Chapter 1

Introduction and History of Tax System in India

No. Particular
1.0 Introduction
1.1 Tax – The Concept
1.2 Characteristics of Tax
1.3 Cannons of Tax
1.4 Objectives of Tax
1.5 Classification of Tax
1.6 Indian Tax System
1.7 Taxes in Ancient India
1.8 Taxes in Modern India
1.9 Important Events in the History of Income Tax in India

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 Chapter 1

Introduction and History of Tax System in India

1.0 Introduction:

The strength or weakness of an economy depends upon the system of taxation. If a

correct system of taxation is applied, it leads to growth of the economy, stimulates the
industrial activity and keeps the revenue consistent. Through efficient system of
taxation an economy can be led to growth and the GDP increases faster. Taxes
constitute an important and major source of revenue for the government. Tax is
collected because the investment can be made for the developmental activities. The
taxation policy of an economy can be considered as sound policy if it performs
allocative, distributional and stabilization function in the economy1.

India has a three tier set up for taxation. It includes the union government, the state
government and the urban/rural local bodies. As per the provisions made in the
constitution of India, the power of collection of taxes is apportioned between the
union government and the state government. The state government may delegate the
further powers to the local authorities also. Various kinds of taxes are collected in
India by the central and the state governments. The power to collect the tax on
agriculture is vested with the state government. Indian tax system is most complicated
tax system of the world. The tax system includes the collection of both the direct taxes
and indirect taxes. Direct taxes are the taxes in which the impact and incidence are at
the same point and these taxes create direct burden on the common man. These taxes
cannot be shifted. These taxes include income tax, corporate tax, wealth tax, gift tax,
etc. On the other hand, an indirect tax is one in which the impact and incidence are at
the different points and such taxes can be shifted forward or backward. The burden of
such tax indirectly falls on the consumers/customers. Important types of indirect taxes
are sales tax, VAT, excise duty, custom duty, etc.

1
Musgrave, R., A., (1973), “Public Finance in Theory and Practice, McGraw Kogakusha Ltd., P.,
778

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The common public wants the government to raise the basic exemption limits and the
corporate request the government to reduce the taxes. The government handles these
requests based on the requirements of the economy.

Over the years, the government of India is on the wake of reformation of the tax
system. This research work focuses on such tax reforms took place in India after
1991. The research work tries to analyse the effects of reforms on the Indian
economy.

1.1 Tax – The Concept:

The concept of tax has been in the force in India since the ancient time. Manu, the
ancient law giver, has laid down that the traders and artisans should pay one-fifth of
their profits in gold and silver. The agriculturists had to pay one-sixth, one-eighth or
one-tenth share depending upon their circumstances. The concept of tax is also found
in Shrimad Bhagvat. Chanakya has also the mention of tax in his Artha Shashtra.
Chanakya has referred tax as Kosh Moolo Dand. The tax system in ancient India was
productive and the combination of direct tax and indirect tax was useful to maintain
flexibility in the tax system.

The term Tax can be defined as follows:

According to Prof. Seligman, “A tax is compulsory contribution from the person to

the government to defray the expense incurred in the common interest of all without
reference to special benefits conferred”.

According to Bastable, “A tax is a compulsory contribution of wealth of a person, or

body of persons for the services of public powers”.

According to Hector Deleon, “Taxation is the levying a tax, i.e. the process or means
by which the sovereign, through its law making body, raises income to defray the
necessary expenses of the government. It is merely a way of apportioning, the cost of
government among those who in some measure are privilege to enjoy its benefits,
therefore must bear its burden”.

According to Deviti DeMarco, “A tax is a share of the income of citizen which the
state appropriate in order to procure for itself the means necessary for the production
of general public service”.

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According to Hugh Dalton, “A tax is a compulsory charges imposed by a public
authority irrespective of the exact amount of services rendered to the tax payer in
return and not imposed as a penalty for legal offence”.

According to Jom Bouvier, “Tax is a pecuniary burden imposed for support of the
government, the enforced proportional contribution of person and property of the
government and for all public needs”.

The above definition of tax clarifies that the tax is a compulsory payment by an owner
of income to the government without any reference to the specific benefits.

1.2 Characteristics of Tax:

A tax is imposed by the government. It has following important characteristics:

- It is Compulsory:

Since the tax is imposed by the government, it becomes compulsory to pay. The
government levy taxes through the legislations and it becomes the duty of every
citizen to pay the tax. If one refuses to pay the tax or creates an objection, it may lead
to punishment. The element of compulsion in tax payment is found when one
purchases some goods or services.

- It is a Contribution:

Tax is a contribution made by the contributor for the growth and development of the
nation. The government provides some infrastructural facilities, defense, law and
order, etc. In order to provide all these facilities, the government faces expenditure.
The citizens make their contribution by paying the tax.

- It is an Amount of Money:

Tax is the payment by the citizens in the form of money. Tax is the payment from the
income earned by the individual or corporate or it is the payment in the form of
money paid at the time of buying or selling some product or service.

- It is for Public Benefits:

Tax is levied for the common good of the society without regard to specific benefits
to the specific individual. The government uses the proceeds of tax for the benefits of

4
the citizens at the time of natural calamities like floods and famines or for the
maintenance of law and order.

- It Gives No Direct Benefit:

The tax is compulsorily collected by the government on all the items purchased and
sold by the citizens and all the income earned by the citizens. But the payment of tax
does not give any direct benefit to the tax payer. Payment of other charges like bills,
fines, prices, rent, etc. provide direct benefits to the payer, but the tax does not give
any such direct benefit to the tax payer.

- It is Paid out of Income or Wealth:

The tax is the payment out of the income earned or the wealth generated by the
individual. When the individual realizes the income, he has to pay the share of it to
the government. Same way when an entity earns the profit, it needs to pay the tax out
of it.

- It is for the Economic Growth and Welfare:

The government levies the tax for the purpose of providing the welfare facilities to the
citizens of the country. The proceeds of tax are utilized for the investment in
infrastructural facilities, industrial development, etc. Thus, the government utilizes the
tax revenue for the economic growth.

1.3 Cannons of Tax:

Adam Smith, in his book titled “The Nature and Causes of the Wealth of the Nation”,
has prescribed the cannons of taxes. These cannons provide the administrative
framework for the taxation. However, the modern economists have added some new
cannons to make the tax administration more effective in the modern times. The
cannons of taxation are as follows:

- Cannon of Equity:

This cannon says that the tax collection should be based on the principle of social
justice. There should equity in collecting the tax from the public. There should be
horizontal as well as vertical equity. The horizontal equity says that the people with
the equal ability to pay should be charged equal amount of tax. The vertical equity

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says that the people with the greater ability to pay should be charged greater amount
of tax. The existence of both horizontal and vertical equity makes the tax system fair.

