A BRIEF UNDERSTANDING : The system of taxation in India is still now very much primitive. For development of any nation and for civilization imposition of tax within the framework of logical structure is utmost necessary. Revenue raised is utilised for meeting the expenses of government as well as to carry out developmental works. In this context the felicitous version of Justice Holmes is worth–mentioning - “Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civilization”. In India too, attempts are being incessantly made to formulate a simplified and rational tax structure although the effectiveness of such attempts is debatable.
TYPES OF TAXES : Imposition of tax in India is performed basically in two ways – by charging tax directly on income, wealth etc. which is known as Direct Tax and by levying tax directly on sales, production, import, export etc. which is known as Indirect Tax. The direct tax which is paid by individual to the Central Government of India is known as Income Tax. It is imposed on our income and plays a vital role in the economic growth & stability of our country. For years the Government is generating revenue through this tax system.
HISTORY OF REFORMS : The system of taxation in India can be trailed to a long period ago. Kautilya, the author of the famous book ‘Arthashastra’ wrote about taxation. In ancient India, subjects used to pay a share of their income to the king. In lieu of that, the king provided them with the administration, security from foreign aggression and other civic amenities. During the British rule, financial crunch faced by the Government consequent to the Sepoy Mutiny of 1857 prompted the Government to introduce the first Income-tax Act that was enacted in the year 1860. It remained in force for a period of 5 years. Thereafter it was renewed as License Tax on trades and professions in 1867. This Act of 1887 was the improved version. It introduced the definition of agricultural income and the exemption it granted in respect of agricultural income has continued to be a feature of all subsequent legislations. In 1868, the License Tax was re-introduced as Certificate Tax with almost the same legislations with minor changes. In 1869, the Certificate Tax was again replaced by Income-tax. Remarkably, agriculture income was taxed in this enactment. This Act was in force for one year and for the next four years annual legislations were made to enforce taxation. After the great famine of 1876-78, the British were compelled to revive the system of direct taxation again in the year 1877. With several amendments these Acts remained in force till 1886. In 1886, a new Income-tax Act was passed with great improvements than the previous Acts. Aggregation of income under different heads was not given much importance except for the purpose of determining the threshold limit of taxable income. With amendments in the years 1903, 1916 and 1917 this Act continued till 1918. In 1918, a new Income-tax Act was passed recasting the existing one. Aggregation of income under different heads for the purpose of charging Income-tax was first conceptualised. The Indian Income Tax Act, 1922 which came into being as a result of the recommendations of the All India Income Tax Committee is a milestone in the evolution of Direct Tax Laws in India. Its importance lies in the fact that the administration of the Income Tax hitherto carried on by the Provincial Governments came to be vested in the Central Government. This Act marked an important change from the Act of 1918 by establishing the charge in the year of assessment on the income of the previous year instead of merely adopting the previous year's income as a measure of income of the year of assessment. It made a departure by abandoning the system of specifying the rates of taxation in its own Schedules. It left the rates to be announced by the Finance Acts, a feature which survives to this day. It also enabled loss under...
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