History of Indian Taxation

History of Tax

1. DIRECT TAX Anitha K M Assistant professor Sri Ramakrishna college of arts and science Coimbatore-Tamil Nadu

2. Unit I Brief history of Indian tax system

3. Indian taxation Tax is a mandatory liability for every citizen of the country. There are two types of tax in india i.e. direct and indirect. 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. "It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold" – By Kalidas in Raghuvansh eulogizing KING DALIP.  

4. The origin of the word "Tax" is from "Taxation" which means an estimate. 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. Variety of tax measures are referred in both Manu Smriti and Arthasastra. 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; a king should neither impose high rate of tax nor exempt all from tax.

5. Arthasasthra Arthasastra  mentioned that each tax was specific and there was no scope for arbitrariness. Tax collectors determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on ad-valorem basis. The import duties on foreign goods were roughly 20% of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed.

6. Manu & Kautilya According to Manu Smriti,  the king should arrange the collection of taxes in such a manner that the tax payer 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. 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.

7. Components 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.

8. This Act imposes a tax on income under the following five heads: I. Income from salaries II. Income from business and profession III. Income in the form of capital gains IV. Income from house property V. Income from other sources

9. In Terms of the Income Tax Act, 1961, a person includes I. Individual II. Company III. Firm IV. Association of Persons (AOP) V. Hindu Undivided Family (HUF) VI. Body of Individuals (BOI) VII. Local authority VIII. Artificial Judicial person not falling in any of the preceding categories

10. 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

11. Taxation system in India/Structure The tax structure in India is divided into direct and indirect taxes. While direct taxes are levied on taxable income earned by individuals and corporate entities, the burden to deposit taxes is on the assessees themselves. On the other hand, indirect taxes are levied on the sale and provision of goods and services respectively and the burden to collect and deposit taxes is on the sellers instead of the assessees directly. The taxation system in India is such that the taxes are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as the Municipality and the Local Governments.

12. Over the last few years, the Central and many State Governments have undertaken various policy reforms and process simplification towards great predictability, fairness and automation. This has consequently lead to India’s meteoric rise to the top 100 in the World Bank’s Ease of Doing Business (EoDB) ranking in 2019 as India jumps 79 positions from 142nd (2014) to 63rd (2019) in 'World Bank's Ease of Doing Business Ranking 2020'. The Goods & Services Tax (GST) reform is one such reform to ease the complex multiple indirect tax regime in India.

13. Major Central Taxes Income Tax Central Goods & Services Tax (CGST) Customs Duty Integrated Goods & Services Tax (IGST) Major State Taxes State Goods & Services Tax (SGST) Stamp Duty & Registration

14. GST is one of the biggest indirect tax reforms in the Country. GST is a comprehensive indirect tax levied on manufacture, sale and consumption of goods as well as services at the national level. It has replaced all indirect taxes levied on goods and services by the Central and State Governments. GST regime was implemented from 1st July 2017, and India has adopted the dual GST model in which both the Centre and States levy taxes:

15. GST Collection Update: The gross GST revenue collected in the month of June’ 2021 is INR 92,849 cr of which CGST is INR 16,424 cr, SGST is INR 20,397, IGST is INR 49,079 cr (including INR 25,762 cr collected on import of goods) and Cess is INR 6,949 cr (including INR 809 cr collected on import of goods) Note: The GST is applicable on all goods other than following: Alcoholic liquor for human consumption Five petroleum products (Petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel). GST on these to be levied post notification about the effective date.

16. KEY TAX INCENTIVES IN INDIA Export Promotion Applicability: SEZ units operational before 1st April 2020 Incentive: Deduction of 100% of profits and gains derived from export business for first 5 years of commencement, 50% of profits and gains derived from export business for next 5 years, 50% of ploughed-back profits and gains from export business for next 5 years.

17. Research & Development Applicability: Companies in respect of any expenditure on R&D in an approved in-house facility Incentive: Weighted tax deduction of 200% granted to companies Validity: 31st March 2020

18. I nvestment-linked Incentive: To incentivise investment in certain sectors, any capital expenditure incurred for specified businesses is allowed as a deduction in the year in which it is incurred.

19. Startup India Scheme Incentive: Tax incentives granted to eligible start-ups are the tax holiday for any consecutive 3 years (from initial 5 years) in respect to 100% of their profits, including fast-tracking of patent applications with 80% rebate.

20. International Financial Services Centre Applicability: Caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. Incentives: Tax concessions on capital gains, Minimum Alternate Tax and Divident Distribution Tax