Here is what you need to do –
Calculate all the exemptions that you are availing: If you are living on rent, you
would be claiming HRA which is the biggest salary exemption one enjoys. Apart
from that, other tax-free components include LTA, Food Bill, Phone Bills, etc.
All these will become taxable if you choose to shift to the new tax regime.
Look at the deductions that you claim: As a salaried employee, two deductions
that you automatically get are standard deduction of Rs 50,000 and your
contribution towards your Employee Provident Fund (EPF). In the new regime,
you won’t be able to claim these deductions even though you will continue to
contribute to EPF. Over and above, you cannot claim deductions against your
home loan (if you have one) or insurance policies, which till now has helped to
reduce your taxable income.
Now, combine these exemptions and deductions and minus them from your salary
to see what is your taxable income and what it would be if you let go of these
deductions. This should be the deciding factor for which regime you should go
for.
Findings:
 Most of the taxpayers don’t opt for new tax regime though the slab rates
are low. 

 The reason for their hesitation is they won’t be allowed with any
deductions and exemptions.

 Though the slab rates are high, people prefer old tax regime because they
will be deductions and exemptions.

 In recent research with the chartered accountancy firm, it was known that

taxpayers having rental income and income from other sources have

chosen the new tax regime since it was easier and less complicated.

 Those who have a total income of Rs 10 lakh and below have (irrespective

their age) opted for the ‘old-tax regime’ since it won’t make any difference

to them either under old or new regime.

 Taxpayers with savings, happy independent retirement life, and

conservative mentality are wishing to stick to the old regime ‘forever’

unless there is no other option left.

 It also came to know that majority (i.e.) more than 50% of the tax payer

opt for old tax regime.

CHAPTER – VI
Conclusion
Conclusion:

On August, the intern began his internship training at EMMANUEL

ASSOCIATES, which is located in the MMDA colony. The intern has gotten
more opportunities to work and gain experience from the staff. The intern
worked in different departments. 180 days of internship were split up into two
months in each department, and It was a great experience to learn from all the
people. During this time, the intern learned not only the various aspects of
finance but also the importance of a positive attitude and teamwork. Under the
leadership and guidance of the manager, the intern learned about various
functions of each department, which are explained in detail below:

First and Second month:

During the first two months of training, the intern learned the fundamentals of
auditing processes and functions. The manager introduced the intern to all the
staff at the firm. The intern was asked to go through the history and the major
functions. The head of the GST Department had taught the intern how to update
the GST registers. The intern was taught to log in to the GST portal and segregate
the bills into each category.

Third and Fourth month:

During the Third and Fourth month of his internship, the intern had an
opportunity to work in the income tax department. The intern was asked to follow
up with the Import Data Processing and Monitoring System and write the name
of each company or organization dealing with income tax into the register
maintained. The intern was taught that the primary responsibility of companies is
to submit the details of bills.
Fifth and Sixth Month:

During the Fifth and Sixth month of his internship, the intern was shifted to the
trading section. There, the intern had learned about the stock markets and so on.
Also, the intern was taught how to fill the DEMAT account. The intern helped
the staff check the value of the stock in various markets outside India. The intern
was asked to calculate profit or loss at the end of the day when the stock market
closed.
Bibliography
Bibliography:

Articles:

 History & Evolution of Income Tax Act in India by CA Tarun Kumar

Madaan.
 Evolution and History of Taxation in India by Advocate K K Singla.
 Brief history of income tax in India & notes on Section 1 of Income-tax
Act,1961 by Arjun Gupta.
 History of Direct Taxation in India by TG Team.
 History of perquisite taxation by TG Team.
 Origins of RCM (Reverse Charge Mechanism) under Indirect taxation by
Amitab Mohanty.
 Taxable event under GST- Supply and its scope by Amit Bajaj.
 GST History and Introduction by TG Team.
 A brief introduction on Goods and Service Tax (Indirect Taxes) in India
by Team Legal Window.