- Cannon of Certainty:

This principle says that the rules related to tax should be certain. There should not be
any ambiguity. The rules must specify when the tax is to be paid, how much tax is to
be paid, how it is to be paid, etc. This certainty brings confidence in the tax payers
mind and he feels that the tax is calculated correctly and he is not cheated.

- Cannon of Convenience:

This cannon says that there has to be convenience in making the payment of tax. The
convenience in paying the tax helps create compliance. This principle helps in
designing the tax collection system. An appropriate mechanism of tax collection is to
be set, so that the tax payer can pay the tax easily.

- Cannon of Economy:

The cannon of economy talk about cost of tax collection. The principle of economy
says that the administrative cost of collecting the tax should be the lowest. The
economy in tax collection is beneficial to both the tax payer and the government.

- Cannon of Simplicity:

This cannon says that the procedure of calculation, collection and payment of tax
should be as simple as possible. The tax laws and rules should be very simple so that
the tax payer can understand them easily. Simplicity in tax system improves the
compliance and reduces the errors.

- Cannon of Transparency:

This principle says that the system of taxation should be transparent. The tax payer
should know mechanism of charging the tax, how, when and how much tax is
imposed upon him. If the transparency is brought in the tax system, tax payers have
the feeling of justice and fairness.

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- Cannon of Neutrality:

This principle says that the system and rules related to taxation should not unduly
encourage the tax payers to adopt some positive or negative behavior. The purpose of
the tax system is to collect the revenue for the government and not to change the
behavior of the public. The authorities should remain neutral at the time of defining
the ability to pay of the tax payer.

- Cannon of Predictability:

This cannon says that the government should be able to determine how much the tax
revenue is likely to be collected and when. There should be a degree of predictability
about the revenue to be generated by the government from the tax, so that the
government can plan the expenditures accordingly.

- Cannon of Economic Growth:

The tax system should support the economic growth of the country. It should not
impede the growth and development of the country. The economic effect of tax
system should be positive and there should remain the scope of growth and
development of all the sectors of the economy.

- Cannon of Co-ordination:

This principle says that there should be co-ordination among all the authorities
eligible to collect the tax. There should be co-ordination between the state
government and the central government for the laws, rules and the system of tax
collection.

1.4 Objectives of Tax:

After making the review of cannon of taxation, now the researcher has provided the
understanding of the objectives of taxation. The basic objectives of taxation in any
economy can be enumerated as follows:

- Revenue Generation:

The first and foremost objective of taxation is to generate revenue for managing the
economy. As the size of economy grows, the amount of public expenditure also

7
grows. In order to meet the requirements for public expenditure, the government has
to generate revenue. Tax is the major source of revenue for government.

- Redistribution of Income and Wealth:

There can be seen the inequality in the distribution of income and wealth. This
inequality leads to many social evils. In order to reduce this inequality, the
government charges the tax from the rich people and distributes the proceeds among
the poor through social welfare schemes. In order to achieve this goal, the government
imposes high rate of tax on luxury commodities, applies progressive tax system, and
imposes tax exemption on basic goods.

- Providing Social Welfare:

Social welfare is the key indicator of the development of the society. The society
needs the facilities of health and hygiene, education, protection, etc. The government
is responsible to provide all these facilities to the people. The government levies tax
from the people and spends this amount for these welfare facilities.

- Reducing Social Evils:

The consumption of drugs, alcohol, tobacco, etc. are the social evils. It is the
responsibility of the government to fight with such social evils. The government
imposes heavy tax on such commodities, so that the consumption of such
commodities gets reduced.

- Accelerating Economic Growth:

An efficient tax system is required for the economic growth of the country. With the
help of efficient tax system, the government mobilizes the resources from useless to
useful areas of economy. Tax policy helps to increase the rate of capital formation and
investment of this capital in the productive avenues.

- Maintaining Economic Stability:

Maintaining economic stability is an important objective of the tax policy. In the cases
of inflation and recession, the government modifies the tax rates in such a way that
the stability can be achieved. In the case of inflation, the rates of direct taxes are
increased so as to reduce the purchasing power of the people and as a result the

8
inflation reduces. In the situation of recession, the rates of direct taxes are reduced to
increase the purchasing power of the people and this result in the increase in demand
and as a result the recession is controlled.

1.5 Classification of Tax:

In order to classify the taxes, there can be several view points for classification. In this
research work, the researcher has classified the tax on the bases of who bears the
ultimate burden of the tax. From this view point there are major two types of taxes:
Direct Tax and Indirect Tax. The further classification of tax can be presented as
follows:

Figure 1.1

Figure Showing Classification of Taxes

Taxation

Direct Indirect

Income Tax Customs Sales Tax/

Wealth Tax Excise Duty Service Tax
Duty VAT

Personal Corporate
Income Tax Income Tax

- Direct Tax:

Direct taxes are also known as personal tax. In this tax, the impact and incidence are
at the same point. These taxes cannot be shifted. Direct taxes are progressive in nature
and they satisfy the principle of equity. Direct taxes do not affect the prices of
commodity but they affect the purchasing power of the tax payer. Direct taxes are the
taxes on the income and wealth of the people so personal income, corporate income,
income from rent, income from interest, income from land, wealth, gifts, etc. are
taxable. Direct taxes follow the principle of economy, convenience and certainty.

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Following are the merits of direct taxes:

 Direct taxes are progressive in nature and as a result, they follow the principle
of equity. The sacrifice depends upon the volume of income. The rate of tax
increases as the income rises.
 The direct taxes are elastic because the government can generate more revenue
in case of emergency.
 The direct taxes also follow the principle of certainty. There is certainty on
both the side. There is certainty from the side of tax payer because there is
certainty of amount of tax, rate, time and manner of payment of tax. There is
certainty on the part of government about the proceeds from these taxes.
 The direct taxes are useful for reducing the inequalities in the society. The rich
are charged higher tax and lower or no tax from the poor.
 Direct taxes are useful as an instrument of monetary policy. In the case of
inflation, these taxes are increased and in case of recession, these taxes are
reduced.

Following are the demerits of Direct Taxes:

 These taxes are the taxes on the honesty of the people. The people who are
honest and disclose their correct income will have to pay the tax and those
who hide their income are not liable to pay the tax.
 There are chances of evasion from these taxes when the people adopt
falsification in accounts.
 These taxes are unpopular because a lump sum amount is charged from the
people out of the whole income. It becomes painful for the people to give
away such a big amount.
 Direct taxes provide little incentive to earn and save. As the person earns more
income, he has to pay more tax. So the people are discouraged to earn more.
 Direct taxes are levied according to the ability to pay, but it is very difficult to
measure the ability to pay of the people.
- Indirect Taxes:

Indirect taxes are also known as commodity tax. In this type of taxes, the impact and
incidence are at the different points. These taxes can be shifted forward or backward.

