History of Income Tax in India

When we look at the Income tax history in India, we realise how progressive we were long back even before the british. There are references found in the works of Manu Smirthi and Arthasastra apart from our own Thirukural.

As we stand today we have an Act of 1961 which has in origins from 1860. To have a better perspective we need to know about a British Statesman by name, Henry Addington, 1st Viscount Sidmouth who was the Prime Minister from 1801 to 1804.

The tax was initially levied on Land which was used for agriculture and the collection was in kind. Income tax was thought to be a government instruction into the private matters. To overcome this in 1707, when the Kingdom of Great Britain came into being, a Window tax, wherein the tax was collected basis the number of Windows a property had was introduced.

                                             In 1798, Income tax was levied by William Pitt the younger who was the then PM of United Kingdom (youngest prime minister at the age of 24 and his father also had held the office of Prime minister). The maximum rate of Tax was 10% and it had a very short life wherein in 1802 it was abolished by Henry Addington. He replaced Income tax with Contribution of the Profits Arising from Property, Professions, Trades and Offices.

Why I am referring to Henry Addington in our Income tax day?

1.       Tax at source

a.       The act recognized the requirement of Tax being deducted at Source

2.       The tax liability was determined basis various schedules of Income rather than number of windows in a property. The act had schedules for

a.       Tax on Land

b.      Tax on commercial land

c.       Income from Securities

d.      Income from Trading, Profession, Interest, Overseas and Casual Income

e.      Tax on employment

f.        Tax on Dividend

The above act has the origins for our current Income tax act. The above act has become a bench mark basis which most of the common wealth nations have drafted their own income tax.

In India, the Income tax act was introduced by the first Finance Minister of British-India, James Wilson in 1860. (Act XXXII of 1860). We celebrate 24^th July as the Income tax day since the assent of the Governor General was received on 24^th July 1860.

An Act for imposing duties on Profits arising from Properties, Profession, Trades and Offices. – Act XXXII of 1860.

                                             As we find, the Income tax act has been updated on need basis. From being taxed from the number of windows, the tax has been levied and collected basis the income. However despite all the efforts, as rightly pointed out by our current Finance Minister, India's tax to GDP ratio is very low and the proportion of DT to IDT is not optimal from the view point of social justice".

                                             This only goes to indicate the Herculean task ahead of the respected staff members of the IT dept and their significance in economic growth and social equality. The Income Tax Department has been striving very religiously to make compliance easier thereby expanding the tax base of our nation which is indeed the foundation for turning India into a superpower; thereby achieving Dr. Kalam's dream of India 2020.

                                             With the switchover to GST and demonetisation, the mainstream economy has got a huge boost and I expect that the Income tax collections to grow in line with expectations of the Income tax department. Which also means that the trade, Industry and tax payers make more money.