Taxation is the means by which a government or the taxing authority imposes or levies a tax on its citizens and business entities. From income tax to goods and services tax (GST), taxation applies to all levels.
Characteristics of Taxation Law
- It is compulsory .
- It is a way of contribution.
- It leads to public benefit.
- Absence of direct quid–pro–quo.
Background of Taxation system in India
In simple word, it means an estimate. It is levied either on the sale and purchase of merchandise or livestock. Taxation has been mentioned in “Manusmriti” and “Arthashastra”. Indirect taxes are also known as ancient customs.
According to Manusmriti– Tax should be related to the income and expenditure of the subject. It says that both extremes should be avoided i.e. complete absence of taxes or exorbitant taxation. Subjects should 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. Taxes were also levied on various classes of people like actors, dancers, singers.
“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 composite population”. – “Public Finance in Ancient India”, (1978 Edition) by K.B.Sarkar
Taxation in Kautilya’s Arthasastra – 300 B.C. – Mauryan Empire
- the collection of land revenue formed an important source of revenue to the State
- The State collected one sixth as tax for the agricultural produce along with water rates, octroi duties, tolls, customs duties, forest produce as well as from mining of metals etc.
- Salt tax
- Goods were imported from China and other countries
- levy known as a Vartanam was collected on all foreign commodities imported in the country
- not progressive tax but proportional to the fluctuating income
- yatravetana was levied on pilgrims
- no scope for arbitrariness.
- People who were suffering from diseases or were minor and students were exempted from tax or given suitable remissions.
- during war or emergencies like famine or floods, 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.
Chronological development in contemporary India-
- The Income-tax Act, 1922
- 1924 – Central Board of Revenue Act
- 1939- The amendments to the Income tax Act made two vital changes: appellate functions were separated from administrative functions and a central charge was created in Bombay .
- 1940 – Directorate of Inspection (Income Tax)
- 1941 – separation of executive and judicial functions; the Appellate Tribunal came into existence; a central charge was created in Calcutta also During 1940 to 1947 – Excess Profits Tax and Business Profits Tax (Later repealed).
- 1951- Report of Income-tax Investigation Commission known as Vardhachari Commission received.Voluntary Disclosure Scheme introduced.
- 1954, the Internal Audit Scheme .
- 1957- I.R.S. (Direct Taxes) Staff College started functioning in Nagpur; Now- National Academy of Direct Taxes; The Wealth tax Act, 1957 introduced
- 1958- The Gift-tax Act, 1958 introduced .
- 1961- Income-tax Act, 1961 came into existence w.e.f. 1-4-1962 .
- 1963- the Central Board of Revenue Act; The Central Board of Direct Taxes was constituted, under this Act .
- 1965- the Voluntary Disclosure Scheme was brought in followed by the 1975 Disclosure Scheme .
- 1970 – new wing of Officers – Tax Recovery Officers was created.