A Complete Overview Of Income Taxation In India
Income taxation is widely considered to be one of the most important sources
of income for the government through which it fulfils various projects and
initiatives and is vital for the country's economic progress, sustenance and
development. Yet ironically, the laymen of our country know very little about
income taxation and crucial information thereof, as they consider taxation to be
a boring and complex subject, fit only for dedicated economists and accountants,
which breeds further ignorance on the topic, which in turn leads to tax evasion
and disinterest towards performing their duty as a citizen by not paying tax.
And this statement is proven true as shown by the fact that only 1.46 crore
Indians paying income tax last year.
That is just a little over 1% of India's population and only 1.6% of the country's adult (over 20 years) population. What's even more striking is that the number of taxpayers has shrunk sharply in the past one year. Estimates show that in the assessment year 2018-19 (financial year 2017-18), 3.29 crore Indians paid income tax. Compared to that, 1.46 crore taxpayers in 2019-20 represent a fall of 55% in just one year.
Thus, we can see tax compliance is abysmal. People feel that calculating money to pay tax and tax law's complexities make income taxation a daunting topic and difficult responsibility. The primary aim of this paper was to study income taxation while making it more straightforward and clear-cut and with this in mind I tried to simplify advanced concepts.
In order to identify, understand, investigate, study and analyze income taxation, I used the online research method to acquire secondary data, as it was easy to access, time-saving and I got a huge amount of secondary data with a wide variety of sources. All of these advantages were necessary to me to conduct research, as I couldn't go outside to collect information due to the COVID 19 pandemic.
The research revealed a lot of relevant and advantageous information, adequately simplified and summed up, which fulfilled the objective of broadening our current knowledge of income taxation. The seminar paper provides considerable insight into income taxation within India.
In conclusion, my seminar paper has succeeded in presenting the topic of income taxation in a simplified form an I can earnestly say considerable progress has been made and insight has been gained with regard to this topic. My seminar paper provides the framework and encouragement for a way to do study income taxation. This study is has gone some way towards enhancing our understanding of a complex topic like income taxation. This work has demonstrated and proved that even a complex topic like income taxation can be simplified and be made in an easily digestible form for the Indian masses.
INTRODUCTION
Taxation is the price which civilized communities pay for the opportunity of remaining civilized. - Albert Bushnell Hart
To run a nation judiciously and efficiently, the government needs to collect tax from the eligible citizens; paying taxes to the local government is an integral part of everyone's life, no matter where we live in the world. Now, taxes can be collected in any form such as state taxes, central government taxes, direct taxes, indirect taxes, and much more. For your ease, let's divided the types of taxation in India into two categories, viz. direct taxes and indirect taxes. This segregation is based on how the tax is being paid to the government.
The word tax comes from a Latin word 'taxo'. A tax is a compulsory fee or financial charge levied by a government on an individual or an organisation to raise revenue for public works. The collected amount is then used to fund different public expenditure programmes. Failure in payment of taxes or resisting to contribute towards it invites punishment under the pre-defined law.
A country's tax system is a major determinant of other macroeconomic indices such as economic growth, public debt, fiscal deficit and inflation and therefore taxation policy plays an important role in the efforts of many developing countries to improve their fiscal and economic performance. Taxation is also an important instrument for attaining a proper pattern of resource allocation, income distribution and economic stability, in order that the benefits of economic development are evenly distributed.
The taxation system in India traces its roots to ancient texts like Manusmriti and Arthashastra. As prescribed by these texts, artisans, farmers, and traders hundreds of years ago would pay taxes in the form of silver, gold and agricultural produces.
Taking clues from these texts and with some added tweaks, the basis for the modern tax system in India was laid by the British when Sir James Wilson introduced income tax in 1860. At the time of independence, the newly-formed Indian Government cemented the system to catalyze the economic progress of the country and also to eradicate income and wealth disparity.
Tax structure in India is a three tier federal structure. The central government, state governments, and local municipal bodies make up this structure. Article 256 of the constitution states that 'No tax shall be levied or collected except by the authority of law'.
The Tax structure in India consists of 3 federal parts:
Taxes are determined by the Central and State Governments along with local authorities like municipal corporations. The government cannot impose any tax unless it is passed as a law.
Tax can be defined in very simple words as the government's revenue or source of income. The money collected under the taxation system is put into use for the country's development through several projects and schemes. 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.
Tax is a compulsory payment to be made by every resident of India. It is a charge or burden laid upon persons or the property for the support of a Government. Government decided the rates and the items on which tax will be charged, like income tax, GST, etc
The Central and State government plays a significant role in determining the taxes in India. To streamline the process of taxation and ensure transparency in the country, the state and central governments have undertaken various policy reforms over the last few years. One such change was the Goods and Services Tax (GST) which eased the tax regime on the sale and deliverance of goods and services in the country. The Goods and Services Tax (GST) came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government. The GST replaced existing multiple taxes levied by the central and state governments.
In order to garner income for the government to finance social projects, tax is collected from individuals and corporations via direct tax and indirect tax. These two tax collections form the government's revenue.
Revenue receipts can be of two types non-tax revenue and tax revenue. Tax revenue is the income gained by the government through taxation.
Tax revenue forms a part of the Receipt Budget, which in turn is part of the Annual Financial Statement of the Union Budget. Union Budget keeps the account of the government's finances for the fiscal year that runs from April 1 to March 31. Union Budget is classified into Revenue Budget and Capital Budget.
Tax revenue is the result of the application of a tax rate to a tax base. Total tax revenue as a percentage of GDP indicates the share of the country's output collected by the government through taxes. Tax revenue can be regarded as one measure of the degree to which the government controls the economy's resources.
Taxes collected from both direct tax and indirect tax are the government's tax revenue. It includes collections from income tax, corporation tax, customs, wealth tax, tax on land revenue, etc.
Direct tax is the tax that is paid directly to the government by the person or company on whom it is levied. Income tax, wealth tax, corporation tax, and property tax are some examples of direct tax.
Direct taxes display the importance of taxes by reducing income equalities with its progressive tax structure. Citizens are taxed in proportion to their economic circumstances, thereby encouraging social and economic equality. Moreover, with direct taxes, taxpayers remain aware of how much tax they can be expected to pay in a financial year and prepare well in advance. Direct taxes are also useful in controlling inflation as any change in their rates can help in regulating demand and supply in the economy.
Indirect taxes are those that are collected by intermediaries from individuals and corporations who bear the burden of the tax and passed on to the government. Goods and Services Tax (GST) is an example of indirect tax. Corporation tax forms a large chunk of the government's tax revenue.
The importance of taxes for the government when it comes to indirect taxation is that they are an automatic function that accompany the buying and selling of goods and services across the country. They are therefore easy to collect and convenient for both taxpayers and the tax collection authorities. They also help broaden the country's net of tax liabilities, gathering contributions from those sections of society that are otherwise exempted from direct tax.
Income tax in India is a tax paid by individuals or entities depending on the level of earnings or gains during a financial year. The earnings may be both actual and notional. The Government of India decides the rate of income tax as well as income tax slabs on which individuals are taxed.
Those under higher income slabs are taxed at higher rates. The taxable income slabs are changed from time to time, keeping in mind the price levels. Sometimes, the government also provides income tax rebates, which benefit people in the lower-income group. To collect long-term funds, the government also provides income tax incentives. The amount invested in tax-saving schemes is deducted from gross income, which reduces the amount of taxable income and benefits the taxpayer.
Income tax in India is governed by Entry 82 of the Union List of the Seventh Schedule to the Constitution of India, empowering the central government to tax non-agricultural income; agricultural income is defined in Section 10(1) of the Income-tax Act, 1961. Income-tax law consists of the 1961 act, Income Tax Rules 1962, Notifications and Circulars issued by the Central Board of Direct Taxes (CBDT), annual Finance Acts, and judicial pronouncements by the Supreme and high courts.
Income taxation today has assumed an important and established role in any economy. The governments of developed as well as developing countries now rely heavily on income taxation measures not only to provide the much-needed financing for socio-economic development, but also to reduce the inequalities of wealth in the society. Income Taxation provides a sound, reliable and handy tool to effectively achieve both these objectives.
Today Income tax is akin to a leech in that it sticks to a person as soon as he has taxable income and does not part company even after his death. Its importance can be seen from the fact that in most of the country's taxation provides the major source of revenue to the governments. Thus, A historical, critical and analytical study of income tax in India would be extremely useful in these circumstances.
Income Tax is undoubtedly the most important source of revenue for the Indian government. It is established as an inevitable imposition on the citizens in order to raise funds for fulfilling the development & defence needs of the country. Taxes imposed on income, purchase, sale, and property help the government to run different government embodiment and machinery.
In a developing country like India, the need for finance is great, resulting in a variety of taxes, particularly income taxes, which affect most of the population; besides this, the tax rates are also one of the highest in the world. Income taxation within the country of India, when researched thoroughly, can leave a lasting impact and would go a long way towards making the students and the general public of our country understand this vast and complex field of economics.
In my personal opinion, It is only with a well-educated, informed and intelligent body of citizens, who are ready to analyze, criticize and help the government to formulate effective income tax policies and measures, can a developing country hope to have such income tax laws as would enable it to achieve its economic objectives quicker.
Income taxation is widely considered to be one of the most important sources of income for the government through which it fulfils various projects and initiatives and is vital for the country's economic progress, sustenance and development. Yet ironically, the laymen of our country know very little about income taxation and crucial information thereof, as they consider taxation to be a boring and complex subject, fit only for dedicated economists and accountants, which breeds further ignorance on the topic, which in turn leads to tax evasion and disinterest towards performing their duty as a citizen by not paying tax.
This paper is an overview of the topic of income taxation, which includes history of taxation in India and the world till present, the types of taxes levied in India since independence, types of income taxes in India, the 5 heads of income for computation of income tax, how the income tax is collected, income tax return, income tax deductions, the definition of financial year (FY) and assessment year (AY), and ended with the complete income tax slabs implemented since independence, which allow for a thorough and clear understanding of the topic.
Income taxation and its components, especially within the context of India is presented, analyzed investigated, examined and discussed in order to broaden current knowledge of economics. The primary aim of this paper is to study income taxation while making it more straightforward and clear-cut and with this in mind I tried to simplify advanced concepts.
I undertook this seminar paper with the following objectives in mind:
HISTORY OF TAXATION IN INDIA AND THE WORLD TILL PRESENT
It is a matter of general belief that taxes on income and wealth are of recent origin but this is an erroneous belief and there is enough evidence to show that taxes on income in some form or the other were levied even in primitive and ancient communities. The origin of the word 'Tax' is from 'Taxation' which means an estimate. Furthermore, the word tax also comes from a Latin word 'taxo' These were levied either on the sale and purchase of merchandise or livestock and were collected in an irregular manner from time to time.
Notwithstanding views4 on what is appropriate in tax policy influence the choice and structure of tax codes, patterns of taxation throughout history can be explained largely by administrative considerations. For example, because imported products are easier to tax than domestic output, import duties were among the earliest taxes.
Similarly, the simple turnover tax (levied on gross sales) long held sway before the invention of the economically superior but administratively more demanding VAT (which allows credit for tax paid on purchases). It is easier to identify, and thus tax, real property than other assets; and a head (poll) tax is even easier to implement. It is not surprising, therefore, that the first direct levies were head and land taxes.
Although3 taxation has a long history, it played a relatively minor role in the ancient world. The first known system of taxation was in Ancient Egypt around 30002800 BC, in the First Dynasty of the Old Kingdom of Egypt. The earliest and most widespread forms of taxation were the corv©e and the tithe. The corv©e was forced labour provided to the state by peasants too poor to pay other forms of taxation (labor in ancient Egyptian is a synonym for taxes).
Records from the time document that the Pharaoh would conduct a biennial tour of the kingdom, collecting tithes from the people. Other records are granary receipts on limestone flakes and papyrus. Early taxation is also described in the Bible. In Genesis (chapter 47, verse 24 the New International Version), it states 'But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children'. Joseph was telling the people of Egypt how to divide their crop, providing a portion to the Pharaoh.
A share (20%) of the crop was the tax (in this case, a special rather than an ordinary tax, as it was gathered against an expected famine) The stock made by was returned and equally shared with the people of Egypt and traded with the surrounding nations thus saving and elevating Egypt. Samgharitr is the name mentioned for the Tax collector in the Vedic texts.In Hattusa, the capital of the Hittite Empire, grains were collected as a tax from the surrounding lands, and stored in silos as a display of the king's wealth.
In the Persian Empire, a regulated and sustainable tax system was introduced by Darius I the Great in 500 BC; the Persian system of taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). At differing times, there were between 20 and 30 Satrapies in the Empire and each was assessed according to its supposed productivity. It was the responsibility of the Satrap to collect the due amount and to send it to the treasury, after deducting his expenses (the expenses and the power of deciding precisely how and from whom to raise the money in the province, offer maximum opportunity for rich pickings).
The quantities demanded from the various provinces gave a vivid picture of their economic potential. For instance, Babylon was assessed for the highest amount and for a startling mixture of commodities; 1,000 silver talents and four months supply of food for the army. India, a province fabled for its gold, was to supply gold dust equal in value to the very large amount of 4,680 silver talents.
Egypt was known for the wealth of its crops; it was to be the granary of the Persian Empire (and, later, of the Roman Empire) and was required to provide 120,000 measures of grain in addition to 700 talents of silver. This tax was exclusively levied on Satrapies based on their lands, productive capacity and tribute levels. The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three languages led to the most famous decipherment in historythe cracking of hieroglyphics.
Taxes on consumption were levied in Greece and Rome. Tariffstaxes on imported goodswere often of considerably more importance than internal excises so far as the production of revenue went. As a means of raising additional funds in time of war, taxes on property would be temporarily imposed. For a long time these taxes were confined to real property, but later they were extended to other assets.
Real estate transactions also were taxed. In Greece free citizens had different tax obligations from slaves, and the tax laws of the Roman Empire distinguished between nationals and residents of conquered territories. In Greece, Germany and Roman Empires, taxes were also levied sometimes on the basis of turnover and sometimes on occupations. For many centuries, revenue from taxes went to the Monarch.
Nearly 2000 years ago, there came a decree from Caeser Augustus, the first Roman emperor, that the entire world should be taxed. Early Roman forms of taxation included consumption taxes, customs duties, and certain 'direct' taxes. The principal of these was the tributum, paid by citizens and usually levied as a head tax; later, when additional revenue was required, the base of this tax was extended to real estate holdings. In the time of Julius Caesar, a 1 percent general sales tax was introduced (centesima rerum venalium). The provinces relied for their revenues on head taxes and land taxes; the latter consisted initially of fixed liabilities regardless of the return from the land, as in Persia and Egypt, but later the land tax was modified to achieve a certain correspondence with the fertility of the land, or, alternatively, a 10th of the produce was collected as a tax in kind (the tithe). It is noteworthy that at a relatively early time Rome had an inheritance tax of 5 percent, later 10 percent; however, close relatives of the deceased were exempted. For a long time tax collection was left to middlemen, or 'tax farmers,' who contracted to collect the taxes for a share of the proceeds; under Caesar collection was delegated to civil servants.
In Northern England, taxes were levied on land and on moveable property such as the Saladin title in 1188. Later on, these were supplemented by introduction of poll taxes, and indirect taxes known as 'Ancient Customs' which were duties on wool, leather and hides. These levies and taxes in various forms and on various commodities and professions were imposed to meet the needs of the Governments to meet their military and civil expenditure which were not only to ensure safety to the subjects but also to meet the common needs of the citizens like maintenance of roads, administration of justice and such other functions of the State.
In the Middle Ages many of these ancient taxes, especially the direct levies, gave way to a variety of obligatory services and a system of 'aids' (most of which amounted to gifts). The main indirect taxes were transit duties (a charge on goods that pass through a particular country) and market fees. In the cities the concept developed of a tax obligation encompassing all residents: the burden of taxes on certain foods and beverages was intended to be borne partly by consumers and partly by producers and tradesmen. During the later Middle Ages some German and Italian cities introduced several direct taxes: head taxes for the poor and net-worth taxes or, occasionally, crude income taxes for the rich. (The income tax was administered through self-assessment and an oath taken before a civic commission.) Taxes on land and on houses gradually increased.
Taxes have been a major subject of political controversy throughout history, even before they constituted a sizable share of the national income. A famous instance is the rebellion of the American colonies against Great Britain, when the colonists refused to pay taxes imposed by a Parliament in which they had no voicehence the slogan, 'No taxation without representation. Another instance is the French Revolution of 1789, in which the inequitable distribution of the tax burden was a major factor.
Wars have influenced taxes much more than taxes have influenced revolutions. Many taxes, notably the income tax (first introduced in Great Britain in 1799) and the turnover or purchase tax (Germany, 1918; Great Britain, 1940), began as 'temporary' war measures. Similarly, the withholding method of income tax collection began as a wartime innovation in France, the United States, and Britain. World War II converted the income taxes of many countries from upper-class taxes to mass taxes.
It is hardly necessary to mention the role that tax policies play in peacetime politics, where the influence of powerful, well-organized pressure groups is great. Arguments for tax reform, particularly in the area of income taxes, are perennially at issue in the domestic politics of many countries.
In monetary economies prior to fiat banking, a critical form of taxation was seigniorage, the tax on the creation of money.