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These taxes affect the price of the commodity or services. These taxes are charged
from the people whether they are rich or poor. These taxes can be differential in
nature or can be charged on ad valorem basis.

Following are the merits of Indirect Taxes:

 These taxes are useful for generating larger revenue for the government. The
taxes are charged on the necessity as well as luxury goods.
 These taxes are included in the price of the goods and services, so there is less
scope of evasion.
 It is very convenient to collect these taxes as these taxes are included in the
price of the commodity or service.
 These taxes are economical from the view point of cost of collection as the
collection cost is low.
 The coverage of these taxes is very large as almost all the commodities i.e.
necessaries, luxuries, harmful ones, etc. are covered under the indirect taxes.

Demerits of Indirect Taxes are as follows:

 Indirect taxes sometimes become regressive. In some case, the government

charges higher tax on necessary good and lower tax on luxurious goods.
 There is uncertainty about the proceeds from this tax. This tax is collected at
the time of buying and selling the product and it is not certain when the people
will spend their income.
 This tax discourages savings, since these taxes are included in the price; they
increase the spending of the public.
 Since these taxes are included in the price, they encourage inflation.

1.6 Indian Tax System:

The Indian Tax System can be classified as direct taxes and indirect taxes. Various
forms of direct taxes and indirect taxes are as discussed below:

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- Direct Taxes:
 Income Tax:

Income tax is levied on the income of individuals, corporation and legal entities.
Income tax in India is levied by the central government and it is controlled by the
Central Board of Direct Taxes under the ministry of finance. Income tax is levied as
per the Income Tax Act, 1961. Income earned in the financial year is subject to tax as
per the rates prescribed for that financial year. Income tax is an annual tax on income.

According to Section 14 of Income Tax Act, says that for the purpose of calculating
the income of a person all the income such as salaries, house property, profits and
gains, capital gains, and income from other sources are considered.

 Corporate Tax:

Company means any artificial legal entity, which has independent existence. The
income of a company is calculated separately in the hands of the company. The
amount of profit which is distributed as dividend among its shareholders is assessed in
the hands of shareholders. Such distribution of dividend is not treated as expense but
it is considered as an appropriation of profit. The tax levied from the company is
based on the legal residence of the company. Companies of Indian origin are taxed in
India, while the international companies are levied tax on the earnings from their
operations in India. Various incomes such as royalty, interest, gains from sale of
capital assets within India, dividend from Indian companies and fees for technical
services are all considered as income Companies resident in India are taxed on the
income earned from a business connection in India or from other sources. A company
will be considered as resident in India if it is incorporated in India or if its control and
management is situated entirely in India.

 Wealth Tax:

Wealth tax was introduced in India as per the Wealth Tax Act, 1957. It applies to all
the citizens of the country. It is paid on the property ownership benefits. It has come
into force since 1st April, 1957. The wealth tax is charged every year on every
individual, HUF, and company at a rate of 1% of the total wealth if the amount of
wealth increases beyond 15,000,00. ealth Tax Act is important legislation in direct
tax. Tax is to be paid year after year on the same property on the basis of its market

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value. Till the person retains the ownership of the property, the tax has to be paid.
Even if the property does not yield any return, the tax is required to be paid.

 Gift Tax:

A gift tax is a tax imposed upon the person giving value to another individual. It is
defined as the tax imposed on the value of gift. So, it is a tax on monetary gift to other
person. Gift Tax in India is regulated by the Gift Tax Act, 1958. As per this act, any
gifts in excess of Rs. 25000 in the form of cash, cheques, drafts or in any other form
received from the person who does not have any blood relations with the recipient
were taxable. On 1st October, 1998, gift tax was abolished and all the gifts were free
from tax. In 2004, the gift tax was revived and according to the new provisions, any
gift exceeding the value of Rs. 50,000 is taxable.

- Indirect Taxes:
 Custom Duty:

In India, the custom duty is managed by the Central Board of Excise and Custom
under the ministry of finance. Custom Duty in India is managed according to Customs
Act, 1962 and Customs and Tariff Act, 1975. Custom Duty is levied on all imports
and exports. The custom duty is evaluated on the basis of value of transactions. It
came into existence to check the illegal imports and exports. This is also aimed at
protecting the domestic industries by charging the tax on imports.

 Excise Duty:

Excise duty in India is managed according to Central Excise Act, 1944 and Central
Excise Tariff Act, 1985. Excise duty is levied on the production of goods. Here, the
term production means bringing into existence a new article having distinct name,
character, use and marketability and also includes packing, labeling, etc. There are
different rates of excise duty such as 8%, 16%, etc. In some case, 2% education cess
is also levied on the aggregate duty of excise. Excise duty is levied on the ad valorem
basis and in some cases on the basis of maximum retail price. The liability to pay
excise duty arises as soon as the good are manufactured. This tax is paid by the
manufacturer, which is then transferred onto the buyer of the goods. The term
“excisable goods” means the goods which are specified under the first and second
schedule of the Central Excise Tariff Act, 1985. According to this act, the

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manufacture includes any process, related or supplementary combinations which are
specified under this act.

 Sales Tax:

Sales tax is imposed by the government on the sale or purchase of the commodity
within the country. There are two forms of sales tax, i.e. Central Sales Tax (CST) and
State Sales Tax (SST). All the states in India follow their own sales tax act and
charges tax accordingly. Apart from sales tax, the states may also charge work
contract tax, turnover tax, purchaser tax, etc. Sales tax is a form of indirect tax where
the burden of tax is borne by the purchaser of the commodity, but it is the duty of the
seller to recover the tax from the purchaser. Generally, the sales tax is higher for
luxurious goods and lower for necessities. Central Sales Tax is under the purview of
central government. It is levied on the interstate transactions. However, from 1st April,
2005, the State Sales Tax is replaced with the Value Added Tax (VAT). VAT is a
multi stage sales tax which is levied at every stage of value addition.

 Service Tax:

Service Tax was introduced in India in 1994-95 by the than Finance minister Dr.
Manmohan Singh. The person or firm who provides services is an assessee for the
purpose of service tax. Service tax is levied on all services except for a negative
service list.

1.7 Taxes in Ancient India:

Collection of tax from the public is the matter as old as the civilization. The
references of tax can be found in the ancient literature also. The famous book
„Árthshashtra‟ written by Kautilya gives clear references about the tax system that
was prevailing in the ancient India2. In the ancient India, taxes were collected both in
cash and in kind. The forms of taxes in ancient India were like land tax, octroi, taxes
on liquor, gambling houses and taxes on professionals. The great Sanskrit scholar
Kalidas has recorded that “Just as the sun extracts water from the reservoirs and gives

2
Rao, K., M., V., (1979), “Studies in Kautilya”, Munshiram Manoharlal Publishers Pvt. Ltd, New
Delhi, PP., 131-132

14
it back in the form of showers, so does the ruler extracts tax from his subjects and
gives it back in the form of prosperity”3.

