HISTORY AND

BACKGROUND
OF DIRECT TAX
IN INDIA
PRESENTED BY:

Ashwini Prasad R
Anitha T G
Asha k
Ayesha siddiqua
Bhagath Yadav
Bharath
HISTORY OF TAXATION IN INDIA

Tax is mandatory for every citizen of the country. There are two
types of taxes in India i.e. direct and indirect. The origin of the word
“tax” is from the word “taxation” , which means “estimate”.
Taxation in India is rooted from the period of Manu Smriti and
Arthasastra. Present Indian tax system is based on this ancient tax
system which was based on the theory of maximum social welfare.
 Sage Manu advised that taxes should be related to the income and
expenditure of the subject. He, however, cautioned the king against
excessive taxation; a king should neither impose high rate of tax nor
exempt all from tax.
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.
BRIEF HISTORY OF INCOME TAX IN INDIA

In India, this tax was introduced for the first time in 1860, by Sir
James Wilson in order to meet the losses sustained by the government
on account of the Military Mutiny of 1857.
In year 1860-
India’s first “Union Budge” introduced by pre-independence finance
minister. James Wilson on 7th April, 1860.
Income was divided into four schedules taxed separately:
(1) salaries, pensions or gratuities;
(2) income from professions and trades;
 (3) Income from securities of the government of india;
(4) Income from salaries and pensions.
In year 1886-
separate income tax act was passed. This act remained in force up to,
with various amendments from time to time. Under the Indian income
tax act of 1886, income was divided into four schedules taxed separately:
(1) salaries, pension or gratuities;
(2) net profits of companies;
(3) interest on the securities of the government of India;
(4) other sources of income.
In year 1918-
A new income tax was passed. The indian income tax act of 1918
repealed the Indian income tax act of 1886 and introduced several
important changes.
In year 1922-
The income-tax act, 1922, gave, for the first time, a specific
nomenclature to various income-tax authorities. The income tax act of
1922 remained in force until the year 1961.
Due to very complicated on account of innumerable amendments.
The government of India therefore referred it to the law commission in
1956 with a view to simplify and prevent the evasion of tax.
In year 1961-
In consultation with the Ministry of Law finally the income tax act,
1961 was passed. The income tax act 1961 has been brought into force
with 1st April, 1962. it applies to the whole of India (including Jammu
and Kashmir).
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.
 The major tax enactment in India is the income tax act, 1961 passed
by the parliament, which imposes a tax on the income of persons.

This Act imposes a tax on income under the following five heads:
1. income from salaries
2. income from business and profession
3. income in the form of capital gains
4. income from house property
5. income from the other sources
 In Terms of the income Tax Act, 1961, a person includes:

1. individual
2. company
3. firm
4. Association of persons (AOP)
5. Hindu Undivided Family (HUF)
6. Body of Individuals (BOI)
7. Local authority
8. Artificial Judicial person not falling in any of the preceeding
categories.
Tax slabs in India
 Reasons to pay taxes:-
1. To provide basic facilities for every citizen of the country:
whatever money is received by the government in terms of
direct tax and indirect tax is spent by it for the welfare of the citizens of
the country. Some of the services provided by the government are:
health care, electricity, roads, education system, free houses for poor,
water supply, disaster relief, taking care of bridges and other things of
public welfare.
2. To Finance Multiple Governments:
All the local government of the state like village panchayats,
block panchayats and municipal corporations receive fund from the
state finance commission.
 3. Protection of the life:
Tax payers receive the protection of life and wealth from the
government in case of external aggression, internal armed rebellion or
any other situation in exchange of tax paid by them.
Penalty for not Paying Taxes
The government can impose penalties of varying degrees on any
individual or legal entity who evades taxes. The penalty is dependent
on the category of the tax that has not been paid. This means that the
amount that is owed as taxes should be paid and in addition to that,
the fine as well as its interest is to be paid as the penalty.
CONCLUSION
To conclude, we can say that the instrument of taxation is of great
significance on
• Increasing the level of economic activity
• Reducing income inequalities
• Promoting economic growth
• Overall Social Welfare Objective.
Direct tax are equitable because they are charged on person, according
to their paying ability.