Obsolete forms of European taxation include:
Some principalities taxed windows, doors, or cabinets to reduce consumption of imported glass and hardware. Armoires, hutches, and wardrobes were employed to evade taxes on doors and cabinets. In some circumstances, taxes are also used to enforce public policy like congestion charge (to cut road traffic and encourage public transport) in London. In Tsarist Russia, taxes were clamped on beards.
Taxation has been a function of sovereign states since ancient times. Taxation in India is rooted from the period of Manu Smriti and Arthasastra. Present Indian tax system is based on this ancient tax system which was based on the theory of maximum social welfare.
The earliest archaeological evidence of taxation in India is found in Ashoka's pillar inscription at Lumbini. According to the inscription, tax relief was given to the people of Lumbini (who paid one-eighth of their income, instead of one-sixth).
The Baudhayana sutras note that the king received one-sixth of the income from his subjects, in return for protection. According to Kautilya's Arthashastra (a treatise on economics, the art of governance and foreign policy), artha is not only wealth; a government's power depended on the strength of its treasury:
'From the treasury comes the power of the government, and the earth, whose ornament is the treasury, is acquired by means of the treasury and army.' Kalidasa's Raghuvamsha, eulogizing King Dilipa, says: 'it was only for the good of his subjects that he collected taxes from them just as the sun draws moisture from the earth to give it back a thousand time.'
In India, the system of direct taxation as it is known today has been in force in one form or another even from ancient times. Variety of tax measures are referred in both Manu Smriti and Arthasastra. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation; a king should neither impose high rate of tax nor exempt all from tax.
According to Manu Smriti, the king should arrange the collection of taxes in such a manner that the tax payer did 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.
Kautilya has also described in great detail the system of tax administration in the Mauryan Empire.
In the Manusmriti, Manu says that the king has the sovereign power to levy and collect tax according to Shastra:
Manu, Sloka 128, Manusmriti (It is in accordance with Sastra to collect taxes from citizens.)
It is remarkable that the present-day tax system is in many ways similar to the system of taxation in vogue about 2300 years ago.
Arthasastra mentioned that each tax was specific and there was no scope for arbitrariness. Tax collectors determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on ad-valorem basis. The import duties on foreign goods were roughly 20% of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed.
Kautilya also laid down that during war or emergencies like famine or floods, etc. 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. The people engaged in commerce were to pay big donations to war efforts. Kautilya's concept of taxation emphasized equity and justice in taxation. The affluent had to pay higher taxes as compared to the poor.
Kautilya's concept of taxation was very radical, progressive and revolutionary for its time, and most likely inspired the modern Indian taxation system, which is quite amazing as he lived over 2000 years ago. I find that Kautilya implicitly suggestested a linear income tax. He emphasized fairness, stability of tax structure, fiscal federalism, avoidance of heavy taxation, ensuring of tax compliance and subsidies to encourage capital formation.
His concepts can be summed up as:
Taking an overall view from a modern perspective, it can be said without fear of falsehood or contradiction that Kautilya's Arthasastra was the first authoritative text on public finance, administration and the fiscal laws in India. His concept of tax revenue was a unique contribution in the field of tax administration. It was he, who gave the tax revenues its due importance in the running of the State and its far-reaching contribution to the prosperity and stability of the Empire. It is truly a unique treatise. It lays down in precise terms the art of state craft including economic and financial administration.
In India, Islamic rulers imposed jizya on non-Muslims starting with the 11th century. The taxation practice included jizya and kharaj taxes. These terms were sometimes used interchangeably to mean poll tax and collective tribute, or just called kharaj-o-jizya.
Jizya expanded with Delhi Sultanate. Alauddin Khilji, legalized the enslavement of the jizya and kharaj defaulters. His officials seized and sold these slaves in growing Sultanate cities where there was a great demand of slave labour. The Muslim court historian Ziauddin Barani recorded that Kazi Mughisuddin of Bayanah advised AlÄ' al-DÄ«n that Islam requires imposition of jizya on Hindus, to show contempt and to humiliate the Hindus, and imposing jizya is a religious duty of the Sultan.
During the early 14th century reign of Muhammad bin Tughlaq, expensive invasions across India and his order to attack China by sending a portion of his army over the Himalayas, emptied the precious metal in Sultanate's treasury. He ordered minting of coins from base metals with face value of precious metals. This economic experiment failed because Hindus in his Sultanate minted counterfeit coins from base metal in their homes, which they then used for paying jizya.
In the late 14th century, mentions the memoir of Tughlaq dynasty's Sultan Firoz Shah Tughlaq, his predecessor taxed all Hindus but had exempted all Hindu Brahmins from jizya; Firoz Shah extended it over all Hindus. He also announced that any Hindus who converted to Islam would become exempt from taxes and jizya as well as receive gifts from him. On those who chose to remain Hindus, he raised jizya tax rate.
In Kashmir, Sikandar Butshikan levied jizya on those who objected to the abolition of hereditary varnas, allegedly at the behest of his neo-convert minister Suhabhatta. Ahmad Shah (1411-1442), a ruler of Gujarat, introduced the Jizyah in 1414 and collected it with such strictness that many people converted to Islam to evade it.
Jizya was later abolished by the third Mughal emperor Akbar, in 1579.However, in 1679, Aurangzeb chose to re-impose jizya on non-Muslim subjects in lieu of military service, a move that was sharply critiqued by many Hindu rulers and Mughal court-officials. The specific amount varied with the socioeconomic status of a subject and tax-collection were often waived for regions hit by calamities; also, monks, musta'mins, women, children, elders, the handicapped, the unemployed, the ill, and the insane were all perpetually exempted. The collectors were mandated to be Muslims. In some areas revolts led to its periodic suspension such as the 1704 AD suspension of jizya in Deccan region of India by Aurangzeb.
The modern tax was introduced for the first time by Sir James Wilson. India's First 'Union Budget on 7 April, 1860 as temporary measure to overcome the financial difficulties created by the events of 1857. The crisis being faced by the British empire post the Mutiny is well evidenced by the enormous increase in annual military expenses. 'The annual expenditure for the army, military police, new levies, police, and military public works went up from R. 13.2 crores (1856-57), to Rs. 17.2 crores (1857-58) and Rs. 24.7 crores (1858-59) and in the same period the debts of the government of India increased by 36 percent. The increased military expenditure had left it with big debts. Wilson, a self-taught economist with a deep knowledge of how the market worked, was seen to be the man who could salvage the grave financial situation.
Wilson, a liberal and strong proponent of the policy of laissez-faire, however, failed to see the irony of Britishers first suppressing Indians and then demanding a tax for providing them a secure atmosphere. His magazine, The Economist, was sceptical of imperialism. It argued in 1862 that colonies 'would be just as valuable to us...if they were independent. However, the magazine did believe in the colonial concept of the white man's burden, saying that 'uncivilised races were owed 'guidance, guardianship and teaching'.
Thus, the credit for introducing income-tax in its modem form in India goes to the British. It may be asserted that, like the introduction of the study of English language in Indian Education, the introduction of Income-tax in the Indian financial system is one of the few happy heritages of British rule in this country '.
Income was divided into four schedules taxed separately:
Separate Income tax act was passed. This act remained in force up to, with various amendments from time to time.
The period from 1860 to 1886 was a period of experiment in which 23 Acts were passed in the field of direct taxation. In the year 1860, tax was levied at 2 percent on income between Rs. 200 and Rs.500 and at 4 percent on incomes above Rs.500. It is significant to note that even at that time the authorities were very careful about exemptions. Persons earning income less than Rs.200 a year from all sources (Including agriculture income) were exempt from tax. All government property was also exempted.
Exemption was also granted to cultivators of land, the rent value of which was less than Rs. 600 per annum and to religious and charitable institutions. Thereafter rates were changed from time to time. This Act of 1860 lapsed in 1865. Although the income-tax of 1860 was not operated successfully, the procedure concerning levy and collection of tax was continued under different nomenclature thereafter viz. License tax' (introduced in 1867 and abandoned the next year), 'Certificate tax' (introduced in 1868 and abandoned the next year), 'General Income Tax' (introduced in 1869 and abolished in the year 1873) and a license tax on trades and professions (introduced in 1878).
Agriculture Income was excluded from the icense tax '(1867) and the Act VI of 1880, applicable to whole of India together with the local Acts, raised the exemption limit to Rs. 500 per annum, but the rate continued to be 2 percent, This Act together with the local Acts remained in force till 1886. Ultimately the Act took the final form in favour 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 who prospered most at that time. Therefore, afresh legislation was undertaken in 1886 which was the first systematic legislation on income-tax.
Under the Indian Income Tax Act of 1886, income was divided into four schedules taxed separately:
Act II of 1886 was the first important landmark in the history of income-tax in our country. This act was not only a great improvement on its predecessors but its basic scheme contained the germs of the subsequent Income tax Acts also.
This Act excluded agricultural income from the ambit of the income-tax which has continued to be a feature of income tax since and introduced a definition of 'agricultural income' in almost the form in which it stands today. Income was divided in to four heads Viz., income from salaries and pensions, profits of companies, interest on securities and other sources of income including income from house property. The tax was levied on individual's different sources of income separately and not on his total income.
A flat rate of 5 pies in the rupee of 192 pies (about 2.6 percent) was applied on income over Rs. 2,000/- with a rate of 4 pies on 'salaries' between Rs.500 and Rs. 2,000. 'Interest on securities' was also taxed at the same rate. In the year 1903 the taxable minimum was raised to Rs. 1,000. Enhanced rates of taxation by gradation or graduation were introduced in 1916 when eight different rates of tax were prescribed for the different brackets of income. The first world war also caused increase in tax rates.
An additional income tax was also introduced for the first time in 1917 in the name of 'super-tax'. This super-tax was introduced mainly with a view to raise more revenue for the government. While income-tax was being levied at 'step basis' for 'super-tax' the 'slab system' was used. Till 1916, there was no penally for failure to furnish a return (except in the case of companies) but in 1917, it was made obligatory for an assessee, with an income of Rs. 2,000, to make a return. The Act of 1886 stood in force for 32 years till 1918 with a number of amendments.
In 1918, a new act was enacted - the Act VII of 1918, which was introduced to re-cast the entire tax law. The scheme of 'all income if it accrues or arises or is received in British India' from whatever source it is derived [Sec.3 (l)],i.e. total income, was introduced for the first time to determine the rate. The tax levy was imposed in respect of the taxable income of the year of assessment, unlike on the income of the previous year, as obtained under the earlier Acts. Section 2 of the Act contained many definitions. The terms 'company' and 'previous year' were defined. The term 'assessee' included a firm and Hindu undivided family.
Section 3(2) contained a list often items of exemptions including agricultural income. Taxable income was divided in to six heads viz., 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 rates varied from four pies in the rupee to twelve pies in the rupee. This Act remained in force up to 1922 when, on the recommendations of All-India Income-tax Committee-appointed in 1921, The Indian Income-tax Act XI of 1922 came in to being.
This Act of 1922 marked an important change from the Act of 1918 by shifting the administration of the income tax from the hands of Provincial Government to the Central government. Another remarkable feature Act was that the rales were to be enunciated by the annual finance Acts instead of in the basic enactment. This Act, like the Act of 1918 applied to all incomes except capital gains, casual income and incomes in kind not convertible in to money (except rent free accommodation).
Charge in the year of assessment was established on the basis of the income of the 'previous year', instead of using the income of the 'previous year to make adjustment when the actual income of the assessment year was ascertained (1918 Act). 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 or profits or gains under one head of income against profit under any other head, both relating to the same assessment year. 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 as many as twenty times between 1922 and 1939 as it was realized that there were loopholes in the administration of the Act which might lead to tax-avoidance and tax evasion, and the rates of tax were also being increased since from 1921 onwards, the increasing need for government's growing expenditure compelled the taxing authority to pay more emphasis on 'taxes on income'
Thus, by 1939, these taxes occupied the second important position among Central taxes, and they made a contribution of about 20 percent of the total tax revenue to the Govt, of India. With increased taxation, more deductions, allowances and reliefs were also allowed from time to time. The Indian Taxation Inquiry Committee was also constituted in 1924-25 to consider different aspects of taxation.
Act VII of 1939 was an Amendment Act which was based upon the Income-tax Committee also called Aiyer's Committee's Report (1936). This Committee was appointed to make an investigation of the Indian Income-tax system in all aspects and to report on both the incidence and efficiency of administration of the tax. The recommendations made by this committee changed the basic structure of the 1922 Act and ushered in a new era, both in the matter of incidence of tax on income and its administration.
This Act of 1939, marked a departure from the past, by bringing to charge the foreign income of 'residents' in British India. An intermediate class of assessees between 'residents' and 'non-residents' called 'resident' but ordinarily resident'created. This Amendment Act, 1939 gave a new definition of income which was an inclusive definition. 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 total income is split into slabs and progressive higher rates are charged on successive slabs of income. Roughly, to effect, progression, whereas the step system prescribes average rates, (tax liability as a percentage of income), the slab system prescribes marginal rates (the rate on the last increment of income).
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. l0,000 and it is being taxed at 5 percent. If the income exceeds by Rs.50, the whole income of Rs. l0,050 will be taxed at the next higher rate, e.g., 10 percent. This increase of Rs.50 in the income will increase the tax payable from Rs.500 to Rs.1005. On the other hand, under slab system an increased rate is applied only to the increase in income above a slab, the tax as percentage of the total income rises gradually as the income rises. This Act also introduced many provisions to check tax avoidance.
. The drastic changes of 1939 did not prove very effective as far as the income-tax reform was concerned. Therefore, the 1922 Act was amended nine times between 1940 and 1947 and not less than twenty nine times between 1939 and 1956. Each Amendment Act passed had been of immense importance. The scheme of payment of tax in advance was introduced in 1944 and the differentiation between earned and unearned income in 1945 was also introduced. The scheme of provisional assessment, was introduced in 1948.
A tax on capital gains was imposed for the first time in 1946, although the concept of 'capital gains' has been amended many times by later amendments. In 1947, the Taxation of Income (Investigation Commission) Act, 1947, was passed. The India Income Tax (Amendment) Act, 1953 (XXV of 1953), effective from 1 April,1952, gave effect to the recommendations of this Commission. In April 1953, the Government appointed another Commission, known as the Taxation Enquiry Commission under the chairmanship of Dr. John Mathai. Its terms of reference were very much wider than those of the 1935 Committee and 1947 Investigation Commission,
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 programme 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 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, the Indian Statistical Institute invited Mr. Nicholas Kaldor to investigate the Indian Tax System in the light of the revenue requirement of the second five-year plan. His report was concentrated on the question of personal and business taxation. He submitted an exhaustive report for a coordinated tax system and therefore, the result was the enactment of several Taxation Acts, viz., the wealth-tax Act 1957, the Expenditure-tax Act, 1957 and the Gift-tax Act, 1958. Income-tax was also revived on 'Capital Gains'. In 1956, The Government also referred the Act to the Law Commission in order to recast the Act on logical lines and to make its provisions more intelligible and simpler without affecting the basic tax structure. The report of the Law Commission was received by the1 Government on 26 Sept. 1958. Meantime, the Direct Taxes Administration Enquiry Committee, under the Chairmanship of Shri Mahavir Tyagi was appointed by the government to consider measures designed to minimize the inconvenience to assessees and to prevent evasion of income-tax. This Committee submitted its Report on 30th Nov. 1959. The recommendations made in the two reports took shape in the Income Tax Act. 1961.
The Income-tax Bill, 1961 which was submitted to the Lok Sabha on the 24th April, 1961 was the outcome of above recommendations. On 1st may, 1961, it was referred to a Select Committee and its report was presented to the Lok Sabha on 10th August, 1961.After passing through both the House of Parliament, the Bill received the assent of the President on 13th Sep.
1961 and the Act came in to force with effect from 1st April, 1962 by replacing the Indian Income Tax Act, 1922 which had remained in operation for 40 years. 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 to 1989 to amend the Income-tax Act, 1961.
Some of these amendments were made in pursuance of the recommendations made by:
(i) Bhootalingham's Report on Rationalisation and Simplification of Tax Structure 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 ofJustice K.N.Wanchoo, regarding unearthing black money, preventing evasion and avoidance of taxes, and reducing arears, (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. RJ.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 Sh. 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 class3. 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 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. Income-tax revenue originates mainly from two taxpaying entities Viz., 'Companies 'and 'Individuals - Hindu Undivided family, Registered firms and others contribute very little. Since this study is concerned with 'Individuals' - which account for more than 99 % of the 'Salaried
Class' - 'Companies' are not taken in to account.
Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the Union Budget every year which also contains Finance Bill. After it is passed by both the houses of Parliament and receives the assent of the President of India, it becomes the Finance act.
At present, there are five heads of Income:
As it stands today, there are XXIII Chapters, 298 Sections and Fourteen Schedules in the Income Tax Act.
In Terms of the Income Tax Act, 1961, a person includes:
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.
TYPES OF TAXES LEVIED IN INDIA SINCE INDEPENDENCE
There are two types of taxes namely, direct taxes and indirect taxes. The implementation of both the taxes differs. You pay some of them directly, like the cringed income tax, corporate tax, and wealth tax etc while you pay some of the taxes indirectly, like sales tax, service tax, and value added tax etc.
However, apart from these two traditional taxes, there are other taxes also, which has been affected to serve a specific agenda by the country's Central Government. 'Other Taxes' are imposed on both the taxes, direct and indirect tax like the currently launched Swachch Bharat Cess Tax, Infrastructure Cess Tax, and Krishi Kalyan Cess Tax among others.