In the Kautilya‟s Arthshashtra, following references are available about the types of
taxes collected in ancient India4.

 Customs duty (Sulka) which consists of import duty (Pravesya), Export duty
(Nishramya) and Octroi and other gate tolls (Dwarabahiri Kadeya).
 Transaction tax (Vyaji) including manavyaji (transaction tax for crown
goods).
 Share of production (Bhaga) including 1/6th share (Shadbhaga).
 Tax (Kara) in cash.
 Taxes in Kind (Pratikara) including labour (Vishti) supply of soldiers
(Ayudhiya).
 Countervailing duties or taxes (Vaidharana).
 Road cess (Vartani).
 Monopoly tax (Parigha).
 Royalty (Prakriya).
 Taxes paid in kind by villages (Pindakara).
 Army maintenance tax (Senabhaktham).
 Surcharges (Parsvam).
During that time, two systems were prevailing for collection of taxes, i.e. Kara and
Pratikara. Kara was tax to be paid in cash and Pratikara was tax to be paid in kind.

References to taxes in ancient India are also found in “Manusmriti”. Manu the
ancient sage and law giver stated that king should levy taxes according to shastras.
He advised that taxes should be related to income and should not be excessive. He
laid down that traders and artisans should pay 1/5th of their profits in gold and silver,
while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending
upon their circumstances. It shows that there was a well planned tax structure existing
in ancient India.

3
Sury, M. M. (2006), “Taxation in India, 1925 to 2007”, New Century Publication, New Delhi, P. 3
4
Rangarajan, L., N., (1992), “Kautilya-The Arthasastra” Penguin Books India Pvt. Ltd., New Delhi,
PP., 262-265

15
India had a well developed tax system during Mauryan period. During that time, the
basic tax was on land. This tax was referred to as „bhag‟ which meant the share of
crop raised in the land. The proportion of one sixth or one quarter was fixed at that
time. The tax on cattle and live stock was also imposed before Muslim rule. During
Mauryan rule, tax was levied on the particular class of people. Besides that the
Mauryans had adopted the proportional system of income tax. The tax was levied on
prostitutes, actors, dancers, musicians, jugglers, singers, players on musical
instruments, buffoons, mimics, rope dancers, herald, etc5.

Sultan Allaudin Khilji introduced three taxes viz., Kharaj – tax on cultivation, Charai
- tax on milch cattle, Ghari – tax on house. Firozeshah Tughluq stopped Ghari and
Charai during his rule between 1351 and 1388. He introduced Jeziya on non-islamic
tax. However, this tax was abolished by Akbar. During the Mughal period, the Zabt
system of land revenue was prevalent. Direct taxes on certain professions and trade
were sometimes imposed by the East India Company. These taxes were later
discontinued due to poor administration. Again the tax on trade and profession was
imposed in 1859 because of financial crisis6.

1.8 Taxes in Modern India:

- The Act of 18607:

The history says that the tax in its modern form was first introduced in India during
the British rule. The income tax was introduced in India for the first time in 1860 in
order to overcome the financial difficulties emerged in 1857. Thus we can say that the
introduction of income tax was done in India by the British rule. During 1860 to 1986,
the British government made various experiments on Indian tax structure. During this
time, the government passed 23 Acts for the amendments of tax system. In the year
1860, the tax at the rate of 2% was levied from the income of Rs. 200 and Rs. 500 and
4% tax for the income above Rs. 500. The income below Rs. 200 was fully exempted
and all the government property was also fully exempted.

5
Gopal, M., H., (1935) “Mauryan Public Finance”, George Allen & Union LTD., London, P., 100
6
Samal, K., C., (1992), “Tax structure and Budgetary Trends”, Manak Publications Pvt. Ltd. Jaipur,
Delhi, PP., 63-64
7
Altekar, A., S., “State and Government in Ancient India”, Motilal Banarsidas Publishers Pvt. Ltd,
Delhi, 2005, P., 48

16
Exemptions were also granted for the cultivators of land, religious and charitable
institutions. This Act of 1860 lapsed in 1865. This Act together with the local Acts
remained in force till 1886. Ultimately the Act took the final form in favor of income
tax since the experience, convinced the Government that income taxation had come to
form a necessary compliment of its revenues and was the only means of compelling
the official and professional classes to pay taxes that prospered most at that time.
Therefore, a fresh legislation was undertaken in 1886 which was the first systematic
legislation on income-tax.

- The Act of 18868:

The Act of 1886 was an important land mark in the history of Indian Tax system.
According to this act, the agricultural income was exempted from Income Tax and
this act defined „agriculture income‟ for the first time. Income was divided into four
different heads viz., income from salaries and pension, profits of companies, interest
on securities, and income from other sources such as income from house property. A
flat tax of 2.6% was applied on the income above Rs. 2000. Interest on securities was
also taxed with the same rate. An additional tax was introduced in 1917 in the name
of „super tax‟. Up to 1916, there was no penalty for failing to file the return, but in
1917, it was made compulsory to file the return for an assessee with the income over
Rs. 2000. The Act of 1886 was in force for 32 years. In 1918 a new Act came into
force with several amendments.

- The Act of 1918:

In 1918, the act was passed to re-cast the act of 1886. The act defined the term
„company‟ and the term „previous year‟. The Hindu Undivided Family was included
under the term assessee. The act provided exemption from paying tax. Agricultural
income was also exempted. Under this act, the income was classified under six heads,
i.e. income from salaries, interest on securities, income derived from house property,
income derived from business, income from professional earnings, and income
derived from other sources. The rate of taxes varied from 4% to 12%9.

8
Altekar, A., S., “State and Government in Ancient India”, Motilal Banarsidas Publishers Pvt. Ltd,
Delhi, 2005, P., 49
9
Sarkar, K., R., (1978), “Public Finance in Ancient India”, Abhinav Publication, New Delhi, P., 51

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- The Act of 192210:

Upon the recommendation of All India Income Tax committee appointed in 1921, the
Act of 1918 was replaced by the Act of 1922. According to this act, the administration
of tax was shifted from the hands of provincial government to the central government.
In this act, the tax was applied to all the incomes except capital gains, casual income
and income in kind not convertible in to cash. The levy of Super-tax was being
incorporated in the provisions of this Act now which was being assessed as a
separate-tax till then and the super-tax was defined as an additional duty of income
tax. The assessable entities were “individual, Hindu Undivided family, company, firm
and other association of individual”. This Act permitted an assessee to set off loss of
profits or gains under one head of income against profit under any other head, both
relating to the same assessment year11. Further, this Act granted relief in respect of
discontinuance of a business which had been assessed under the Act of 1918. The Act
of 1922 was amended several times in order to remove the loopholes in the tax
system. Various acts were passed such as the Act of 1939, the act of 1924, and so on.
Thus the British government made various experiments on Indian tax system. The
government appointed various committees and commissions for making the
modifications in the tax system in India. Bu the government could not be successful in
implementing an effective tax system in India. And kept on making amendments in
Indian tax system.

