Taxes have been the lifeblood for good governance. Contemporary ambitious developmental schemes for all round progress of the society rests on the revenue, generated through the medium of taxation. The power to levy taxes is vested with the sovereign. The tax proceeds go to the general revenues of the state and the taxpayer gets no return for his contribution, but only participates in the common benefits derived by all. However, the citizens of a democratic state have the advantage of being taxed only with the consent of their elected representatives.
Law of Taxation |Income Tax |Taxation
Brief historical background
A brief knowledge of the history of tax laws in India is essential to understand the present tax system. The tax system of British India reflected characteristics of a traditional agricultural economy. Revenues of the Central Government were dominated by customs duties as domestic requirements for manufactured goods were met mostly by imports. Various customs and tariff enactments were passed from time to time. The most significant among them were Sea Customs Act, 1878 and the Tariff Act, 1934. These enactments were consolidated into a single legislation — the Customs Act, 1962. Excise taxation in its modern form dates back to 1894 when for the first time a duty @ 5% advalorem was imposed on cotton yarn of more than 20 counts. Apart from the indirect taxes, among the direct taxes, the chief source of revenue was the income tax introduced in India by the British in 1860 to overcome the financial difficulties created by the events of 1857. Till 1886 the income tax imposition remained irregular. Thereafter, it became systematic. The form of income tax has undergone a series of changes to meet the ever-changing requirements of finance and economic policy. The Act of 1886 levied tax on the income of both residents and non residents in India, keeping agricultural income beyond tax liability. The Act remained in force for 32 years till the new Act was passed in 1918. The legislation charged all receipts casual or non-recurring pertaining to business or profession. This Act was replaced by the Income Tax Act of 1922, in view of the reforms introduced by the Government of India Act, 1919. The significant change brought by this Act was the introduction of setoff of loss from one source against the income from other sources. It also introduced separate department for income tax administration. The slab rate system was introduced in 1939 on the recommendation of Income Tax Enquiry Committee 1935. The present law of income tax in India is governed by the Income Tax Act, 1961 which replaced the Act of 1922. It came into force on 1st April 1962 and since then it was amended. Tax rates are not given time and again in the Income Tax Act but in the Finance Act, which is passed by the Parliament along with the budget for the Central Government every year.