DIRECT TAX
As stated earlier, you pay these taxes directly. The government levy such taxes directly on an individual or an entity and it cannot get transferred to any other person or entity. There is only one such federation that winks at the direct taxes, i.e. the Central Board of Direct Taxes (CBDT) governed by the Department of Revenue. The CBDT has, to assist it with its sense of duties; the backup of several acts that preside over several aspects of the direct taxes.
Some of these acts are:
Income Tax Act
It is also called the IT Act, 1961. Income Tax in India is governed by the rules set by this act. The income taxed by this act can be generated from any source such as profits received from salaries and investments, owning a property or a house, a business, etc. The IT Act defines the tax benefit you can avail on a life insurance premium or a fixed deposit. It also decides the savings from your income via investments and the tax slab for your income tax.
The Wealth Tax Act
The Wealth Tax Act came into effect in the year 1951 and is in charge of the taxation linked with an individual's net wealth, a Hindu Unified Family (HUF) or a company. The easiest computation of wealth tax was:
If the net wealth of an individual exceed Rs. 30 lakhs, then 1 percent of the exceeded amount is payable as a tax. It was put to an end in the budget that was announced in 2015.
Since then, it has been substituted with a surcharge of 12 percent on the individuals that generate an income more than Rs. 1 crore p.a. It is also pertinent to the companies, which have generated revenue of over Rs. 10 crores p.a. The fresh guidelines radically raised the sum the government would accumulate in taxes as disparate the amount they would accumulate via wealth tax.
Gift Tax Act
This Act was brought into existence in the year 1958 and assured that if a person received gifts or presents, valuables or monetary, he has to pay a tax on those gifts. The tax on aforementioned gifts was sustained at 30 percent but it was put to an end in the year 1998. Originally, if a gift was given, and it was somewhat like shares, jewellery, property etc it was subject to tax.
As per the new rules, the present given by the members of the family like parents, spouse, uncles, aunts, sisters and brothers are not subject to tax. Even presents you receive from the local authorities are also exempted from such taxes. If somebody, other than that of the exempted entities, presents you anything, which has a value beyond Rs. 50,000 then the whole gift amount is subject to tax.
The Expenditure Tax Act
The Expenditure Tax Act came into existence in the year 1987 and cope with the expenditure made by you, as a person, may incur whilst you avail the services of a restaurant or a hotel. It is appropriate to the entire nation other than Jammu and Kashmir. It asserts that some expenses are liable under the act if the amount is beyond Rs. 3,000 contingents upon a hotel and all the expenses drawn in a restaurant.
Interest Tax Act
This Act of 1974 copes with the tax, which was chargeable on interest produced in some specific situations. In the Act's last amendment, it is stated that this act is not applicable to interest earned after March 2000.
The taxes under direct taxes are:
Income Tax
Income Tax is one of the most popular and least implicit taxes. It is such a tax, which is imposed on your income in a fiscal year. There are a lot of facets to the income tax, like taxable income, reduction of the taxable income, tax slabs, tax deducted at source (TDS), etc. This tax is pertinent to both the companies and individuals. For individuals, the amount they pay against the tax is based on the tax bracket they breeze in. This slab or tax decides the tax that an individual has to pay depending upon their annual income and spreading from no tax to 30 percent for the higher income groups.
The government of India has fixed various tax slabs for different groups of people, namely very senior citizens (people who have attained an age above 80 years), senior citizens (people who have attained an age of 60 to 80 years), and general taxpayers.
Capital Gains Tax is payable whenever you get a considerable sum of money. It could be from the sale of any property or from an investment. This is generally of two types, namely long-term capital gains from the investment made for a period of more than 36 months and short-term capital gains from the investments made for not more than 36 months.
The tax that is applicable for each of these is also different since short-term gains tax is computed basis the income bracket, which you fall in and the long-term capital gain tax is 20 percent. The interesting thing about the capital gain tax is that the profit does not always should be in the money form. It could also happen to be barter in kind in this the worth of the exchange will be taken into consideration for taxation
Securities Transaction Tax
Securities Transaction Tax (STT) is a tax payable in India on the value of securities (excluding commodities and currency) transacted through a recognized stock exchange. As of 2016, it is 0.1% for delivery-based equity trading. The tax is not applicable on off-market transactions or on commodity or currency transactions. The original tax rate was set at 0.125% for a delivery-based equity transaction and 0.025% on an intra-day transaction.The rate was set at 0.017% on all Futures and Options transactions. STT was originally introduced in 2004 by the then Finance Minister, P. Chidambaram to stop tax avoidance of capital gains tax. The government reduced this tax in the 2013 budget after a lot of protests for years by the brokers and the trading community.
The revised STT for delivery-based equity trading is 0.1% on the turnover. For Futures, the tax has been reduced to 0.01% on the sell-side only. For Equity Options, the STT has been reduced to 0.05% on the sell side of the premium amount. The rest of the tax structure remains as is. Securities transaction tax is a direct tax. Securities Transaction Tax is levied and collected by the union government of India. STT can be paid by the seller or the purchaser depending on the transaction. The Securities Contract (Regulation) Act, 1956 defines Securities the transaction of which are taxable under STT. Provisions are given in the Security Transaction Tax sub-head that appears under the list of Acts on the Income Tax Website.
Perquisite tax
Perquisites are all the privileges and perks that the employers might pull out to the employees. These civil liberties may include a car provided for your use or a house, given by the company. These perquisites are not just confined to big compensations such as houses or cars; they may even include things such as compensation for phone bills or fuel. The perquisite tax is levied by discovering how the company acquires the perk of how the employee uses it. In case of cars, it might be so that the company provides a car and the employee uses it for both official and personal purposes qualifies for tax while the car used for official purposes only is not eligible for tax.
Corporate Tax:
The income tax a company pays from its revenue earned by it is called a income-tax/corporation-tax/ corporate tax. The corporate tax also has a slab of its own, which decides the amount of tax to be paid. For instance, a domestic firm that earns revenue of not more than Rs. 1 crore p.a. will not have to pay such tax. It is also made known as a surcharge and it is different for distinct revenue brackets. This tax is also different for the international companies where this tax may be 41.2 percent of the revenue earned by the company is not more than Rs. 10 million and above.
There are four types of corporate taxes. They are:
Dividend Distribution Tax
This tax was brought in after the end of Union Budget 2007. It is fundamentally a tax that is levied on the companies that depend on the dividend paid by them to their investors. The Dividend Distribution Tax is chargeable on the net or gross income of an investor received from the investments made by them. Presently, the DDT rate is 15 percent.
Banking Cash Transaction Tax:
This tax is yet another type of tax, which the Government of India has scrapped. This type of taxation was into effect from 2005 to 2009 until Mr. Pranab Mukherjee, the-then Finance Minister, wiped out the tax. Under this tax, every bank transaction, credit or debit, would be levied tax at a rate of 0.1 percent.
INDIRECT TAX
The taxes levied on goods and services are referred to as indirect taxes. They are different from direct taxes as they are not imposed on an individual who shells out them directly to the Indian government, they are, as an alternative, imposed on the products and an intermediary, the individual selling the product, collects them. The most trivial examples of the indirect taxes are Sales Tax, Taxes levied on imported goods, Value Added Tax (VAT), etc. Such taxes are imposed by summating them with the price of the product or service that likely to push the price of the product up.
Some important types of indirect taxes are:
Sales Tax
The tax imposed on the sale of any product is called sales tax. This product can be anything produced in India itself or imported and can also cover services provided. The sales tax is levied on the product's seller who then passes it to the individual who buys the said product with this tax summated to the product's price. The constraint with this tax is that such a tax is imposed on a particular product that means if the product is re-sold; the seller cannot apply sales tax on it.
Fundamentally, all the states in India follow their individual Sales Tax Act and a percentage native to them is charged. Besides this, other additional charges such as works transaction tax, turnover tax, purchase tax, and the similar taxes are levied in a few states. This is also one reason that sales tax was considered as one of the largest revenue producers for a number of state governments. In addition, the sales tax is imposed under both the State and Central Legislation.
Service Tax
As sales tax, the service tax is also summated to the price of the product sold in the country. It is not charged on goods but on the companies that offer services and once every quarter or every month it is collected on the way services are offered. If the organisation is an individual service provider then the payment of service tax is made only once the bills are paid by the customer. However, for firms, the service tax is to be paid as soon as the invoice is raised, heedless of the payment of the bill by the customer.
You must remember that since the service offered at restaurants is a combo of the premises, the waiter and the food, it is tough to point to be eligible for service tax. To abolish haziness, in this regard, there was a declaration made that the restaurants will charge service tax on 40 percent of the total bill.
The GST, i.e. Goods and Service Tax
It is the biggest reform in the structure of Indirect Tax in India since the market began unlocking 25 years back. The goods and services tax is a consumption-based tax because it is chargeable where the consumption is taking place. The GST is imposed on the value-added services and goods at every stage of consumption in the supply chain. The GST chargeable on the acquisition of the goods and services can be redeemed against the GST chargeable on the supply of the goods and services, the vendor will have to make payment of the GST on the applicable rate but he can claim it back via the tax credit method.
Value Added Tax:
Value Added Tax (VAT), popularly known as commercial tax is not chargeable on the commodities, which are zero rated for food and necessary drugs or those falling under exports. VAT is imposed at all the steps of the supply chain, from manufacturers to dealers to distributors to the end user.
The VAT was a tax imposed at the prudence of the state government of the country. Not all the states put it into practice when it was announced. The VAT is imposed on several goods that were sold in the state and the state itself decided the amount of tax.
Customs Duty and Octroi:
While you buy anything that requires being imported from abroad, you are applied a charge on it and that is known as the customs duty. It is applied to all the products, which come in via air, sea or land. Although you acquire products bought in different country to India, you will be charged a customs duty. The intention of the customs duty is to make sure the goods that enter the country are taxes and are paid for. Like the customs duty makes sure that the goods for different countries are levied taxes, Octroi is supposed to make sure that the goods traversing the state borders inside India are appropriately taxed. The state government levies this and functions in almost the same way as that of the customs duty.
Excise Duty:
The excise duty is such a tax that is imposed on all the manufactured goods or the produced goods in India. This tax varies from customs duty as it is chargeable only on the things that are produced in India and is also called the Central Value Added Tax or CENVAT. The government collects this tax from the manufacturer of goods, also from the entities, which receive manufactured products and provide work for people to transport the products from manufacturer to them.
The Central Excise Rule framed by the Central Government of India suggests that every individual that manufactures or produces any 'excisable goods or products', or who stockpile such products in a depot, will have to make payment of the duty chargeable on these goods. Under this scheme, no excisable products, on which some duty is payable will be permitted to move without making payment of duty from any point, where they are manufactured or produced.
TYPES OF INCOME TAXES IN INDIA
When people hear the term income tax, they usually think about the direct taxes they pay to the government, usually in the form of TDS OR Tax Deducted at Source. This income tax is paid every year and is based on the income slab of the taxpayer. There are also many different types of income tax returns which the taxpayers are required to submit to get their returns assessed by the IT department and receive the refund if any.
Types of Capital Assets are:
When the above-listed assets are held for a period of more than 12 months, they are considered as long-term capital asset. In case an asset is acquired by gift, will, succession or inheritance, the period for which the asset was held by the previous owner is also included when determining whether it's a short term or a long-term capital asset. In the case of bonus shares or rights shares, the period of holding is counted from the date of allotment of bonus shares or rights shares respectively.
5 HEADS OF INCOME FOR COMPUTATION OF INCOME TAX
As per the Section 14 Income Tax Act,1961, there are five main income tax heads for an individual. The computation of income tax is an important part and has to be calculated according to the income of a person. For a hassle-free calculation, the income has to be classified properly so that there is no confusion regarding the same.
The government has classified the sources of income under separate heads and then the income tax is computed accordingly. The provisions and rules are according to the details mentioned in the Income Tax Act:
Monetary gifts:
Sums of money received without any consideration or without adequate consideration.
Immovable property as gifts:
Property value will be the stamp duty value. Inadequate consideration will be if the property value is lower than stamp duty value.
Specific movable property:
Property here are shares, jewellery, securities, paintings, archaeological collections, sculptures and drawings and other artwork. As of 1st June 2010, bullion also forms a part of this list. Property value will be the fair market value. Inadequate consideration is when property value is below fair market value.
So, why are there 5 different heads of Income?
Although there is only one tax on the income calculated under various heads, but, there are different rules of computation of income under each head and income has to be computed under that head after applying such rules only.
Judicial Pronouncements
HOW IS THE INCOME TAX COLLECTED?
Tax income calculated will be reduced by TCS collected, TDS deducted AMT/ MAY credit and any relief under a tax treaty. After making payment of the first two installments, the assessee can also revise the estimated income and make the next installment of advance tax accordingly.
INCOME TAX RETURN
Income Tax Return is the form in which assessee files information about his/her Income and tax thereon to Income Tax Department. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7. When you file a belated return, you are not allowed to carry forward certain losses.
The Income Tax Act, 1961, and the Income Tax Rules, 1962, obligates citizens to file returns with the Income Tax Department at the end of every financial year. These returns should be filed before the specified due date. Every Income Tax Return Form is applicable to a certain section of the Assessees. Only those Forms which are filed by the eligible Assessees are processed by the Income Tax Department of India.
It is therefore imperative to know which particular form is appropriate in each case. Income Tax Return Forms vary depending on the criteria of the source of income of the Assessee and the category of the Assessee.
The forms are: 2
INCOME TAX DEDUCTIONS
A deduction from an Income Tax point of view is the investment/expenditure that helps in reducing the tax payable. The income tax deduction reduces your gross total income (means the income on which tax has to be paid). Thereby, reducing the tax on your total income.
Eligible assessees can claim these deductions under the income tax act. The eligible assessee has been specified under each section for which deduction is being claimed. In some cases, it is individual in some company or HUF, etc. Income tax deduction needs to be claimed at the time of filing your Income Tax Return and no separate disclosure compliances in respect of the same should be made. The number of deductions should be reduced form the gross income to reach at the taxable amount.
Income Slab rates For Financial Year 2019-20 Assessment Year 2020-21
Tax Slab for men up to 60 years of age.
CONCLUSION
To sum up, my work completely focused on income taxation, with special emphasis given to the Indian context. I had presented, summarized and explained various aspects related to income tax , such as history of taxation in India and the world till present, the types of taxes levied in India since independence, types of income taxes in India, the 5 heads of income for computation of income tax, how the income tax is collected, income tax return, income tax deductions, the definition of financial year (FY) and assessment year (AY), and ended with the complete income tax slabs implemented since independence, with the aim of being a reference to show the reader how income tax rates have evolved in our country since its inception.
I had selected this topic as I personally felt that a vast majority of Indians are ignorant when it comes to income tax and its laws and aspects, which led to only 1.46 crore Indians paying income tax last year. That is just a little over 1% of India's population and only 1.6% of the country's adult (over 20 years) population.
What's even more striking is that the number of taxpayers has shrunk sharply in the past one year. Estimates show that in the assessment year 2018-19 (financial year 2017-18), 3.29 crore Indians paid income tax. Compared to that, 1.46 crore taxpayers in 2019-20 represent a fall of 55% in just one year.
Thus, we can see tax compliance is abysmal. People feel that calculating money to pay tax and tax law's complexities make income taxation a daunting topic and difficult responsibility. My paper was an overview of income taxation in India, with the primary aim of being an introductory help for people who want to begin comprehending income taxation.
I honestly believe that income tax:
My seminar paper has succeeded in presenting the topic of income taxation in a simplified form an I can earnestly say considerable progress has been made and insight has been gained with regard to this topic. My seminar paper provides the framework and encouragement for a way to do study income taxation. This study is has gone some way towards enhancing our understanding of a complex topic like income taxation. This work has demonstrated and proved that even a complex topic like income taxation can be simplified and be made in an easily digestible form for the Indian masses. I hope my seminar paper provides a springboard for further simplifications of complex topics in the future.
As I see it, Complex and truthfully speaking dry topics like income tax don't have to be difficult to teach, or difficult to understand. By knowing your audience and simplifying the information you present, you can explain difficult concepts with clarity and ease.
Bibliography
Written By: Mohammed Arafat Mujib Khan
That is just a little over 1% of India's population and only 1.6% of the country's adult (over 20 years) population. What's even more striking is that the number of taxpayers has shrunk sharply in the past one year. Estimates show that in the assessment year 2018-19 (financial year 2017-18), 3.29 crore Indians paid income tax. Compared to that, 1.46 crore taxpayers in 2019-20 represent a fall of 55% in just one year.
Thus, we can see tax compliance is abysmal. People feel that calculating money to pay tax and tax law's complexities make income taxation a daunting topic and difficult responsibility. The primary aim of this paper was to study income taxation while making it more straightforward and clear-cut and with this in mind I tried to simplify advanced concepts.
In order to identify, understand, investigate, study and analyze income taxation, I used the online research method to acquire secondary data, as it was easy to access, time-saving and I got a huge amount of secondary data with a wide variety of sources. All of these advantages were necessary to me to conduct research, as I couldn't go outside to collect information due to the COVID 19 pandemic.
The research revealed a lot of relevant and advantageous information, adequately simplified and summed up, which fulfilled the objective of broadening our current knowledge of income taxation. The seminar paper provides considerable insight into income taxation within India.