 The Act of 1939:

The Act of 1939 was an amendment act based on the recommendations of Income
Tax Committee called Aiyer‟s Committee Report, 1936. The committee was
formulated to investigate on all aspects of income tax such as incidence and efficiency
of tax administration in India. The committee made substantial changes in the Act of
1922 and entered a new era of taxation in India. The act brought in to charge foreign
income of „resident‟ in British India. A new class of assessee called „resident but not
ordinarily resident‟ was brought between „resident‟ and „non-resident‟.

10
Altekar, A., S., “State and Government in Ancient India”, Motilal Banarsidas Publishers Pvt. Ltd,
Delhi, 2005, P., 50
11
Nigam, S., (1975), “Economic Organization in Ancient India”, Munshiram Manoharlal Publishers
Pvt. Ltd, New Delhi, P. 313

18
A number of different types of receipts were included in „income‟ which were not
otherwise taxable/Salary‟ which was taxable on „receipt‟ basis was to be taxed on
„due‟ basis according to this Act. It granted to a business, for the first time, relief by
way of carry forward of loss for a period of six years. „Slab system‟ was introduced in
1939 for income-tax also and since then it is an integral part of the Indian income-tax
system. „Slab system‟ is no doubt, better than „step system‟. Under the step system‟, a
single average rate is charged on each taxpayer‟s entire (total) income, increasing
with the size of that income, whereas under the „slab system‟, the income of an
individual is divided into slabs in order to charge the tax. The tax system is
progressive in Indian. Under step system, when the total income just exceeds one of
the levels at which the rate increases, the whole income, not merely that excess, will
be taxed at a higher rate. For example, the income is Rs. l 0,000 and it is being taxed
at 5 percent. This Act also introduced many provisions to check tax avoidance.

- Income Tax during 1939 and 1961:

The reforms in the tax structure brought in 1939 did not prove to be effective as they
could not bring any benefit to the British Rule. The Act of 1922 was amended as
many as twenty nine times during 1939 and 1956. Each amendment was important.
The scheme of payment of tax in advance was introduced in 1944 and the difference
between „earned‟ and „unearned‟ income was created in 1945. The scheme of
provisional assessment was introduced in 1948. Capital gains tax was introduced for
the first time in 1946, but the concept of capital gain was amended several times.

In April 1953, the Government appointed another Commission, known as the

Taxation Enquiry Commission under the chairmanship of Dr. John Mathai. This
commission was entrusted with the wider responsibility than those assigned to the
committee of 1935 and commission of 1947.

The main task entrusted to this commission was to examine the tax system in relation
to the incidence of the tax system regarding the distribution of the burden of taxation
and inequalities of income and wealth, the suitability of the tax system with reference
to the development program of the country, the effects of income taxation on capital
formation and development of productive enterprise, and the use of taxation in
dealing with inflationary and deflationary situations. The Finance Act of 1955

19
incorporated many changes recommended by this Commission and this was the
beginning when the recommendations of the commission were given the effect from
time to time.

In January, 1956, Mr. Nicholas Kaldor was invited to investigate the Indian tax
system in the light of revenue requirement for the second five year plan. The report
submitted by him was focused on personal and business taxation. His report was
exhaustive and he suggested several changes in the tax system. As a result, several
taxation acts were passed viz., Wealth Tax Act, 1957, Expenditure Act, 1957 and Gift
Tax Act, 1958. Income tax on „capital gains‟ was also revived. In 1956, the Income
Tax Act was referred to Law Commission in order to reform the tax structure in the
light of logic and intelligibility of the tax without affecting the basic structure. The
Law Commission submitted the report on 26th September, 1958 but in the meantime
Direct Tax Enquiry Committee was formed under the chairmanship of Shri Mahavir
Tyagi. The committee focused on minimization of inconvenience to the assessee and
reduction in the tax evasion. The committee submitted its report on 30th November,
1959. The recommendations were incorporated in the Income Tax Act, 1961.

- Income Tax Act, 1961:

On the basis of recommendations from Shri Mahavir Tyagi committee, Income Tax
Bill, 1961 was presented in the Lok Sabha on 24th April, 1961. After passing through
both the Hoses of parliament, the Bill was approved by the president on 13th
September, 1961 and the act came into force on 1st April, 1962. The present law of
income tax is governed by the Income Tax Act, 1961, which has 298 sections and 4
schedules and is applicable to whole of India including the state of Jammu and
Kashmir.

The search for an effective tax system answering the developing needs of the nation
has led to the appointment of various committees and commissions which have led to
many changes in the Act, 1961. Changes have been brought in by almost every
Finance Act, Amending Acts and Ordinances. About 70 laws have been passed
between 1962 and 1989 to amend the Income-tax Act, 1961. Some amendments were
made according to the recommendations of the committee such as, (i)
Bhootalingham‟s Report on Rationalisation and Simplification of Tax Structure

20
submitted in two parts, one dated 5th April, 1967 and the other dated 26 Dec.,
1967,(ii) the Report of the Working Group of Administrative Reforms Commission
on Central Direct Taxes Administration, headed by Shri Mahavir Tyagi (1969), (iii)
the Report of the Direct Taxes Enquiry Committee (1971), under the chairmanship of
Justice K. N. Wanchoo, regarding unearthing black money, preventing evasion and
avoidance of taxes, and reducing arrears, (iv) the Committee on Taxation of
Agricultural Wealth and Income (1972), (v) the Interim Report (1977) and final
Report (1978) of the Direct Tax Laws Committee headed by Shri C. C. Chokshi, (vi)
the Report of the Enquiry Committee under the Chairmanship of Shri Bhoothaligam
regarding changes in the concepts of the financial year and the previous year, (vii)
Economic Administration Reforms Commission, called L. K. Jha Commission
(1981), which submitted its report in 1983, (viii) a long term fiscal policy, announced
by the government and laid before the Parliament on 19th Dec, 1985,(ix) a White
paper enunciating government‟s policy published in 1986, and (xx) Direct Tax Laws
(Amendment) Act, 1987 and 1989. A study on black money was published in March
1985 by the National Institute of Public Finance and Policy in India, with
contributions by Dr. R. J. Chelliah. An expert Committee was also constituted in 1989
on revision of tax reforms, which submitted the interim report in 1990.