In conclusion, my seminar paper has succeeded in presenting the topic of income taxation in a simplified form an I can earnestly say considerable progress has been made and insight has been gained with regard to this topic. My seminar paper provides the framework and encouragement for a way to do study income taxation. This study is has gone some way towards enhancing our understanding of a complex topic like income taxation. This work has demonstrated and proved that even a complex topic like income taxation can be simplified and be made in an easily digestible form for the Indian masses.
INTRODUCTION
Taxation is the price which civilized communities pay for the opportunity of remaining civilized. - Albert Bushnell Hart
To run a nation judiciously and efficiently, the government needs to collect tax from the eligible citizens; paying taxes to the local government is an integral part of everyone's life, no matter where we live in the world. Now, taxes can be collected in any form such as state taxes, central government taxes, direct taxes, indirect taxes, and much more. For your ease, let's divided the types of taxation in India into two categories, viz. direct taxes and indirect taxes. This segregation is based on how the tax is being paid to the government.
The word tax comes from a Latin word 'taxo'. A tax is a compulsory fee or financial charge levied by a government on an individual or an organisation to raise revenue for public works. The collected amount is then used to fund different public expenditure programmes. Failure in payment of taxes or resisting to contribute towards it invites punishment under the pre-defined law.
A country's tax system is a major determinant of other macroeconomic indices such as economic growth, public debt, fiscal deficit and inflation and therefore taxation policy plays an important role in the efforts of many developing countries to improve their fiscal and economic performance. Taxation is also an important instrument for attaining a proper pattern of resource allocation, income distribution and economic stability, in order that the benefits of economic development are evenly distributed.
The taxation system in India traces its roots to ancient texts like Manusmriti and Arthashastra. As prescribed by these texts, artisans, farmers, and traders hundreds of years ago would pay taxes in the form of silver, gold and agricultural produces.
Taking clues from these texts and with some added tweaks, the basis for the modern tax system in India was laid by the British when Sir James Wilson introduced income tax in 1860. At the time of independence, the newly-formed Indian Government cemented the system to catalyze the economic progress of the country and also to eradicate income and wealth disparity.
Tax structure in India is a three tier federal structure. The central government, state governments, and local municipal bodies make up this structure. Article 256 of the constitution states that 'No tax shall be levied or collected except by the authority of law'.
The Tax structure in India consists of 3 federal parts:
- Central Government
- State Governments
- Local Municipal bodies
Taxes are determined by the Central and State Governments along with local authorities like municipal corporations. The government cannot impose any tax unless it is passed as a law.
Tax can be defined in very simple words as the government's revenue or source of income. The money collected under the taxation system is put into use for the country's development through several projects and schemes. 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.
Tax is a compulsory payment to be made by every resident of India. It is a charge or burden laid upon persons or the property for the support of a Government. Government decided the rates and the items on which tax will be charged, like income tax, GST, etc
The Central and State government plays a significant role in determining the taxes in India. To streamline the process of taxation and ensure transparency in the country, the state and central governments have undertaken various policy reforms over the last few years. One such change was the Goods and Services Tax (GST) which eased the tax regime on the sale and deliverance of goods and services in the country. The Goods and Services Tax (GST) came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government. The GST replaced existing multiple taxes levied by the central and state governments.
In order to garner income for the government to finance social projects, tax is collected from individuals and corporations via direct tax and indirect tax. These two tax collections form the government's revenue.
Revenue receipts can be of two types non-tax revenue and tax revenue. Tax revenue is the income gained by the government through taxation.
Tax revenue forms a part of the Receipt Budget, which in turn is part of the Annual Financial Statement of the Union Budget. Union Budget keeps the account of the government's finances for the fiscal year that runs from April 1 to March 31. Union Budget is classified into Revenue Budget and Capital Budget.
Tax revenue is the result of the application of a tax rate to a tax base. Total tax revenue as a percentage of GDP indicates the share of the country's output collected by the government through taxes. Tax revenue can be regarded as one measure of the degree to which the government controls the economy's resources.
Taxes collected from both direct tax and indirect tax are the government's tax revenue. It includes collections from income tax, corporation tax, customs, wealth tax, tax on land revenue, etc.
Direct tax is the tax that is paid directly to the government by the person or company on whom it is levied. Income tax, wealth tax, corporation tax, and property tax are some examples of direct tax.
Direct taxes display the importance of taxes by reducing income equalities with its progressive tax structure. Citizens are taxed in proportion to their economic circumstances, thereby encouraging social and economic equality. Moreover, with direct taxes, taxpayers remain aware of how much tax they can be expected to pay in a financial year and prepare well in advance. Direct taxes are also useful in controlling inflation as any change in their rates can help in regulating demand and supply in the economy.
Indirect taxes are those that are collected by intermediaries from individuals and corporations who bear the burden of the tax and passed on to the government. Goods and Services Tax (GST) is an example of indirect tax. Corporation tax forms a large chunk of the government's tax revenue.
The importance of taxes for the government when it comes to indirect taxation is that they are an automatic function that accompany the buying and selling of goods and services across the country. They are therefore easy to collect and convenient for both taxpayers and the tax collection authorities. They also help broaden the country's net of tax liabilities, gathering contributions from those sections of society that are otherwise exempted from direct tax.
Income tax in India is a tax paid by individuals or entities depending on the level of earnings or gains during a financial year. The earnings may be both actual and notional. The Government of India decides the rate of income tax as well as income tax slabs on which individuals are taxed.
Those under higher income slabs are taxed at higher rates. The taxable income slabs are changed from time to time, keeping in mind the price levels. Sometimes, the government also provides income tax rebates, which benefit people in the lower-income group. To collect long-term funds, the government also provides income tax incentives. The amount invested in tax-saving schemes is deducted from gross income, which reduces the amount of taxable income and benefits the taxpayer.
Income tax in India is governed by Entry 82 of the Union List of the Seventh Schedule to the Constitution of India, empowering the central government to tax non-agricultural income; agricultural income is defined in Section 10(1) of the Income-tax Act, 1961. Income-tax law consists of the 1961 act, Income Tax Rules 1962, Notifications and Circulars issued by the Central Board of Direct Taxes (CBDT), annual Finance Acts, and judicial pronouncements by the Supreme and high courts.
Income taxation today has assumed an important and established role in any economy. The governments of developed as well as developing countries now rely heavily on income taxation measures not only to provide the much-needed financing for socio-economic development, but also to reduce the inequalities of wealth in the society. Income Taxation provides a sound, reliable and handy tool to effectively achieve both these objectives.
Today Income tax is akin to a leech in that it sticks to a person as soon as he has taxable income and does not part company even after his death. Its importance can be seen from the fact that in most of the country's taxation provides the major source of revenue to the governments. Thus, A historical, critical and analytical study of income tax in India would be extremely useful in these circumstances.
Income Tax is undoubtedly the most important source of revenue for the Indian government. It is established as an inevitable imposition on the citizens in order to raise funds for fulfilling the development & defence needs of the country. Taxes imposed on income, purchase, sale, and property help the government to run different government embodiment and machinery.
In a developing country like India, the need for finance is great, resulting in a variety of taxes, particularly income taxes, which affect most of the population; besides this, the tax rates are also one of the highest in the world. Income taxation within the country of India, when researched thoroughly, can leave a lasting impact and would go a long way towards making the students and the general public of our country understand this vast and complex field of economics.
In my personal opinion, It is only with a well-educated, informed and intelligent body of citizens, who are ready to analyze, criticize and help the government to formulate effective income tax policies and measures, can a developing country hope to have such income tax laws as would enable it to achieve its economic objectives quicker.
Income taxation is widely considered to be one of the most important sources of income for the government through which it fulfils various projects and initiatives and is vital for the country's economic progress, sustenance and development. Yet ironically, the laymen of our country know very little about income taxation and crucial information thereof, as they consider taxation to be a boring and complex subject, fit only for dedicated economists and accountants, which breeds further ignorance on the topic, which in turn leads to tax evasion and disinterest towards performing their duty as a citizen by not paying tax.
This paper is an overview of the topic of income taxation, which includes history of taxation in India and the world till present, the types of taxes levied in India since independence, types of income taxes in India, the 5 heads of income for computation of income tax, how the income tax is collected, income tax return, income tax deductions, the definition of financial year (FY) and assessment year (AY), and ended with the complete income tax slabs implemented since independence, which allow for a thorough and clear understanding of the topic.
Income taxation and its components, especially within the context of India is presented, analyzed investigated, examined and discussed in order to broaden current knowledge of economics. The primary aim of this paper is to study income taxation while making it more straightforward and clear-cut and with this in mind I tried to simplify advanced concepts.
I undertook this seminar paper with the following objectives in mind:
- Identifying, reviewing, discussing and summarizing in a simplistic and straightforward manner the topic of income tax in India.
- To communicate and elucidate to the reader the fact that income tax isn't an intimidating topic and that it is possible for one to become knowledgeable in this area without being a financial professional.
- To informatively, simplistically and completely educate the reader with regards to all aspects and components of Income tax in India.
- To commence this seminar paper by presenting a comprehensive and educative history of Income tax, especially with regards to India, as it is very interesting and advantageous to know the origins of Income Tax in our country and how they influence us today.
- To conclude this seminar paper by exhibiting income tax slab data since independence as it is very fascinating as an Indian citizen to see how income tax has evolved over the years to where it is now.
HISTORY OF TAXATION IN INDIA AND THE WORLD TILL PRESENT
It is a matter of general belief that taxes on income and wealth are of recent origin but this is an erroneous belief and there is enough evidence to show that taxes on income in some form or the other were levied even in primitive and ancient communities. The origin of the word 'Tax' is from 'Taxation' which means an estimate. Furthermore, the word tax also comes from a Latin word 'taxo' These were levied either on the sale and purchase of merchandise or livestock and were collected in an irregular manner from time to time.
Notwithstanding views4 on what is appropriate in tax policy influence the choice and structure of tax codes, patterns of taxation throughout history can be explained largely by administrative considerations. For example, because imported products are easier to tax than domestic output, import duties were among the earliest taxes.
Similarly, the simple turnover tax (levied on gross sales) long held sway before the invention of the economically superior but administratively more demanding VAT (which allows credit for tax paid on purchases). It is easier to identify, and thus tax, real property than other assets; and a head (poll) tax is even easier to implement. It is not surprising, therefore, that the first direct levies were head and land taxes.
Although3 taxation has a long history, it played a relatively minor role in the ancient world. The first known system of taxation was in Ancient Egypt around 30002800 BC, in the First Dynasty of the Old Kingdom of Egypt. The earliest and most widespread forms of taxation were the corv©e and the tithe. The corv©e was forced labour provided to the state by peasants too poor to pay other forms of taxation (labor in ancient Egyptian is a synonym for taxes).
Records from the time document that the Pharaoh would conduct a biennial tour of the kingdom, collecting tithes from the people. Other records are granary receipts on limestone flakes and papyrus. Early taxation is also described in the Bible. In Genesis (chapter 47, verse 24 the New International Version), it states 'But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children'. Joseph was telling the people of Egypt how to divide their crop, providing a portion to the Pharaoh.
A share (20%) of the crop was the tax (in this case, a special rather than an ordinary tax, as it was gathered against an expected famine) The stock made by was returned and equally shared with the people of Egypt and traded with the surrounding nations thus saving and elevating Egypt. Samgharitr is the name mentioned for the Tax collector in the Vedic texts.In Hattusa, the capital of the Hittite Empire, grains were collected as a tax from the surrounding lands, and stored in silos as a display of the king's wealth.
In the Persian Empire, a regulated and sustainable tax system was introduced by Darius I the Great in 500 BC; the Persian system of taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). At differing times, there were between 20 and 30 Satrapies in the Empire and each was assessed according to its supposed productivity. It was the responsibility of the Satrap to collect the due amount and to send it to the treasury, after deducting his expenses (the expenses and the power of deciding precisely how and from whom to raise the money in the province, offer maximum opportunity for rich pickings).
The quantities demanded from the various provinces gave a vivid picture of their economic potential. For instance, Babylon was assessed for the highest amount and for a startling mixture of commodities; 1,000 silver talents and four months supply of food for the army. India, a province fabled for its gold, was to supply gold dust equal in value to the very large amount of 4,680 silver talents.
Egypt was known for the wealth of its crops; it was to be the granary of the Persian Empire (and, later, of the Roman Empire) and was required to provide 120,000 measures of grain in addition to 700 talents of silver. This tax was exclusively levied on Satrapies based on their lands, productive capacity and tribute levels. The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three languages led to the most famous decipherment in historythe cracking of hieroglyphics.
Taxes on consumption were levied in Greece and Rome. Tariffstaxes on imported goodswere often of considerably more importance than internal excises so far as the production of revenue went. As a means of raising additional funds in time of war, taxes on property would be temporarily imposed. For a long time these taxes were confined to real property, but later they were extended to other assets.
Real estate transactions also were taxed. In Greece free citizens had different tax obligations from slaves, and the tax laws of the Roman Empire distinguished between nationals and residents of conquered territories. In Greece, Germany and Roman Empires, taxes were also levied sometimes on the basis of turnover and sometimes on occupations. For many centuries, revenue from taxes went to the Monarch.
Nearly 2000 years ago, there came a decree from Caeser Augustus, the first Roman emperor, that the entire world should be taxed. Early Roman forms of taxation included consumption taxes, customs duties, and certain 'direct' taxes. The principal of these was the tributum, paid by citizens and usually levied as a head tax; later, when additional revenue was required, the base of this tax was extended to real estate holdings. In the time of Julius Caesar, a 1 percent general sales tax was introduced (centesima rerum venalium). The provinces relied for their revenues on head taxes and land taxes; the latter consisted initially of fixed liabilities regardless of the return from the land, as in Persia and Egypt, but later the land tax was modified to achieve a certain correspondence with the fertility of the land, or, alternatively, a 10th of the produce was collected as a tax in kind (the tithe). It is noteworthy that at a relatively early time Rome had an inheritance tax of 5 percent, later 10 percent; however, close relatives of the deceased were exempted. For a long time tax collection was left to middlemen, or 'tax farmers,' who contracted to collect the taxes for a share of the proceeds; under Caesar collection was delegated to civil servants.
In Northern England, taxes were levied on land and on moveable property such as the Saladin title in 1188. Later on, these were supplemented by introduction of poll taxes, and indirect taxes known as 'Ancient Customs' which were duties on wool, leather and hides. These levies and taxes in various forms and on various commodities and professions were imposed to meet the needs of the Governments to meet their military and civil expenditure which were not only to ensure safety to the subjects but also to meet the common needs of the citizens like maintenance of roads, administration of justice and such other functions of the State.
In the Middle Ages many of these ancient taxes, especially the direct levies, gave way to a variety of obligatory services and a system of 'aids' (most of which amounted to gifts). The main indirect taxes were transit duties (a charge on goods that pass through a particular country) and market fees. In the cities the concept developed of a tax obligation encompassing all residents: the burden of taxes on certain foods and beverages was intended to be borne partly by consumers and partly by producers and tradesmen. During the later Middle Ages some German and Italian cities introduced several direct taxes: head taxes for the poor and net-worth taxes or, occasionally, crude income taxes for the rich. (The income tax was administered through self-assessment and an oath taken before a civic commission.) Taxes on land and on houses gradually increased.
Taxes have been a major subject of political controversy throughout history, even before they constituted a sizable share of the national income. A famous instance is the rebellion of the American colonies against Great Britain, when the colonists refused to pay taxes imposed by a Parliament in which they had no voicehence the slogan, 'No taxation without representation. Another instance is the French Revolution of 1789, in which the inequitable distribution of the tax burden was a major factor.
Wars have influenced taxes much more than taxes have influenced revolutions. Many taxes, notably the income tax (first introduced in Great Britain in 1799) and the turnover or purchase tax (Germany, 1918; Great Britain, 1940), began as 'temporary' war measures. Similarly, the withholding method of income tax collection began as a wartime innovation in France, the United States, and Britain. World War II converted the income taxes of many countries from upper-class taxes to mass taxes.
It is hardly necessary to mention the role that tax policies play in peacetime politics, where the influence of powerful, well-organized pressure groups is great. Arguments for tax reform, particularly in the area of income taxes, are perennially at issue in the domestic politics of many countries.
In monetary economies prior to fiat banking, a critical form of taxation was seigniorage, the tax on the creation of money.
Obsolete forms of European taxation include:
- Scutage, which 5 is paid in lieu of military service; strictly speaking, it is a commutation of a non-tax obligation rather than a tax as such but functioning as a tax in practice.
- Tallage, a tax on feudal dependents.
- Tithe, a tax-like payment (one-tenth of one's earnings or agricultural produce), paid to the Church (and thus too specific to be a tax in strict technical terms). This should not be confused with the modern practice of the same name which is normally voluntary.
- (Feudal) aids, a type of tax or due that was paid by a vassal to his lord during feudal times.
- Danegeld, a medieval land tax originally raised to pay off raiding Danes and later used to fund military expenditures.
- Carucage, a tax which replaced the Danegeld in England.
- Tax farming, the principle of assigning the responsibility for tax revenue collection to private citizens or groups.
- Socage, a feudal tax system based on land rent.
- Burgage, a feudal tax system based on land rent.
Some principalities taxed windows, doors, or cabinets to reduce consumption of imported glass and hardware. Armoires, hutches, and wardrobes were employed to evade taxes on doors and cabinets. In some circumstances, taxes are also used to enforce public policy like congestion charge (to cut road traffic and encourage public transport) in London. In Tsarist Russia, taxes were clamped on beards.
Taxation has been a function of sovereign states since ancient times. Taxation in India is rooted from the period of Manu Smriti and Arthasastra. Present Indian tax system is based on this ancient tax system which was based on the theory of maximum social welfare.
The earliest archaeological evidence of taxation in India is found in Ashoka's pillar inscription at Lumbini. According to the inscription, tax relief was given to the people of Lumbini (who paid one-eighth of their income, instead of one-sixth).
The Baudhayana sutras note that the king received one-sixth of the income from his subjects, in return for protection. According to Kautilya's Arthashastra (a treatise on economics, the art of governance and foreign policy), artha is not only wealth; a government's power depended on the strength of its treasury:
'From the treasury comes the power of the government, and the earth, whose ornament is the treasury, is acquired by means of the treasury and army.' Kalidasa's Raghuvamsha, eulogizing King Dilipa, says: 'it was only for the good of his subjects that he collected taxes from them just as the sun draws moisture from the earth to give it back a thousand time.'
In India, the system of direct taxation as it is known today has been in force in one form or another even from ancient times. Variety of tax measures are referred in both Manu Smriti and Arthasastra. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation; a king should neither impose high rate of tax nor exempt all from tax.
According to Manu Smriti, the king should arrange the collection of taxes in such a manner that the tax payer did 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.
Kautilya has also described in great detail the system of tax administration in the Mauryan Empire.
In the Manusmriti, Manu says that the king has the sovereign power to levy and collect tax according to Shastra:
Manu, Sloka 128, Manusmriti (It is in accordance with Sastra to collect taxes from citizens.)
It is remarkable that the present-day tax system is in many ways similar to the system of taxation in vogue about 2300 years ago.
Arthasastra mentioned that each tax was specific and there was no scope for arbitrariness. Tax collectors determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on ad-valorem basis. The import duties on foreign goods were roughly 20% of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed.
Kautilya also laid down that during war or emergencies like famine or floods, etc. 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. The people engaged in commerce were to pay big donations to war efforts. Kautilya's concept of taxation emphasized equity and justice in taxation. The affluent had to pay higher taxes as compared to the poor.
Kautilya's concept of taxation was very radical, progressive and revolutionary for its time, and most likely inspired the modern Indian taxation system, which is quite amazing as he lived over 2000 years ago. I find that Kautilya implicitly suggestested a linear income tax. He emphasized fairness, stability of tax structure, fiscal federalism, avoidance of heavy taxation, ensuring of tax compliance and subsidies to encourage capital formation.
His concepts can be summed up as:
- A major portion of Arthasastra is devoted by Kautilya to financial matters
including financial administration. Kautilya gave so much importance to public
finance and the taxation system in the Arthasastra is not far to seek. According
to him, the power of the government depends upon the strength of its treasury.
Kautilya emphasized that the King was only a trustee of the land and his duty
was to protect it and to make it more and more productive so that land revenue
could be collected as a principal source of income for the State.
- Kautilya described in detail, the trade and commerce carried on with foreign
countries and the active interest of the Mauryan Empire to promote such trade.
Goods were imported from China, Ceylon and other countries and levy known as a
vartanam was collected on all foreign commodities imported in the country. There
was another levy called Dvaradeyam which was paid by the concerned businessman
for the import of foreign goods. The import duties on foreign goods were roughly
20 per cent of their value. Similarly, tolls, road cess, ferry charges and other
levies were all fixed.
- Kautilya laid down General Sales tax which was also levied on sales and the
purchase of buildings. Even gambling operations were centralised and tax was
collected on these operations.
- A tax called yatravetana was levied on pilgrims. Though revenues were
collected from all possible sources, the underlying philosophy was not to
exploit or overtax people but to provide them as well as to the State and the
King to protect from external and internal danger. The revenues collected in
this manner were spent on social services such as lying of roads, setting up of
educational institutions, setting up of new villages and such other activities
beneficial to the community.
- Kautilya described in great details the system of tax administration in the
Mauryan Empire. It is remarkable that the present-day tax system is in many ways
similar to the system of taxation in vogue about 2300 years ago. According to
the Arthasastra, each tax was specific and there was no scope for arbitrariness.
Precision determined the schedule of each payment, and its time, manner and
quantity being all predetermined. The land revenue was fixed at 1/6 share of the
produce and import and export duties were determined on ad valorem basis.
- Kautilya's overall emphasis was on equity and justice in taxation. The
affluent had to pay higher taxes as compared to the not so fortunate. People who
were suffering from diseases or were minor and students were exempted from tax
or given suitable remissions.
- According to Kautilya, Commodities utilized on marriage occasions, the
articles needed for sacrificial ceremonies and special kinds of gifts were
exempted from taxation.
- Kautilya also laid down that during war or emergencies like famine or floods, etc. 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. The people engaged in commerce were to pay big donations to war efforts.
Taking an overall view from a modern perspective, it can be said without fear of falsehood or contradiction that Kautilya's Arthasastra was the first authoritative text on public finance, administration and the fiscal laws in India. His concept of tax revenue was a unique contribution in the field of tax administration. It was he, who gave the tax revenues its due importance in the running of the State and its far-reaching contribution to the prosperity and stability of the Empire. It is truly a unique treatise. It lays down in precise terms the art of state craft including economic and financial administration.
In India, Islamic rulers imposed jizya on non-Muslims starting with the 11th century. The taxation practice included jizya and kharaj taxes. These terms were sometimes used interchangeably to mean poll tax and collective tribute, or just called kharaj-o-jizya.
Jizya expanded with Delhi Sultanate. Alauddin Khilji, legalized the enslavement of the jizya and kharaj defaulters. His officials seized and sold these slaves in growing Sultanate cities where there was a great demand of slave labour. The Muslim court historian Ziauddin Barani recorded that Kazi Mughisuddin of Bayanah advised AlÄ' al-DÄ«n that Islam requires imposition of jizya on Hindus, to show contempt and to humiliate the Hindus, and imposing jizya is a religious duty of the Sultan.
During the early 14th century reign of Muhammad bin Tughlaq, expensive invasions across India and his order to attack China by sending a portion of his army over the Himalayas, emptied the precious metal in Sultanate's treasury. He ordered minting of coins from base metals with face value of precious metals. This economic experiment failed because Hindus in his Sultanate minted counterfeit coins from base metal in their homes, which they then used for paying jizya.
In the late 14th century, mentions the memoir of Tughlaq dynasty's Sultan Firoz Shah Tughlaq, his predecessor taxed all Hindus but had exempted all Hindu Brahmins from jizya; Firoz Shah extended it over all Hindus. He also announced that any Hindus who converted to Islam would become exempt from taxes and jizya as well as receive gifts from him. On those who chose to remain Hindus, he raised jizya tax rate.
In Kashmir, Sikandar Butshikan levied jizya on those who objected to the abolition of hereditary varnas, allegedly at the behest of his neo-convert minister Suhabhatta. Ahmad Shah (1411-1442), a ruler of Gujarat, introduced the Jizyah in 1414 and collected it with such strictness that many people converted to Islam to evade it.
Jizya was later abolished by the third Mughal emperor Akbar, in 1579.However, in 1679, Aurangzeb chose to re-impose jizya on non-Muslim subjects in lieu of military service, a move that was sharply critiqued by many Hindu rulers and Mughal court-officials. The specific amount varied with the socioeconomic status of a subject and tax-collection were often waived for regions hit by calamities; also, monks, musta'mins, women, children, elders, the handicapped, the unemployed, the ill, and the insane were all perpetually exempted. The collectors were mandated to be Muslims. In some areas revolts led to its periodic suspension such as the 1704 AD suspension of jizya in Deccan region of India by Aurangzeb.
The modern tax was introduced for the first time by Sir James Wilson. India's First 'Union Budget on 7 April, 1860 as temporary measure to overcome the financial difficulties created by the events of 1857. The crisis being faced by the British empire post the Mutiny is well evidenced by the enormous increase in annual military expenses. 'The annual expenditure for the army, military police, new levies, police, and military public works went up from R. 13.2 crores (1856-57), to Rs. 17.2 crores (1857-58) and Rs. 24.7 crores (1858-59) and in the same period the debts of the government of India increased by 36 percent. The increased military expenditure had left it with big debts. Wilson, a self-taught economist with a deep knowledge of how the market worked, was seen to be the man who could salvage the grave financial situation.
Wilson, a liberal and strong proponent of the policy of laissez-faire, however, failed to see the irony of Britishers first suppressing Indians and then demanding a tax for providing them a secure atmosphere. His magazine, The Economist, was sceptical of imperialism. It argued in 1862 that colonies 'would be just as valuable to us...if they were independent. However, the magazine did believe in the colonial concept of the white man's burden, saying that 'uncivilised races were owed 'guidance, guardianship and teaching'.
Thus, the credit for introducing income-tax in its modem form in India goes to the British. It may be asserted that, like the introduction of the study of English language in Indian Education, the introduction of Income-tax in the Indian financial system is one of the few happy heritages of British rule in this country '.
Income was divided into four schedules taxed separately:
- Income from landed property;
- Income from professions and trades;
- Income from Securities;
- Income from Salaries and pensions.
Separate Income tax act was passed. This act remained in force up to, with various amendments from time to time.
The period from 1860 to 1886 was a period of experiment in which 23 Acts were passed in the field of direct taxation. In the year 1860, tax was levied at 2 percent on income between Rs. 200 and Rs.500 and at 4 percent on incomes above Rs.500. It is significant to note that even at that time the authorities were very careful about exemptions. Persons earning income less than Rs.200 a year from all sources (Including agriculture income) were exempt from tax. All government property was also exempted.
Exemption was also granted to cultivators of land, the rent value of which was less than Rs. 600 per annum and to religious and charitable institutions. Thereafter rates were changed from time to time. This Act of 1860 lapsed in 1865. Although the income-tax of 1860 was not operated successfully, the procedure concerning levy and collection of tax was continued under different nomenclature thereafter viz. License tax' (introduced in 1867 and abandoned the next year), 'Certificate tax' (introduced in 1868 and abandoned the next year), 'General Income Tax' (introduced in 1869 and abolished in the year 1873) and a license tax on trades and professions (introduced in 1878).
Agriculture Income was excluded from the icense tax '(1867) and the Act VI of 1880, applicable to whole of India together with the local Acts, raised the exemption limit to Rs. 500 per annum, but the rate continued to be 2 percent, This Act together with the local Acts remained in force till 1886. Ultimately the Act took the final form in favour 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 who prospered most at that time. Therefore, afresh legislation was undertaken in 1886 which was the first systematic legislation on income-tax.
Under the Indian Income Tax Act of 1886, income was divided into four schedules taxed separately:
- Salaries, pensions or gratuities;
- Net profits of companies;
- Interests on the securities of the Government of India;
- Other sources of income.
Act II of 1886 was the first important landmark in the history of income-tax in our country. This act was not only a great improvement on its predecessors but its basic scheme contained the germs of the subsequent Income tax Acts also.
This Act excluded agricultural income from the ambit of the income-tax which has continued to be a feature of income tax since and introduced a definition of 'agricultural income' in almost the form in which it stands today. Income was divided in to four heads Viz., income from salaries and pensions, profits of companies, interest on securities and other sources of income including income from house property. The tax was levied on individual's different sources of income separately and not on his total income.
A flat rate of 5 pies in the rupee of 192 pies (about 2.6 percent) was applied on income over Rs. 2,000/- with a rate of 4 pies on 'salaries' between Rs.500 and Rs. 2,000. 'Interest on securities' was also taxed at the same rate. In the year 1903 the taxable minimum was raised to Rs. 1,000. Enhanced rates of taxation by gradation or graduation were introduced in 1916 when eight different rates of tax were prescribed for the different brackets of income. The first world war also caused increase in tax rates.
An additional income tax was also introduced for the first time in 1917 in the name of 'super-tax'. This super-tax was introduced mainly with a view to raise more revenue for the government. While income-tax was being levied at 'step basis' for 'super-tax' the 'slab system' was used. Till 1916, there was no penally for failure to furnish a return (except in the case of companies) but in 1917, it was made obligatory for an assessee, with an income of Rs. 2,000, to make a return. The Act of 1886 stood in force for 32 years till 1918 with a number of amendments.
In 1918, a new act was enacted - the Act VII of 1918, which was introduced to re-cast the entire tax law. The scheme of 'all income if it accrues or arises or is received in British India' from whatever source it is derived [Sec.3 (l)],i.e. total income, was introduced for the first time to determine the rate. The tax levy was imposed in respect of the taxable income of the year of assessment, unlike on the income of the previous year, as obtained under the earlier Acts. Section 2 of the Act contained many definitions. The terms 'company' and 'previous year' were defined. The term 'assessee' included a firm and Hindu undivided family.
Section 3(2) contained a list often items of exemptions including agricultural income. Taxable income was divided in to six heads viz., 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 rates varied from four pies in the rupee to twelve pies in the rupee. This Act remained in force up to 1922 when, on the recommendations of All-India Income-tax Committee-appointed in 1921, The Indian Income-tax Act XI of 1922 came in to being.
This Act of 1922 marked an important change from the Act of 1918 by shifting the administration of the income tax from the hands of Provincial Government to the Central government. Another remarkable feature Act was that the rales were to be enunciated by the annual finance Acts instead of in the basic enactment. This Act, like the Act of 1918 applied to all incomes except capital gains, casual income and incomes in kind not convertible in to money (except rent free accommodation).
Charge in the year of assessment was established on the basis of the income of the 'previous year', instead of using the income of the 'previous year to make adjustment when the actual income of the assessment year was ascertained (1918 Act). 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 or profits or gains under one head of income against profit under any other head, both relating to the same assessment year. 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 as many as twenty times between 1922 and 1939 as it was realized that there were loopholes in the administration of the Act which might lead to tax-avoidance and tax evasion, and the rates of tax were also being increased since from 1921 onwards, the increasing need for government's growing expenditure compelled the taxing authority to pay more emphasis on 'taxes on income'
Thus, by 1939, these taxes occupied the second important position among Central taxes, and they made a contribution of about 20 percent of the total tax revenue to the Govt, of India. With increased taxation, more deductions, allowances and reliefs were also allowed from time to time. The Indian Taxation Inquiry Committee was also constituted in 1924-25 to consider different aspects of taxation.
Act VII of 1939 was an Amendment Act which was based upon the Income-tax Committee also called Aiyer's Committee's Report (1936). This Committee was appointed to make an investigation of the Indian Income-tax system in all aspects and to report on both the incidence and efficiency of administration of the tax. The recommendations made by this committee changed the basic structure of the 1922 Act and ushered in a new era, both in the matter of incidence of tax on income and its administration.
This Act of 1939, marked a departure from the past, by bringing to charge the foreign income of 'residents' in British India. An intermediate class of assessees between 'residents' and 'non-residents' called 'resident' but ordinarily resident'created. This Amendment Act, 1939 gave a new definition of income which was an inclusive definition. 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 total income is split into slabs and progressive higher rates are charged on successive slabs of income. Roughly, to effect, progression, whereas the step system prescribes average rates, (tax liability as a percentage of income), the slab system prescribes marginal rates (the rate on the last increment of income).
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. l0,000 and it is being taxed at 5 percent. If the income exceeds by Rs.50, the whole income of Rs. l0,050 will be taxed at the next higher rate, e.g., 10 percent. This increase of Rs.50 in the income will increase the tax payable from Rs.500 to Rs.1005. On the other hand, under slab system an increased rate is applied only to the increase in income above a slab, the tax as percentage of the total income rises gradually as the income rises. This Act also introduced many provisions to check tax avoidance.
. The drastic changes of 1939 did not prove very effective as far as the income-tax reform was concerned. Therefore, the 1922 Act was amended nine times between 1940 and 1947 and not less than twenty nine times between 1939 and 1956. Each Amendment Act passed had been of immense importance. The scheme of payment of tax in advance was introduced in 1944 and the differentiation between earned and unearned income in 1945 was also introduced. The scheme of provisional assessment, was introduced in 1948.
A tax on capital gains was imposed for the first time in 1946, although the concept of 'capital gains' has been amended many times by later amendments. In 1947, the Taxation of Income (Investigation Commission) Act, 1947, was passed. The India Income Tax (Amendment) Act, 1953 (XXV of 1953), effective from 1 April,1952, gave effect to the recommendations of this Commission. In April 1953, the Government appointed another Commission, known as the Taxation Enquiry Commission under the chairmanship of Dr. John Mathai. Its terms of reference were very much wider than those of the 1935 Committee and 1947 Investigation Commission,
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 programme 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 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, the Indian Statistical Institute invited Mr. Nicholas Kaldor to investigate the Indian Tax System in the light of the revenue requirement of the second five-year plan. His report was concentrated on the question of personal and business taxation. He submitted an exhaustive report for a coordinated tax system and therefore, the result was the enactment of several Taxation Acts, viz., the wealth-tax Act 1957, the Expenditure-tax Act, 1957 and the Gift-tax Act, 1958. Income-tax was also revived on 'Capital Gains'. In 1956, The Government also referred the Act to the Law Commission in order to recast the Act on logical lines and to make its provisions more intelligible and simpler without affecting the basic tax structure. The report of the Law Commission was received by the1 Government on 26 Sept. 1958. Meantime, the Direct Taxes Administration Enquiry Committee, under the Chairmanship of Shri Mahavir Tyagi was appointed by the government to consider measures designed to minimize the inconvenience to assessees and to prevent evasion of income-tax. This Committee submitted its Report on 30th Nov. 1959. The recommendations made in the two reports took shape in the Income Tax Act. 1961.