The Tax Reforms Committee was also appointed in 1991 under the Chairmanship of
Shri Raja J. Chelliah which submitted its Final Report Part-I in Aug, 1992, and final
Report Part- II in January 1993. Some of the recommendations of the Tax Reforms
committee have already been implemented in subsequent budgets. This Committee is
basically concerned with the question of administrative reforms with respect to both
direct and indirect taxes. The Committee also presents detailed and specific
recommendations for important changes in India‟s tax structure. The essence of these
changes is to lower nominal rates and to broaden tax-base. This Committee is also in
favour of progressive income taxes. Therefore, even the Income-tax Act of 1961,
which was then considered to be very comprehensive, had to be amended from time
to time. The 1961, Act has enlarged the number of categories of assessable entities to
seven as against six of the 1922 Act, including „every .artificial juridical person‟, who
has not been included in the six categories, i.e. residuary class 3. A scheme of self-
assessment was introduced which, in course of time, displaced the scheme of
provisional assessment. Provisions regarding advance tax, interest and penalty were

21
made more rigorous. Regarding reopening of back assessment for escaped income,
the Act retained the limit of eight years where the assessee has failed to make a return
or failed to disclose all material facts. The procedures for assessment were completely
recast in April 1989, i.e., assessment year 1989-90.

1.9 Important Events in the History of Income Tax in India12,13,14:

Table – 1.1

Important Events in the History of Income Tax in India

Year Event
1939 - Appellate functions separated from inspecting functions
- A class of officers known as AACs came into existence
- Jurisdiction of Commissioners of Income tax extended to certain
classes of cases and a central charge was created at Bombay
1940 - Directorate of Inspection (Income-tax) came into being
- Excess Profits Tax introduced w.e.f. 1-9-1939
1941 - Income-tax Appellate Tribunal came into existence
- central charge created at Calcutta
1943 - Special Investigation Branches set up
1946 - A few officers of Class-I directly recruited
- Demonetisation of high denomination notes made
- Excess Profits Tax Act repealed
1947 - Business Profits Tax enacted (for the period 1-4-1946 to 31-3-
1949)
1951 - Report of Income-tax Investigation Commission known as
Vardhachari Commission received
- Voluntary Disclosure Scheme introduced
1952 - Directorate of Inspection (Investigation) set up
- Inspector of Income-tax declared as an I.T. authority

12
https://blog.bankbazaar.com/5-latest-tax-reforms-of-2015/
13
http://www.business-standard.com/budget/article/top-5-tax-reforms-india-inc-seeks-from- budget-
2016-116022200293_1.html
14
https://turbotax.intuit.com/tax-tips/irs-tax-return/2017-tax-reform- legislation- what- you- should-
know/L96aFuPhc

22
 Year Event
1953 - Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953
- Act XXV of 1953 gave effect to the recommendations of
Commission appointed under Taxation of Income (Investigation
Commission) Act, 1947
1954 - Internal Audit Scheme in the Income-tax Department introduced
- Taxation Enquiry Commission known as John Mathai
Commission set up
1957 - The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957
- I.R.S. (DT) Staff College started functioning at Nagpur and much
later four R.T.Is. stationed at Bombay, Calcutta, Bangalore and
Lucknow opened
1958 - The Gift-tax Act, 1958 introduced w.e.f. 1-4-1958
- Report of Law Commission received
1959 - Direct Taxes Administration Enquiry Committee submitted its
report
1960 - Directorate of Inspection (Research, Statistics & Publications)was
set up
- Two grades of Inspectors - selection and ordinary grades - merged
into one single grade
1961 - Direct Taxes Advisory Committee set up - Direct Taxes
Administrative Enquiry Committee
- Income-tax Act, 1961 came into existence w.e.f. 1-4-1962
- Revenue Audit introduced for the first time in the Department
- New system for evaluation of work done by Income-tax Officers
introduced
1963 - 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
1964 - For the first time an officer from the department became
Chairman of the CBDT w.e.f. 1-1-1964
- The Companies (Profits) Sur -tax Act, 1964 was introduced

23
 Year Event
- Annuity Deposit Scheme, 1964 introduced
1965 - Voluntary Disclosure Scheme came into operation
1966 - Functional Scheme introduced
- Special Recovery Unit created
- Intelligence Wing created and placed under the charge of
Directorate of Inspection (Investigation)
1968 - Valuation Cell came into existence in the Income tax Department
- Report of rationalisation and simplification of tax structure
(Bhoothalingam Committee) received
- Administrative Reforms Commission set up
1969 - Direct Recruitment to Class II Income-tax Officers made
- The post of IAC (Audit) created in the Income-tax Department
1970 - The posts of Addl. Commissioner of Income-tax created and
abolished after one year
- Recovery functions which were hitherto performed by Income-tax
Officers, given to Tax Recovery Officers. Prior to that State
Government officials exercised the functions of a Tax Recovery
Officer
1971 - A new cadre of posts known as Tax Recovery Commissioners
introduced w.e.f. 1.1.1972
- Report of Direct Taxes Enquiry Committee received
- Summary Assessment Scheme introduced w.e.f. 1-4-1971
1972 - A Special Cell within the Directorate of Inspection (Investigation)
created to oversee the cases of big industrial houses
- A new cadre of posts known as IAC(Acq.) created and IAC
appointed as Competent Authority with the insertion of new
Chapter XXA in the Income Tax Act, 1961 on the acquisition of
immovable properties in certain cases of transfer to counter
evasion of tax
- Directorate of Organisation & Management Services (Income-tax)
created
- The post of I.T.O. (Internal Audit) created

24
 Year Event
- Bradma Scheme in the Income-tax Department introduced
- System of Permanent Account Number introduced
- Valuation Officers given statutory powers under the Income-tax
Act, 1961 and Wealth-tax Act, 1957
1974 - Compulsory Deposit Scheme (Income-tax Payers) Act, 1974
introduced
- Action Plan for the Income-tax Officers introduced for the first
time
- Concept of M.B.O introduced
1975 - Voluntary Disclosure Scheme for Income and Wealth
implemented
- Special Cell for dealing with Smugglers' cases created
1976 - Settlement Commission created and Taxation Laws (Amendment)
Act,1975 inserted a new Chapter XIXA in the Income Tax Act
w.e.f.1-4-1976
- Smugglers and Foreign Exchange Manipulators (Forfeiture of
Property) Act, 1976 introduced w.e.f. 25-1-1976
- A new scheme for departmentalization of accounts introduced
- Chokshi Committee submitted its interim report
1977 - A new cadre of posts known as IAC (Assessment) created
1978 - Appellate functions given to a new cadre of Commissioners
known as Commissioner (Appeals)
- Directorate of Inspection (Recovery) set up
- A new directorate known as Directorate of Inspection
(Vigilance) came into existence by bifurcating the functions of
Directorate of Inspection (Investigation)
- Chokshi Committee submitted its final report
1979 - A new directorate designated as Directorate of Inspection
(Publication & Public Relations) created out of the Directorate of
Inspection (RS&P)
1980 - Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981
1981 - Economic Administrative Reforms Commission set up