The Income-tax Bill, 1961 which was submitted to the Lok Sabha on the 24th April, 1961 was the outcome of above recommendations. On 1st may, 1961, it was referred to a Select Committee and its report was presented to the Lok Sabha on 10th August, 1961.After passing through both the House of Parliament, the Bill received the assent of the President on 13th Sep.
1961 and the Act came in to force with effect from 1st April, 1962 by replacing the Indian Income Tax Act, 1922 which had remained in operation for 40 years. 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 to 1989 to amend the Income-tax Act, 1961.
Some of these amendments were made in pursuance of the recommendations made by:
(i) Bhootalingham's Report on Rationalisation and Simplification of Tax Structure 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 ofJustice K.N.Wanchoo, regarding unearthing black money, preventing evasion and avoidance of taxes, and reducing arears, (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. RJ.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 Sh. 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 class3. 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 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. Income-tax revenue originates mainly from two taxpaying entities Viz., 'Companies 'and 'Individuals - Hindu Undivided family, Registered firms and others contribute very little. Since this study is concerned with 'Individuals' - which account for more than 99 % of the 'Salaried
Class' - 'Companies' are not taken in to account.
Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the Union Budget every year which also contains Finance Bill. After it is passed by both the houses of Parliament and receives the assent of the President of India, it becomes the Finance act.
At present, there are five heads of Income:
- Income from Salary;
- Income from House Property;
- Income from Profits and Gains of Business or Profession;
- Income from Capital Gains;
- Income from Other Sources.
As it stands today, there are XXIII Chapters, 298 Sections and Fourteen Schedules in the Income Tax Act.
In Terms of the Income Tax Act, 1961, a person includes:
- Individual
- Company
- Firm
- Association of Persons (AOP)
- Hindu Undivided Family (HUF)
- Body of Individuals (BOI)
- Local authority
- Artificial Judicial person not falling in any of the preceding categories
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.
TYPES OF TAXES LEVIED IN INDIA SINCE INDEPENDENCE
There are two types of taxes namely, direct taxes and indirect taxes. The implementation of both the taxes differs. You pay some of them directly, like the cringed income tax, corporate tax, and wealth tax etc while you pay some of the taxes indirectly, like sales tax, service tax, and value added tax etc.
However, apart from these two traditional taxes, there are other taxes also, which has been affected to serve a specific agenda by the country's Central Government. 'Other Taxes' are imposed on both the taxes, direct and indirect tax like the currently launched Swachch Bharat Cess Tax, Infrastructure Cess Tax, and Krishi Kalyan Cess Tax among others.
DIRECT TAX
As stated earlier, you pay these taxes directly. The government levy such taxes directly on an individual or an entity and it cannot get transferred to any other person or entity. There is only one such federation that winks at the direct taxes, i.e. the Central Board of Direct Taxes (CBDT) governed by the Department of Revenue. The CBDT has, to assist it with its sense of duties; the backup of several acts that preside over several aspects of the direct taxes.
Some of these acts are:
Income Tax Act
It is also called the IT Act, 1961. Income Tax in India is governed by the rules set by this act. The income taxed by this act can be generated from any source such as profits received from salaries and investments, owning a property or a house, a business, etc. The IT Act defines the tax benefit you can avail on a life insurance premium or a fixed deposit. It also decides the savings from your income via investments and the tax slab for your income tax.
The Wealth Tax Act
The Wealth Tax Act came into effect in the year 1951 and is in charge of the taxation linked with an individual's net wealth, a Hindu Unified Family (HUF) or a company. The easiest computation of wealth tax was:
If the net wealth of an individual exceed Rs. 30 lakhs, then 1 percent of the exceeded amount is payable as a tax. It was put to an end in the budget that was announced in 2015.
Since then, it has been substituted with a surcharge of 12 percent on the individuals that generate an income more than Rs. 1 crore p.a. It is also pertinent to the companies, which have generated revenue of over Rs. 10 crores p.a. The fresh guidelines radically raised the sum the government would accumulate in taxes as disparate the amount they would accumulate via wealth tax.
Gift Tax Act
This Act was brought into existence in the year 1958 and assured that if a person received gifts or presents, valuables or monetary, he has to pay a tax on those gifts. The tax on aforementioned gifts was sustained at 30 percent but it was put to an end in the year 1998. Originally, if a gift was given, and it was somewhat like shares, jewellery, property etc it was subject to tax.
As per the new rules, the present given by the members of the family like parents, spouse, uncles, aunts, sisters and brothers are not subject to tax. Even presents you receive from the local authorities are also exempted from such taxes. If somebody, other than that of the exempted entities, presents you anything, which has a value beyond Rs. 50,000 then the whole gift amount is subject to tax.
The Expenditure Tax Act
The Expenditure Tax Act came into existence in the year 1987 and cope with the expenditure made by you, as a person, may incur whilst you avail the services of a restaurant or a hotel. It is appropriate to the entire nation other than Jammu and Kashmir. It asserts that some expenses are liable under the act if the amount is beyond Rs. 3,000 contingents upon a hotel and all the expenses drawn in a restaurant.
Interest Tax Act
This Act of 1974 copes with the tax, which was chargeable on interest produced in some specific situations. In the Act's last amendment, it is stated that this act is not applicable to interest earned after March 2000.
The taxes under direct taxes are:
Income Tax
Income Tax is one of the most popular and least implicit taxes. It is such a tax, which is imposed on your income in a fiscal year. There are a lot of facets to the income tax, like taxable income, reduction of the taxable income, tax slabs, tax deducted at source (TDS), etc. This tax is pertinent to both the companies and individuals. For individuals, the amount they pay against the tax is based on the tax bracket they breeze in. This slab or tax decides the tax that an individual has to pay depending upon their annual income and spreading from no tax to 30 percent for the higher income groups.
The government of India has fixed various tax slabs for different groups of people, namely very senior citizens (people who have attained an age above 80 years), senior citizens (people who have attained an age of 60 to 80 years), and general taxpayers.
Capital Gains Tax is payable whenever you get a considerable sum of money. It could be from the sale of any property or from an investment. This is generally of two types, namely long-term capital gains from the investment made for a period of more than 36 months and short-term capital gains from the investments made for not more than 36 months.
The tax that is applicable for each of these is also different since short-term gains tax is computed basis the income bracket, which you fall in and the long-term capital gain tax is 20 percent. The interesting thing about the capital gain tax is that the profit does not always should be in the money form. It could also happen to be barter in kind in this the worth of the exchange will be taken into consideration for taxation
Securities Transaction Tax
Securities Transaction Tax (STT) is a tax payable in India on the value of securities (excluding commodities and currency) transacted through a recognized stock exchange. As of 2016, it is 0.1% for delivery-based equity trading. The tax is not applicable on off-market transactions or on commodity or currency transactions. The original tax rate was set at 0.125% for a delivery-based equity transaction and 0.025% on an intra-day transaction.The rate was set at 0.017% on all Futures and Options transactions. STT was originally introduced in 2004 by the then Finance Minister, P. Chidambaram to stop tax avoidance of capital gains tax. The government reduced this tax in the 2013 budget after a lot of protests for years by the brokers and the trading community.
The revised STT for delivery-based equity trading is 0.1% on the turnover. For Futures, the tax has been reduced to 0.01% on the sell-side only. For Equity Options, the STT has been reduced to 0.05% on the sell side of the premium amount. The rest of the tax structure remains as is. Securities transaction tax is a direct tax. Securities Transaction Tax is levied and collected by the union government of India. STT can be paid by the seller or the purchaser depending on the transaction. The Securities Contract (Regulation) Act, 1956 defines Securities the transaction of which are taxable under STT. Provisions are given in the Security Transaction Tax sub-head that appears under the list of Acts on the Income Tax Website.
Perquisite tax
Perquisites are all the privileges and perks that the employers might pull out to the employees. These civil liberties may include a car provided for your use or a house, given by the company. These perquisites are not just confined to big compensations such as houses or cars; they may even include things such as compensation for phone bills or fuel. The perquisite tax is levied by discovering how the company acquires the perk of how the employee uses it. In case of cars, it might be so that the company provides a car and the employee uses it for both official and personal purposes qualifies for tax while the car used for official purposes only is not eligible for tax.
Corporate Tax:
The income tax a company pays from its revenue earned by it is called a income-tax/corporation-tax/ corporate tax. The corporate tax also has a slab of its own, which decides the amount of tax to be paid. For instance, a domestic firm that earns revenue of not more than Rs. 1 crore p.a. will not have to pay such tax. It is also made known as a surcharge and it is different for distinct revenue brackets. This tax is also different for the international companies where this tax may be 41.2 percent of the revenue earned by the company is not more than Rs. 10 million and above.
There are four types of corporate taxes. They are:
- Minimum Alternative Tax (MAT) is fundamentally a
means for the IT Department to get the companies to make
payment of a minimum tax that presently stands at 18.5
percent. This type of tax came into existence when the
Section 115JA of the IT Act was introduced.
Nevertheless, the companies that are involved in power
sectors and infrastructure are exempted from making
payment of MAT.
Once the MAT is paid by the company, it can cart the payment forward and adjust against the regular tax payable for the period of the succeeding five-year duration liable to be subjected to specific conditions.
- Fringe Benefit Tax
Abbreviated as FBT, was a tax that was applied to nearly all the fringe benefits an employee receives from its employer. This tax covers several aspects such as:
- Employee Accommodation, entertainment and welfare, the employer's expenditure on travel.
- Employer Stock Option Plans (ESOPs)
- The contribution made by the employer to a registered retirement fund
- Any commute related expenditure or regular commute offered by an employer
Dividend Distribution Tax
This tax was brought in after the end of Union Budget 2007. It is fundamentally a tax that is levied on the companies that depend on the dividend paid by them to their investors. The Dividend Distribution Tax is chargeable on the net or gross income of an investor received from the investments made by them. Presently, the DDT rate is 15 percent.
Banking Cash Transaction Tax:
This tax is yet another type of tax, which the Government of India has scrapped. This type of taxation was into effect from 2005 to 2009 until Mr. Pranab Mukherjee, the-then Finance Minister, wiped out the tax. Under this tax, every bank transaction, credit or debit, would be levied tax at a rate of 0.1 percent.
INDIRECT TAX
The taxes levied on goods and services are referred to as indirect taxes. They are different from direct taxes as they are not imposed on an individual who shells out them directly to the Indian government, they are, as an alternative, imposed on the products and an intermediary, the individual selling the product, collects them. The most trivial examples of the indirect taxes are Sales Tax, Taxes levied on imported goods, Value Added Tax (VAT), etc. Such taxes are imposed by summating them with the price of the product or service that likely to push the price of the product up.
Some important types of indirect taxes are:
Sales Tax
The tax imposed on the sale of any product is called sales tax. This product can be anything produced in India itself or imported and can also cover services provided. The sales tax is levied on the product's seller who then passes it to the individual who buys the said product with this tax summated to the product's price. The constraint with this tax is that such a tax is imposed on a particular product that means if the product is re-sold; the seller cannot apply sales tax on it.
Fundamentally, all the states in India follow their individual Sales Tax Act and a percentage native to them is charged. Besides this, other additional charges such as works transaction tax, turnover tax, purchase tax, and the similar taxes are levied in a few states. This is also one reason that sales tax was considered as one of the largest revenue producers for a number of state governments. In addition, the sales tax is imposed under both the State and Central Legislation.
Service Tax
As sales tax, the service tax is also summated to the price of the product sold in the country. It is not charged on goods but on the companies that offer services and once every quarter or every month it is collected on the way services are offered. If the organisation is an individual service provider then the payment of service tax is made only once the bills are paid by the customer. However, for firms, the service tax is to be paid as soon as the invoice is raised, heedless of the payment of the bill by the customer.
You must remember that since the service offered at restaurants is a combo of the premises, the waiter and the food, it is tough to point to be eligible for service tax. To abolish haziness, in this regard, there was a declaration made that the restaurants will charge service tax on 40 percent of the total bill.
The GST, i.e. Goods and Service Tax
It is the biggest reform in the structure of Indirect Tax in India since the market began unlocking 25 years back. The goods and services tax is a consumption-based tax because it is chargeable where the consumption is taking place. The GST is imposed on the value-added services and goods at every stage of consumption in the supply chain. The GST chargeable on the acquisition of the goods and services can be redeemed against the GST chargeable on the supply of the goods and services, the vendor will have to make payment of the GST on the applicable rate but he can claim it back via the tax credit method.
Value Added Tax:
Value Added Tax (VAT), popularly known as commercial tax is not chargeable on the commodities, which are zero rated for food and necessary drugs or those falling under exports. VAT is imposed at all the steps of the supply chain, from manufacturers to dealers to distributors to the end user.
The VAT was a tax imposed at the prudence of the state government of the country. Not all the states put it into practice when it was announced. The VAT is imposed on several goods that were sold in the state and the state itself decided the amount of tax.
Customs Duty and Octroi:
While you buy anything that requires being imported from abroad, you are applied a charge on it and that is known as the customs duty. It is applied to all the products, which come in via air, sea or land. Although you acquire products bought in different country to India, you will be charged a customs duty. The intention of the customs duty is to make sure the goods that enter the country are taxes and are paid for. Like the customs duty makes sure that the goods for different countries are levied taxes, Octroi is supposed to make sure that the goods traversing the state borders inside India are appropriately taxed. The state government levies this and functions in almost the same way as that of the customs duty.
Excise Duty:
The excise duty is such a tax that is imposed on all the manufactured goods or the produced goods in India. This tax varies from customs duty as it is chargeable only on the things that are produced in India and is also called the Central Value Added Tax or CENVAT. The government collects this tax from the manufacturer of goods, also from the entities, which receive manufactured products and provide work for people to transport the products from manufacturer to them.
The Central Excise Rule framed by the Central Government of India suggests that every individual that manufactures or produces any 'excisable goods or products', or who stockpile such products in a depot, will have to make payment of the duty chargeable on these goods. Under this scheme, no excisable products, on which some duty is payable will be permitted to move without making payment of duty from any point, where they are manufactured or produced.
TYPES OF INCOME TAXES IN INDIA
When people hear the term income tax, they usually think about the direct taxes they pay to the government, usually in the form of TDS OR Tax Deducted at Source. This income tax is paid every year and is based on the income slab of the taxpayer. There are also many different types of income tax returns which the taxpayers are required to submit to get their returns assessed by the IT department and receive the refund if any.
- Wealth Tax
The Wealth Tax Act, 1957 was an Act of the Parliament of India that provides for the levying of wealth tax on an individual, Hindu Undivided Family (HUF) or company. The wealth tax was levied on the net wealth owned by a person on a valuation date, i.e., 31 March of every year. The Act applies to the whole of India.
Wealth tax is imposed on the richer section of the society. The intention of doing so is to bring parity amongst the taxpayers. However, wealth tax was abolished in the budget of 2015 (effective FY 2015-16) as the cost incurred for recovering taxes was more than the benefit is derived. Abolishing the wealth tax also simplified the tax structure. As an alternative to the wealth tax, the finance minister hiked the surcharge from 2% to 12% for the super rich section. Individuals with an income of above Rs.1 crore and companies with an income of over Rs.10 crore fall under the ambit of the super-rich segment.
Wealth tax is applicable to individuals, HUFs, and companies. The deciding factor for applicability of wealth tax is the residential status. The thumb rule is the resident Indians are subject to wealth tax on their global assets. However, NRI's fall under the ambit of wealth tax for the assets held in India.
If the total net wealth of an individual, HUF or company exceeds Rs. 30 lakhs, on the valuation date, tax @1% will be leviable on the amount in excess of Rs. 30 lakhs. Every person whose net wealth exceeds such limit shall furnish a return of net wealth. The due date is same as that of Income tax return.
The components of wealth are:
Assets: An asset is a resource which is held and has future economic benefit:
- Any building or land appurtenant whether used for residential/ other
purposes, but doesn't include:
- House allotted by accompanying/ employer to be used exclusively for residential purposes, where the gross total salary of the assessee is less than Rs.10 lakhs
- House which forms part of Stock in trade
- House occupied by the assessee for business/ professional purpose
- Residential property let out for minimum of 300 days in the previous year
- Property in the nature of commercial establishment or complex
- Motorcars, other than those used for running them on hire or those held as stock in trade
- Jewellery, bullion, furniture, utensils or other articles made fully/ partly of gold, silver, platinum or such precious metals
- Yachts, boats and aircrafts other than those used for commercial purpose
- Urban land situated in the Specified area, other than:
- Those classified as agricultural land and used for such purpose
- Those in which building construction is not permissible
- Land occupied by building, which was constructed with the approval of the appropriate authority
- Unused land held by assessee for industrial purposes for a period of 2 years from the date of acquisition.
- Land held by the assessee as stock in trade for over 10 years from the
date of acquisition
- Cash in hand in excess of Rs. 50,000
Deemed Assets: These are assets, though not legally belonging to the assessee, are clubbed as his assets while computing his net wealth:
- Assets transferred to Spouse otherwise than in connection with agreement to live apart.
- Assets transferred to a person/ Association of Persons for the immediate or deferred benefit of assessee or spouse.
- Assets transferred to son's wife.
- Assets transferred to a person/ Association of Persons for the immediate or deferred benefit of son's wife.
- Assets held by minor child other than those acquired using the skills of minor or those belonging to a minor with disability.
- Interest of assessee in the asset of a firm/association of people where he is a partner or member.
- Self-acquired property that is converted as the property of the family/transferred with inadequate consideration.
- Assets transferred under revocable transfer.
- Gift of money made in books maintained by assessee, by way of mere book entries.
- Impartible assets held by assessee
- Building allotted to assessee under a Homebuilding scheme.
- Building in which a person is allowed to take/ retain possession in part performance of a contract.
- Building for which assessee has acquired the rights.
- Property held under trust/ for the purpose of charitable/religious purposes.
- Interest in coparcenary property of Hindu Undivided family.
- Jewellery in possession of ruler not being his personal property.
- Money/Asset brought by a person of Indian origin/by an Indian citizen.
- In case of an Individual/HUF, a house/ part of house or plot of land not
exceeding 50sq.mtr in area.
- Any building or land appurtenant whether used for residential/ other
purposes, but doesn't include:
- Corporate Tax
A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at state or local levels. The taxes may also be referred to as income tax or capital tax. Partnerships are generally not taxed at the entity level.
A country's corporate tax may apply to:
- corporations incorporated in the country,
- corporations doing business in the country on income from that country,
- foreign corporations who have a permanent establishment in the country, or
- corporations deemed to be resident for tax purposes in the country.
A corporate is an entity that has a separate and independent legal entity from its shareholders. Domestic as well as foreign companies are liable to pay corporate tax under the Income-tax Act. While a domestic company is taxed on its universal income, a foreign company is only taxed on the income earned within India i.e. is being accrued or received in India. For the purpose of calculation of taxes under Income tax act, the types of companies can be defined as under:
Domestic Company:
Domestic company is one which is registered under the Companies Act of India and also includes the company registered in the foreign countries having control and management wholly situated in India. A domestic company includes private as well as public companies. Foreign Company: Foreign company is one which is not registered under the companies act of India and has control & management located outside India.
Before understanding the rate of taxes and how the tax will be calculated on income of the companies, we should learn about the types of income which a company earns. Here it is:
- Profits earned from the business
- Capital Gains
- Income from renting property
- Income from other sources like dividend, interest etc.
- Capital gains Tax
Any profit or gain that arises from the sale of a 'capital asset' is a capital gain. This gain or profit is comes under the category 'income', and hence you will need to pay tax for that amount in the year in which the transfer of the capital asset takes place. This is called capital gains tax, which can be short-term or long-term. Capital gains are not applicable to an inherited property as there is no sale, only a transfer of ownership.
The Income Tax Act has specifically exempted assets received as gifts by way of an inheritance or will. However, if the person who inherited the asset decides to sell it, capital gains tax will be applicable.
Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets. This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right.
The following do not come under the category of capital asset:
- Any stock, consumables or raw material, held for the purpose of business or profession
- Personal goods such as clothes and furniture held for personal use
- Agricultural land in rural India
- 6½% gold bonds (1977) or 7% gold bonds (1980) or national defence gold bonds (1980) issued by the central government
- Special bearer bonds (1991)
- Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015
Types of Capital Assets are:
- STCG ( Short-term capital asset ) An asset held for a period of 36 months or
less is a short-term capital asset. The criteria of 36 months have been reduced
to 24 months for immovable properties such as land, building and house property
from FY 2017-18. For instance, if you sell house property after holding it for a
period of 24 months, any income arising will be treated as long-term capital
gain provided that property is sold after 31st March 2017.
- LTCG ( Long-term capital asset ) An asset that is held for more than 36
months is a long-term capital asset. The reduced period of the aforementioned 24
months is not applicable to movable property such as jewellery, debt-oriented
mutual funds etc. They will be classified as a long-term capital asset if held
for more than 36 months as earlier. Some assets are considered short-term
capital assets when these are held for 12 months or less. This rule is
applicable if the date of transfer is after 10th July 2014 (irrespective of what
the date of purchase is).
The assets are:
- Equity or preference shares in a company listed on a recognized stock exchange in India
- Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
- Units of UTI, whether quoted or not
- Units of equity oriented mutual fund, whether quoted or not
- Zero coupon bonds, whether quoted or not
When the above-listed assets are held for a period of more than 12 months, they are considered as long-term capital asset. In case an asset is acquired by gift, will, succession or inheritance, the period for which the asset was held by the previous owner is also included when determining whether it's a short term or a long-term capital asset. In the case of bonus shares or rights shares, the period of holding is counted from the date of allotment of bonus shares or rights shares respectively.
5 HEADS OF INCOME FOR COMPUTATION OF INCOME TAX
As per the Section 14 Income Tax Act,1961, there are five main income tax heads for an individual. The computation of income tax is an important part and has to be calculated according to the income of a person. For a hassle-free calculation, the income has to be classified properly so that there is no confusion regarding the same.
The government has classified the sources of income under separate heads and then the income tax is computed accordingly. The provisions and rules are according to the details mentioned in the Income Tax Act:
- Income from Salary
The first head of Income Tax heads is income from salary which clause essentially assimilates any remuneration, which is received by an individual in terms of services provided by him based on a contract of employment. This amount qualifies to be considered for income tax only if there is an employer-employee relationship between the payer and the payee respectively. Salary also should include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as the annual bonus.
Allowances: An allowance is a fixed monetary amount paid by the employer to the employee for expenses related to office work. Allowances are generally included in the salary and taxed unless there are exemptions available.
Specific tax exemptions are allowances allowed by employers as part of the salary. Some of them are:
- Conveyance Allowance: Up to Rs 800/- a month is exempt from tax.
- House Rent Allowance (HRA): Salaried individuals can claim House
Rent Allowance or HRA to lower taxes who live in a rented house. This can be
partially or completely exempt from taxes.
- Actual HRA received
- 50% of [Basic salary + DA] for those living in metro cities (40% for non-metros)
- Actual rent paid less 10% of salary
- Leave Travel Allowance (LTA): LTA accounts for expenses for travel when you and your family go on leave. While this is paid to you, it is tax-free twice in a block of 4 years.
- Medical Allowance: Medical expenses to the extent of Rs 15,000/ per annum is tax-free. The bills can be incurred by you or your family.
- Income from House Property
The second head of Income Tax heads is Income from house property. According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions for the computation of the total standard income of a person from the house property or land that he or she owns. An interesting aspect is that the charge is derived out of the property or land and not on the amount of rent received. However, if the property is utilized for letting out the normal course of business, then the income from the rent will be considered.
- Income from Profits and Gains of Profession or Business
The third head of Income Tax heads isIncome from Profits of Business in which the computation of the total income will be attributed from the income earned from the profits of business or profession. The difference between the expenses and revenue earned will be chargeable.
Here is a list of the income chargeable under the head:
- Profits earned by the assessee during the assessment year
- Profits on income by an organization
- Profits on sale of a certain license
- Cash received by an individual on export under a government scheme
- Profit, salary or bonus received as a result of a partnership in a firm
- Benefits received in a business
- Income from Capital Gains
Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset, which was held as an investment. Any property, which is held by an assessee for business or profession, is termed as capital gains.
The profit that is received falls under the income category. Therefore, a tax needs to be paid on the income that is received. The tax that is paid is called capital gains tax and it can either be long term or short term. The tax that is levied on long term and short term gains starts from 10% and 15%, respectively.
Under the Income Tax Act, capital gains tax in India need not be paid in case the individual inherits the property and there is no sale. However, if the person who has inherited the property decides to sell it, tax will have to be paid on the income that has been generated from the sale. Some of the examples of capital assets are jewellery, machinery, leasehold rights, trademarks, patents, vehicles, house property, building, and land.
- Income from Other Sources
Income from other sources is one of the five heads of income that the Income Tax Act, 1961 broadly classifies income under. This category includes earnings which can't be accounted for under any of the other heads of income viz. Income from Salary, Income from House Property, Profits and Gains from Business or Profession and Income from Capital Gains.
All taxable income under this head is calculated according to the accounting method the assessee follows viz. accrual or cash basis. The exceptions to this are dividend and interest income i.e. whatever the accounting method, assessees will have to declare and pay income tax on dividend and interest earned during the previous year.
The nature of income earned will decide whether income has to be shown under this head.
However, there are some standard inclusions as outlined below:
- Dividends: Income by way of dividend is shown under this head.
Deemed dividend as under section 2(22)(e) is fully taxable as is dividend
from co-operative societies and foreign companies.
Dividend not chargeable to tax includes dividends exempt U/S 10(34) i.e. dividend from Indian companies, dividend liable to corporate dividend tax, income on mutual fund units or income from UTI unit holder.
- Winnings: This includes winnings over Rs.10,000 from lotteries, puzzles,
races, games and all forms of gambling and betting. E.g. card games, horse
races, game shows etc.
- Interest received: All interest income earned in the previous year (on
compensation/enhanced compensation) is taxable. However, 50% of this income
can be claimed as deduction.
- Incomes not declared under the head Profits and Gains of Business or
Profession': This includes contributions made to an employer's employee
welfare fund, interest earned on securities, rental income from furniture,
plant and machinery (including building where it cannot be let out
separately), keyman insurance policy proceeds.
- Gifts: Taxable gifts are declared under this head by individuals and HUFs. This includes monetary or non-monetary items received
without any consideration or without adequate consideration. Non-monetary gifts
include all immovable property and certain movable property.
Gifts are taxed only if the total amount received during the previous year is more than Rs.50,000 and applies only to those gifts individuals or HUFs received after Oct.1st 2009. This doesn't apply if the assessee receives money
from relatives or a local authority or a trust, fund, educational/medical institution, body or any such institution outlined under section 10(23C) and section 12AA:
- as a wedding gift
- by way of being named in a Will or as inheritance
- from a dying donor
- Dividends: Income by way of dividend is shown under this head.
Deemed dividend as under section 2(22)(e) is fully taxable as is dividend
from co-operative societies and foreign companies.
Monetary gifts:
Sums of money received without any consideration or without adequate consideration.
Immovable property as gifts:
Property value will be the stamp duty value. Inadequate consideration will be if the property value is lower than stamp duty value.
Specific movable property:
Property here are shares, jewellery, securities, paintings, archaeological collections, sculptures and drawings and other artwork. As of 1st June 2010, bullion also forms a part of this list. Property value will be the fair market value. Inadequate consideration is when property value is below fair market value.
- Gifts from relatives means gifts from the assessee's
- parents, parents' brothers or sisters (i.e. aunts, uncles)
- any lineal predecessor/successor
- brother, sister; brothers' or sisters' spouses (i.e. brothers or sisters- in-law)
- spouse, spouse's parents (i.e. in-laws), spouse's brothers or sisters (i.e. brothers or sisters- in-law), spouse's lineal predecessor/successor and their brothers or sisters.
So, why are there 5 different heads of Income?
Although there is only one tax on the income calculated under various heads, but, there are different rules of computation of income under each head and income has to be computed under that head after applying such rules only.
Judicial Pronouncements
- Income under each head has to be determined in the manner provided by the appropriate sections mentioned against each head above [CIT v Dr. Ramesh Lal Pahwa (1980) 123 ITR 86 (Cal)].
- If there is an income which cannot be brought to tax by computation under the above heads, it would not be included in the total income for the purpose of taxability [CIT v Justice R.M. Datta (1989) 180 ITR 86 (Cal)]
- The computation of income under each of the above 5 heads of income will have to be made independently and separately. There are specific rules of deduction and allowance under each head. No deduction or adjustment on account of any expenditure can be made except as provided by the act. [Tuticorin Akali Chemical and Fertilizers Ltd v CIT (1997) 227 ITR 172 (SC)]
- The above mentioned 5 heads of income are mutually exclusive of each other. Thus, where an item of income falls specifically under one head, it has to be charged under that head only and not under any other head. [United Commercial Bank v CIT (1957) 32 ITR 688 (SC)].
HOW IS THE INCOME TAX COLLECTED?
- Taxes Deducted at Source (TDS)
The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
It is a system introduced by Income Tax Department, where person responsible for making specified payments such as salary, commission, professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making payment in full to the receiver of the payment. As the name suggests, the concept of TDS is to deduct tax at its source. TDS helps in reducing tax filing burdens for a deductee and ensures stable revenue for the government.
TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.
Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you.
The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit of the amount already deducted and paid on his behalf.
For instance:
Varma Pvt Ltd make a payment for office rent of Rs 80,000 per month to the owner of the property.
TDS is required to be deducted at 10%. Shine pvt ltd must deduct TDS of Rs 8000 and pay balance Rs 72,000 to the owner of the property.
Thus the recipient of income i.e. the owner of the property in the above case receives the net amount of Rs 72,000 after deduction of tax at source. He will add gross amount i.e. Rs 80,000 to his income and can take credit of the amount already deducted i.e. Rs 8,000 by shine pvt ltd against his final tax liability.
Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.
However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN.
Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information. For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates.
If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit you do not have to pay any tax. And therefore no TDS should be deducted on your income. Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don't deduct TDS on your interest income.
In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) you can file a return and claim a refund of this TDS.
TDS is based on the principle of 'pay as and when you earn'. TDS is a win-win scenario for both the taxpayers and the government. Tax is deducted when making payments through cash, credit or cheque, which is then deposited with the central agencies.
TDS certificates are issued by the deductor (the person who is deducting tax) to the deductee (the person from whose payment the tax is deducted). There are mainly two types of TDS certificates issued by the deductor.
- Form 16: which is issued by the employer to the employee incorporating details of tax deducted by the employer throughout the year, and
- Form 16A: which is issued in all cases other than salary.
As TDS is collected on an ongoing basis, it can be difficult to keep track of deductions by an individual. As per Section 203 of the ITA, the deductor has to furnish a certificate of TDS payment to the deductee/payee. This certificate is also offered by banks making deductions on pension payments etc. The certificate is typically issued at the deductor's own letterhead. Individuals are advised to request for TDS certificate wherever applicable, and if not already provided.
For example, Mr. Verma is working as a salaried employee at a company and tax is deducted on his salary @ 15%. The company shall provide Mr. Verma with a Form 16 describing particulars in detail regarding the amount of salary paid and tax deducted on the same.
However, had Mr. Verma been working as a professional and received professional fees from an organization which is subject to TDS, then he will be provided Form 16A for the same.
- Taxes Collected at Source (TCS)
Tax Collected at Source (TCS) under GST means the tax collected by an e-commerce operator from the consideration received by it on behalf of the supplier of goods, or services who makes supplies through operator's online platform. TCS will be charged as a percentage on the net taxable supplies.
This TCS tax is payable by the seller who collects in turn from the lessee or buyer. The goods are as specified under section 206C of the Income Tax Act, 1961.
Let's take an example to better understand the process. If the purchase value of a box of chocolates is Rs. 100, the buyer ultimately pays Rs. 20 where the Rs. 20 is the tax collected at source. The amount is then given to certain designated branch of banks who have been given the authorization to receive the payments. The seller is only responsible for the collection of this tax from the buyer and actually not paying it himself or herself. The tax is meant to be collected when selling goods, transactions, when issued a receipt of a sum in cash from the buyer or when issuing a cheque or draft, whichever mode is paid by the earliest.
This provision is made under the Section 206C of the Income Tax Act, 1961.
The following are people and organizations who are classified as sellers for tax collected at source:
- Central Government
- State Government
- Local Authority
- Statutory Corporation or Authority
- Company
- Partnership Firms
- Co-operative Society
The following are people and organizations who are exempted from the classification as buyers for tax collected at source:
- Public Sector Entities or Companies
- Central Government
- State Government
- Embassy of High Commission
- Consulate and other Trade Representation of a Foreign Nation
- Clubs such as sports clubs and social clubs
- Liquor of alcoholic nature, made for consumption by humans
- Timber wood when collected from a forest that has been leased
- Tendu Leaves
- Timber wood when not collected from a forest that has been leased, but any other mode
- A forest product other than tendu leaves and timber
- Scrap
- Toll Plaza, Parking lot ticket, Quarrying and Mining
- Minerals that include lignite or coal or iron ore
- Bullion that exceeds over Rs. 2 lakhs/ Jewelry that exceeds over Rs. 5 lakhs
In the period that ends on September 30 and March 31 for a financial year, there are more than one certificates to be issued for a buyer for TCS, a consolidated certificate can be issued within a month from the last day of the period. This certificate has to be requested from the buyer.
In the case where a TCS certificate is lost the entity in charge for the collection of tax at source can issue a duplicate certificate that can be printed and attested on plain paper, along with required details as mentioned in the Form 27D.
- Voluntary payment by tax payers into designated Banks
Voluntary payment is done by the taxpayers of India in different designated banks for example self-assessment tax and advance tax paid by the Indian taxpayers.
Individual needs to make payment of Self-Assessment Tax (SAT) for income from other sources. There is no specified date of payment of the tax. The ideal time is to pay it as soon as possible, without waiting for the tax returns filing date and to avoid payment of interest on the tax amount.
Individuals are expected to do the computation of the final liability of Income Tax after the deduction of TDS amount from the source of income as well as advance tax paid for the financial year. During the completion of Financial Year, if any of the tax is pending to pay before filing of Income Tax return, then the final amount which an individual is liable to pay is Self-assessment tax.
Self-Assessment Tax usually payable by an individual related to income from other sources. Situation may happen where an individual missed out on an income at the time of giving their advance tax etc. There is a possibility that TDS may not be deducted or partially deducted or deducted at a lesser rate against the higher rate that applies to the Income Tax filing.