25
 Year Event
- Three new Directorates viz. Directorate of Inspection
(Intelligence), Directorate of Inspection (Survey) and
Directorate of Inspection (Systems) created
- Within the Directorate of Inspection (Income Tax and Audit), a
separate Director of Inspection (Audit) appointed
- Directorate of Inspection (RS&P) re-organized and Directorate of
Inspection (P&PR) re-designated as Directorate of
Inspection (Printing & Publications)
- I.R.S.(DT) Staff College, Nagpur, re-designated as National
Academy of Direct Taxes
- Special Bearer Bonds (Immunities & Exemptions) Act
promulgated
- Director General (Special Investigation) and Director General
(Investigation) appointed to control the functioning of various
Directorates under the control of Central Board of Direct Taxes
- Five posts of Chief Commissioner (Administration) created
- A few posts of Commissioner of Income-tax were earmarked as
Commissioner of Income-tax (Inv.) and Commissioner of
Income- tax (Recovery)
1982 - Special Cell within the Directorate of Inspection (Investigation)
converted into a separate Directorate and re-designated as
Directorate of Inspection (Special Investigation)
- DIT (Systems) appointed in the Directorate of Income-tax
(Organization and Management Services) to coordinate efforts in
introducing electronic data processing in the IT Deptt. A
microprocessor based EDP system along with data entry system
was installed heralding the era of computerization
- Levy of Hotel Receipts Tax discontinued
- Regional Training Institute at Nagpur started functioning under
the control of the National Academy of Direct Taxes
1983 - The vigilance set up reorganized and the strength of Dy. Director
(Vigilance) and Asstt. Director(Vigilance) augmented

26
 Year Event
- Computerized systems for processing challans and PAN designed
and developed
1984 - Taxation Laws(Amendment) Act 1984 passed to streamline
procedures in the interest of better work management; avoid
inconvenience to tax payers; reduce litigation; remove anomalies
and rationalise some provisions
1985 - Post of Director General (Investigation) created for more effective
checking of tax evasion
- E.D.(Amendment) Act 1985 discontinues levy of estate duty on
deaths occurring on or after 16.03.1985
- Compulsory Deposit Scheme (Income Tax Payers) Act 1974
discontinued w.e.f. 1.4.1985
- Interest Tax Act, 1974 discontinued w.e.f. 31.3.1985
- A new "Reward Scheme" for motivating officers introduced w.e.f.
1.4.1985
1986 - The I.T. Act and W.T. Act amended by Taxation Laws
(Amendment and Miscellaneous Provisions) Act
- Established Settlement Commission
- Introduced Block assets concept for depreciation
- Four offices of Appropriate Authority for acquiring property in
which unaccounted money is invested set up in metropolitan cities
1987 - Government's approval obtained to set up three new benches of
Settlement Commission
- L.K. Jha Committee set up for simplification and rationalisation
of tax laws
- Office of Directorate General (Tax Exemption) set up at Calcutta
- The Direct Tax Law(Amendment) Act 1987 introduced uniform
previous year and redesignated the following authorities
Director of Inspection, Insp. Asstt. Commissioner of I.Tax,
Appellate. Asstt. Commissioner, Income tax Officer Gr. A,
Income tax Officer Gr. B, Director of Income Tax, Dy.
Commissioner of Income Tax, Asstt. Commissioner of I. Tax,

27
 Year Event
Income tax Officer
- Expenditure Tax Act 1987 brought into force
1988 - Benami Transactions Prohibition Act 1988 introduced
- The Government announced a "Time Window Scheme" which
allowed tax payers 50% rebate of interest u/s 220(2) if they pay
the tax and balance interest. The scheme was in operation
between 1.7.88 to 30.9.88
- CIT (Central) placed under the control and supervision of
Director General (Investigation)
- Government decided that cadre control for Group 'C' and 'D' posts
would be with Chief Commissioner and with CBDT for Group 'A'
and 'B' posts
- Extension of Direct Tax Law to the State of Sikkim by a
notification of the President of India dated 7.11.1988
1989 - Creation of an attached office of DGIT(Management Systems) to
supervise Directorate of I. Tax(Research, Statistics, Publication &
Public Relations) and Directorate of I. Tax (Organization and
Management Services) from Sept. 1989
1990 - Gift tax Bill introduced on 31.5.1990
- Creation of 65 posts of Dy. Commissioner of I. Tax by up
gradation of equal number of posts of Asstt. Commissioner of I.
Tax
1991 - Interest Tax Act, 1974 revived
- Directorate of I. Tax(Systems) started reporting directly to Board
1992 - Rs. 1400 Presumptive Taxation scheme introduced as a measure
to widen tax base
- The post of Director General of Income-tax (Management
Systems) was abolished
1993 - 40 additional posts of Commissioner of Income-tax (Appeals)
created
- Authority for Advance Rulings set up
- A comprehensive phased cadre review for Group B, C and D

28
 Year Event
initiated
1994 - 2068 additional posts in Group B, C and D sanctioned
- New PAN introduced
- Regional Computer Centers (RCCs) were set up in Chennai, Delhi
and Mumbai
1995 - New procedure for search assessment introduced
- 50 years of training commemorated and "Seminar Twenty Five"
introduced by National Academy of Direct Taxes
1996 - 77 posts of Commissioners of Income-tax created
- Infrastructure for operational needs strengthened
- Study report on 4th cadre review of Group 'A' officers (IRS) of
the Department prepared by Directorate of Income Tax
(Organization and Management Services)
1997 - Rates of Income-tax reduced significantly
- Legal measures to widen tax base on certain economic indicators
introduced in selected cities
- Presumptive tax scheme discontinued
- Voluntary Disclosure Scheme 1997 introduced
- Minimum Alternate Tax introduced
- National Computer Centre (NCC) was set up in Delhi
1998 - Sec. 260A introduced enabling direct appeals to High Court
- 1/6 Scheme & penalty for non-filing of return introduced to widen
tax base
- Gift-tax abolished for gifts made after 1.10.1998
- Kar Vivad Samadhan Scheme 1998 introduced
- Silver Jubilee of Regional Training Institutes celebrated
- Designation of Asstt. Commissioner (Senior Time Scale) changed
to Dy. Commissioner and that of Dy. Commissioner (Junior
Administrative Grade) to Joint Commissioner
1999 - Furnishing details of bank account and credit cards in the
prescribed form made mandatory for refund purpose
- Prima-facie adjustments to return done away with;

29
 Year Event
acknowledgments to serve as intimations
- Samman Scheme introduced in 1999 to honor deserving tax
payers
2000 - The process of implementation of restructuring of the Department
commenced to increase efficiency and to deal with increased
workload
- Total sanctioned work force reduced from 61,031 to 58,315
- Certain rationalization measures at structural levels introduced
- Interest-tax Act terminated with effect from 1-4-2000
2001 - The restructuring of the Department resulted in reducing the
stagnation at all levels and large number of personnel were
promoted in various grades
- Jurisdiction pattern was revamped
- New posts were created at the level of DGIT/DIT in the areas of
Research, International Taxation and Infrastructure
2002 - Computerized processing of returns all over the country
introduced
- Kelkar Committee Report, inter alia, recommended:- i.
Outsourcing of non-core functions of the department ii. Reduction
in exemptions, deductions, reliefs, rebates etc.
- The National Website of the Income Tax Department
(www.incometaxindia.gov.in) was launched to provide a vital
interface between the Department and taxpayers
2003 - The National Website of the Department
(www.incometaxindia.gov.in) won the Silver Medal in the
category of the „Government Websites‟ under the National e-
Governance Awards
2004 - As a measure of widening of tax base, the concept of AIR
(Annual Information Return) was introduced
- Fringe Benefit Tax (FBT) was introduced as a major step towards
widening of tax base and bolstering of the Direct Tax Collection
- Securities Transaction Tax (STT) was introduced

30
 Year Event
2005 - Tonnage Tax was introduced for the Shipping Companies
- Banking Cash Transaction Tax (BCTT) was introduced w.e.f. 01-
06-2005
2006 - A project for enabling electronic filing (e-filing) of Income Tax
Returns was launched
- Tax Return Preparer Scheme (TRPS) was launched to assist
individuals and HUF taxpayers to file their Return of Income
- The institution of Income Tax Ombudsman set up in 12 cities
throughout the country to look into tax related grievances of the
common public
2007 - The Refund Banker Scheme was launched in Delhi and Patna
charges
- Sevottam Scheme was launched to standardize service delivery to
the taxpayers
- The first citizen-friendly single window Aayakar Seva Kendra
(ASK)was setup, for centralized receipt and registration of
specified categories of documents, including income tax returns
- The Income Tax Department became the biggest revenue
mobilizer for the Government in 2007-08, with its share
increasing from 34.76%in 1997-98 to 52.75%in 2007-08
- All India Tax Network (TAXNET) was setup connecting more
than 700 offices in more than 500 cities. Consolidation of 36
(RCC) independent regional databases into a single centralized
database (PDC or Primary Data Centre) was carried out
- Integrated Taxpayer Data Management System (ITDMS) for
drawing of 360° taxpayer profile was launched
2008 - Cyber Forensic Labs were setup to identify relevant digital data
during search and survey operations, recover hidden or password
protected or deleted data and store retrieved data in a manner so
that it could be used as evidence in judicial proceedings
- Electronic filing of Income Tax Returns Project was awarded
Silver Award in the category "Outstanding Performance in

31
 Year Event
Citizen Centric Service Delivery" under the National e-
Governance Awards for the year 2007-08
2009 - Centralized Processing Centre was setup in Bangalore for bulk
processing of e-filed and paper returns. The Centre operates
without any interface with taxpayers in a jurisdiction – free
manner
2010 - Integrated Tax Payer Data Management System (ITDMS) was
conferred the Prime Minister's Award for 'Excellence in
Governance and Administration'
- CPC Bangalore awarded the Gold Award for 'Excellence in
Government Process Re-engineering' under the National e-
Governance Awards for the year 2010-2011
- To simplify the 50 years old Income-tax Act, 1961,'The Direct
Taxes Code Bill, 2010' was introduced in the Parliament
2011 - Foreign Tax Division of CBDT was strengthened to effectively
handle the increase in tax information exchange and transfer
pricing issues
- Various IT initiatives were taken for efficient tax administration.
These include e-filing and e-payment of taxes, adoption of
'Sevottam' concept by CBEC and CBDT, web based facility for
tax payers to track the resolution of refunds and credit for pre-
paid taxes and augmentation of processing capacity
- A new simplified form 'Sugam' was introduced to reduce the
compliance burden of small tax payers falling within presumptive
taxation
2012 - Senior Citizens (not having any income from
business/profession), were exempted from payment of advance
tax
- TRACES (TDS Reconciliation, Accounting and Correction
Enabling System) launched to serve an integrated one-stop
platform for the stakeholders to facilitate the services related to
TDS operations

32
 Year Event
2013 - The Government approved the Cadre restructuring of the
Department for the creation of 20,751 additional posts and for
carrying out various measures to increase the effectiveness of the
Department
- Briefly, the salient features of the approved restructuring are as
under:
- Number of assessment units (AUs) increased by 1080 from 3420
to 4500, for strengthening the tax-administration, Each Range to
have one more Assessing Officer, Increase in the number` of
Administrative CsIT deployed on assessment related functions to
increase from 228 to 250, 114 Special Ranges to be created, with
adequate supporting manpower, Creation of reserves numbering
620 created in the IRS cadre, Bifurcation of the posts of the CITs
in the HAG and SAG scales, on functional basis, Up gradation of
all existing 116 posts of CCsIT in HAG+ and Apex scales along
with an increase of their number by 1 post, Strengthening of the
training set-up with creation of three more RTIs, Strengthening
the Appellate/Advocacy Structure by increasing the number of
CIT Appeals and providing them supporting manpower.
Advocacy structure in the ITAT to be strengthened,
2014 - New National Website of the Income Tax Department
www.incometaxindia.gov.in launched with enhanced new features
and content
- SIT to investigate Black Money in Swiss Bank Accounts formed
- Tax Administrative Reforms Commission (TARC) headed by Dr.
Parthasarathi Shome submitted its report of reviewing the
applicability of tax policies and tax laws in the context of global
best practices and recommending measures for reforms required
in tax administration to enhance its effectiveness and efficiency
2015 - Revised Income Tax Return Forms
- increased the Service Tax rate from 12.36% (including education
cess) to 14%

33
 Year Event
- Birth of Sevottam, the Tax Grievance Resolution System
- Tax Incentives of E-payments
- Passing of the Black Money Bill
2016 - Scrap Minimum Alternate Tax (MAT)
- Replace DDT with compulsory Dividend Withholding Tax
- Restore Capital Gains Tax Treatment for buy-back of shares
- Retro Tax
- Clarify tax sops to SEZs
2017 - Lower Tax Rates and Changed Income Ranges
- Alternative Minimum Tax Exemptions Increased
- Increased standard deduction
- Increased Child Tax Credit
- Personal and dependent exemptions

34