There are many of the Salaried individuals who are earning a sizeable amount from investments such as short-term bonds or fixed deposits which is not in the knowledge of an employer. So, the extra earning of the employee, in that case, are not considered for deduction by an employer. In that case, salaried individual needs to make payment of Self-Assessment Tax.
Procedure to follow for computation of self-assessment tax are as follows:
- Calculate the taxable amount payable on the total income of an individual with the help of Income Tax slabs that are available online.
- After that add the interest which is to be payable under Section 234A/234B/234C
- Once the amount is added then making a deduction of the relief amount under Section90/90A and 90 from the total amount.
- Then further do a subtraction of the MAT Credit amount under Section 115JAA.
- Then do a subtraction of advance tax amount.
- This will lead to the self-assessment tax payable on the individual's income tax.
Advance tax payments is made by:
- Primarily, self-employed people like freelancers, businessmen or professionals, etc. need to make payment of advanced tax
- NRIs who are earning above 10,000 are liable to pay advance tax.
- All senior citizens who are not earning any income from business and profession gets an exemption from paying advance tax.
- Those who opt for the presumptive scheme under the Income Tax Act in the starting of Financial Year 2016-2017 are required to pay the whole amount of their Advance Tax on or before 15th March. After that 15 days, the grace period is also being given i.e. 31st March to make the payment of Advance Tax.
- This presumptive scheme is offered to small businesses where income is calculated at 8% of the turnover or gross receipt of the given business year. In case, gross receipts or turnover received by the way of an account payee bank draft or account payee cheque or using an electronic system, business income calculated at 6% of the turnover. The amount calculated becomes the final taxable income of the business and advance tax should be paid on that calculated amount.
Tax income calculated will be reduced by TCS collected, TDS deducted AMT/ MAY credit and any relief under a tax treaty. After making payment of the first two installments, the assessee can also revise the estimated income and make the next installment of advance tax accordingly.
INCOME TAX RETURN
Income Tax Return is the form in which assessee files information about his/her Income and tax thereon to Income Tax Department. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7. When you file a belated return, you are not allowed to carry forward certain losses.
The Income Tax Act, 1961, and the Income Tax Rules, 1962, obligates citizens to file returns with the Income Tax Department at the end of every financial year. These returns should be filed before the specified due date. Every Income Tax Return Form is applicable to a certain section of the Assessees. Only those Forms which are filed by the eligible Assessees are processed by the Income Tax Department of India.
It is therefore imperative to know which particular form is appropriate in each case. Income Tax Return Forms vary depending on the criteria of the source of income of the Assessee and the category of the Assessee.
The forms are: 2
- ITR-1
This Return Form is for a resident individual whose total income for the assessment year 2020-21 includes:; Income from Salary/ Pension; or
- Income from One House Property (excluding cases where loss is brought forward from previous years); or
- Income from Other Sources (excluding Winning from Lottery and Income from Race Horses)
- Agricultural income up to Rs.5000.
- Total income exceeding Rs 50 lakh
- Agricultural income exceeding Rs 5000
- If you have taxable capital gains
- If you have income from business or profession
- Having income from more than one house property
- If you are a Director in a company
- If you have had investments in unlisted equity shares at any time during the financial year
- Owning assets (including financial interest in any entity) outside India) if you are a resident, including signing authority in any account located outside India
- If you are a resident not ordinarily resident (RNOR) and non-resident
- Having foreign assets or foreign income
- If you are assessable in respect of income of another person in respect
of which tax is deducted in the hands of the other person.
- ITR-2
A ITR 2 is for the use of an individual or a Hindu Undivided Family (HUF) whose total income for the AY 2020-21 includes:
- Income from Salary/Pension; or
- Income from House Property; or
- Income from Other Sources (including Winnings from Lottery and Income from Race Horses). (Total income from this should be more than Rs 50 Lakhs)
- If you are an Individual Director in a company
- If you have had investments in unlisted equity shares at any time during the financial year
- Being a resident not ordinarily resident (RNOR) and non-resident
- Income from Capital Gains; or
- Foreign Assets/Foreign income
- Agricultural income more than Rs 5,000
Who cannot use this Return Form?
This Return Form should not be used by an individual whose total income for the AY 2020-21 includes Income from Business or Profession.
- ITR-3
The Current ITR3 Form is to be used by an individual or a Hindu Undivided Family who have income from proprietary business or are carrying on profession.
The persons having income from following sources are eligible to file ITR 3:
- Carrying on a business or profession
- If you are an Individual Director in a company
- If you have had investments in unlisted equity shares at any time during the financial year
- Return may include income from House property, Salary/Pension and Income from other sources
- Income of a person as a partner in the firm
- ITR-4
The current ITR 4 is applicable to individuals and HUFs, Partnership firms (other than LLPs) which are residents having income from a business or profession. It also include those who have opted for the presumptive income scheme as per Section 44AD, Section 44ADA and Section 44AE of the Income Tax Act. However, if the turnover of the business exceeds Rs 2 crore, the taxpayer will have to file ITR-3.
Who cannot use ITR 4 Form?
- If your total income exceeds Rs 50 lakh
- Having income from more than one house property
- If you have any brought forward loss or loss to be carried forward under any head of income
- Owning any foreign asset
- If you have signing authority in any account located outside India
- Having income from any source outside India
- If you are a Director in a company
- If you have had investments in unlisted equity shares at any time during the financial year
- Being a resident not ordinarily resident (RNOR) and non-resident
- Having foreign assets or foreign income
- If you are assessable in respect of income of another person in respect
of which tax is deducted in the hands of the other person.
- ITR-5
ITR 5 is for firms, LLPs (Limited Liability Partnership), AOPs (Association of Persons), BOIs (Body of Individuals), Artificial Juridical Person (AJP), Estate of deceased, Estate of insolvent, Business trust and investment fund.
- ITR-6
For Companies other than companies claiming exemption under section 11 (Income from property held for charitable or religious purposes), this return has to be filed electronically only.
- ITR-7
For persons including companies required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D) or section 139(4E) or section 139(4F).- Return under section 139(4A) is required to be filed by every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes.
- Return under section 139(4B) is required to be filed by a political party if the total income without giving effect to the provisions of section 139A exceeds the maximum amount, not chargeable to income-tax.
- Return under section 139(4C) is required to be filed by every:
- Scientific research association;
- News agency;
- Association or institution referred to in section 10(23A);
- Institution referred to in section 10(23B);
- Fund or institution or university or other educational institution or any hospital or other medical institution.
- Return under section 139(4D) is required to be filed by every university, college or other institution, which is not required to furnish return of income or loss under any other provision of this section.
- Return under section 139(4E) must be filed by every business trust which is not required to furnish return of income or loss under any other provisions of this section.
- Return under section 139(4F) must be filed by any investment fund referred to in section 115UB. It is not required to furnish return of income or loss under any other provisions of this section.
INCOME TAX DEDUCTIONS
A deduction from an Income Tax point of view is the investment/expenditure that helps in reducing the tax payable. The income tax deduction reduces your gross total income (means the income on which tax has to be paid). Thereby, reducing the tax on your total income.
Eligible assessees can claim these deductions under the income tax act. The eligible assessee has been specified under each section for which deduction is being claimed. In some cases, it is individual in some company or HUF, etc. Income tax deduction needs to be claimed at the time of filing your Income Tax Return and no separate disclosure compliances in respect of the same should be made. The number of deductions should be reduced form the gross income to reach at the taxable amount.
Income Slab rates For Financial Year 2019-20 Assessment Year 2020-21
Tax Slab for men up to 60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 50,00,000 |
Surcharge Total Income> Rs 100,00,000 |
Health and Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
5% |
10% |
15% |
4% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
15% |
4% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
15% |
4% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 50,00,000 |
Surcharge Total Income> Rs 100,00,000 |
Health and Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
5% |
10% |
15% |
4% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
15% |
4% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
15% |
4% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax (Rs.) |
Surcharge Total Income> Rs 50,00,000 |
Surcharge Total Income> Rs 100,00,000 |
Health and Education cess |
|
1 |
Less than Rs.3,00,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.3,00,000to Rs.5,00,000 |
5% |
10% |
15% |
4% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
15% |
4% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
15% |
4% |
Income Slab rates For
Financial Year 2018-19 Assessment Year 2019-20
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 50,00,000 |
Surcharge Total Income> Rs 100,00,000 |
Health and Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
5% |
10% |
15% |
4% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
15% |
4% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
15% |
4% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 50,00,000 |
Surcharge Total Income> Rs 100,00,000 |
Health and Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
5% |
10% |
15% |
4% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
15% |
4% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
15% |
4% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 50,00,000 |
Surcharge Total Income> Rs 100,00,000 |
Health and Education cess |
|
1 |
Less than Rs.3,00,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.3,00,000to Rs.5,00,000 |
5% |
10% |
15% |
4% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
15% |
4% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
15% |
4% |
Income Slab rates For
Financial Year 2017-18 Assessment Year 2018-19
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Surcharge Total Income> Rs 10,00,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
5% |
2% |
5% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
2% |
5% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
2% |
5% |
2% |
1% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Surcharge Total Income> Rs 10,00,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
5% |
2% |
5% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
2% |
5% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
2% |
5% |
2% |
1% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Surcharge Total Income> Rs 10,00,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.3,00,000 |
Nil |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.3,00,000to Rs.5,00,000 |
5% |
2% |
5% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
2% |
5% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
2% |
5% |
2% |
1% |
Income Slab rates For
Financial Year 2016-17 Assessment Year 2017-18
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
10% |
15% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
15% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
15% |
2% |
1% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
10% |
15% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
15% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
15% |
2% |
1% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.3,00,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.3,00,000to Rs.5,00,000 |
10% |
15% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
15% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
15% |
2% |
1% |
Income Slab rates For
Financial Year 2015-16 Assessment Year 2016-17
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
10% |
12% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
12% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
12% |
2% |
1% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
10% |
12% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
12% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
12% |
2% |
1% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.3,00,000 |
Nil |
Nil |
Nil |
Nil |
|
2 |
Rs.3,00,000to Rs.5,00,000 |
10% |
12% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
12% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
12% |
2% |
1% |
Income Slab rates For
Financial Year 2014-15 Assessment Year 2015-16
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
10% |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
3% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000 to Rs.5,00,000 |
10% |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
3% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.3,00,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.3,00,000to Rs.5,00,000 |
10% |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
3% |
Income Slab rates For
Financial Year 2013-14 Assessment Year 2014-15
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.2,00,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,00,000 to Rs.5,00,000 |
10% |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
3% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.2,00,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,00,000 to Rs.5,00,000 |
10% |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
3% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000to Rs.5,00,000 |
10% |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.10,00,000 |
30% |
10% |
3% |
Income Slab rates For
Financial Year 2012-13 Assessment Year 2013-14
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,00,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,00,000 to Rs.5,00,000 |
10% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
2% |
1% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,00,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,00,000 to Rs.5,00,000 |
10% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
2% |
1% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000to Rs.5,00,000 |
10% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 10,00,000 |
20% |
2% |
1% |
|
4 |
Greater than Rs.10,00,000 |
30% |
2% |
1% |
Income Slab rates For
Financial Year 2011-12 Assessment Year 2012-13
Tax Slab for men up to
60 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.1,80,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,80,000to Rs.5,00,000 |
10% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 8,00,000 |
20% |
2% |
1% |
|
4 |
Greater than Rs.8,00,000 |
30% |
2% |
1% |
Tax slab for Women up
to 60 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.1,92,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,92,000 to Rs.5,00,000 |
10% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 8,00,000 |
20% |
2% |
1% |
|
4 |
Greater than Rs.8,00,000 |
30% |
2% |
1% |
Tax slab for Senior
Citizen aged above 60 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
Secondary and Higher Education Cess |
|
1 |
Less than Rs.2,50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,50,000to Rs.5,00,000 |
10% |
2% |
1% |
|
3 |
Rs.5,00,000 to Rs. 8,00,000 |
20% |
2% |
1% |
|
4 |
Greater than Rs.8,00,000 |
30% |
2% |
1% |
Income Slab rates For
Financial Year 2010-11 Assessment Year 2011-12
Tax Slab for men up to
65 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
|
1 |
Less than Rs.1,60,000 |
Nil |
Nil |
|
2 |
Rs.1,60,000to Rs.5,00,000 |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 8,00,000 |
20% |
3% |
|
4 |
Greater than Rs.8,00,000 |
30% |
3% |
Tax slab for Women up
to 65 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
|
1 |
Less than Rs.1,90,000 |
Nil |
Nil |
|
2 |
Rs.1,90,000 to Rs.5,00,000 |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 8,00,000 |
20% |
3% |
|
4 |
Greater than Rs.8,00,000 |
30% |
3% |
Tax slab for Senior
Citizen aged above 65 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
|
1 |
Less than Rs.2,40,000 |
Nil |
Nil |
|
2 |
Rs.2,40,000to Rs.5,00,000 |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 8,00,000 |
20% |
3% |
|
4 |
Greater than Rs.8,00,000 |
30% |
3% |
Income Slab rates For
Financial Year 2009-10 Assessment Year 2010-11
Tax Slab for men up to
65 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
|
1 |
Less than Rs.1,60,000 |
Nil |
Nil |
|
2 |
Rs.1,60,000to Rs.3,00,000 |
10% |
3% |
|
3 |
Rs.3,00,000 to Rs. 5,00,000 |
20% |
3% |
|
4 |
Greater than Rs.5,00,000 |
30% |
3% |
Tax slab for Women up
to 65 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
|
1 |
Less than Rs.1,90,000 |
Nil |
Nil |
|
2 |
Rs.1,90,000 to Rs.3,00,000 |
10% |
3% |
|
3 |
Rs.3,00,000 to Rs. 5,00,000 |
20% |
3% |
|
4 |
Greater than Rs.5,00,000 |
30% |
3% |
Tax slab for Senior
Citizen aged above 65 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Education cess |
|
1 |
Less than Rs.2,40,000 |
Nil |
Nil |
|
2 |
Rs.2,40,000to Rs.3,00,000 |
10% |
3% |
|
3 |
Rs.5,00,000 to Rs. 5,00,000 |
20% |
3% |
|
4 |
Greater than Rs.5,00,000 |
30% |
3% |
Income Slab rates For
Financial Year 2008-09 Assessment Year 2009-10
Tax Slab for men up to
65 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.1,50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,50,000to Rs.3,00,000 |
10% |
10% |
3% |
|
3 |
Rs.3,00,000 to Rs. 5,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.5,00,000 |
30% |
10% |
3% |
Tax slab for Women up
to 65 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.1,80,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,80,000 to Rs.3,00,000 |
10% |
10% |
3% |
|
3 |
Rs.3,00,000 to Rs. 5,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.5,00,000 |
30% |
10% |
3% |
Tax slab for Senior
Citizen aged above 65 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 100,00,000 |
Education cess |
|
1 |
Less than Rs.2,25,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.2,25,000to Rs.3,00,000 |
10% |
10% |
3% |
|
3 |
Rs.3,00,000 to Rs. 5,00,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.5,00,000 |
30% |
10% |
3% |
Income Slab rates For
Financial Year 2007-08 Assessment Year 2008-09
Tax Slab for men up to
65 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 10,00,000 |
Education cess |
|
1 |
Less than Rs.1,10,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,10,000to Rs.1,50,000 |
10% |
10% |
3% |
|
3 |
Rs.1,50,000 to Rs. 2,50,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.2,50,000 |
30% |
10% |
3% |
Tax slab for Women up
to 65 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 10,00,000 |
Education cess |
|
1 |
Less than Rs.1,45,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,45,000 to Rs.1,50,000 |
10% |
10% |
3% |
|
3 |
Rs.1,50,000 to Rs. 2,50,000 |
20% |
10% |
3% |
|
4 |
Greater than Rs.2,50,000 |
30% |
10% |
3% |
Tax slab for Senior
Citizen aged above 65 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 10,00,000 |
Education cess |
|
1 |
Less than Rs.1,95,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,95,000 to Rs.2,50,000 |
20% |
10% |
3% |
|
3 |
Greater than Rs.2,50,000 |
30% |
10% |
3% |
|
|
|
|
|
3% |
Income Slab rates For
Financial Year 2005-06 Assessment Year 2006-07 & Financial Year 2006-07
Assessment Year 2007-08
Tax Slab for men up to
65 years of age.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 10,00,000 |
Education cess |
|
1 |
Less than Rs.1,00,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,00,000to Rs.1,50,000 |
10% |
10% |
2% |
|
3 |
Rs.1,50,000 to Rs. 2,50,000 |
20% |
10% |
2% |
|
4 |
Greater than Rs.2,50,000 |
30% |
10% |
2% |
Tax slab for Women up
to 65 years of age
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 10,00,000 |
Education cess |
|
1 |
Less than Rs.1,35,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,35,000 to Rs.1,50,000 |
10% |
10% |
2% |
|
3 |
Rs.1,50,000 to Rs. 2,50,000 |
20% |
10% |
2% |
|
4 |
Greater than Rs.2,50,000 |
30% |
10% |
2% |
Tax slab for Senior
Citizen aged above 65 years.
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 10,00,000 |
Education cess |
|
1 |
Less than Rs.1,85,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.1,85,000 to Rs.2,50,000 |
20% |
10% |
2% |
|
3 |
Greater than Rs.2,50,000 |
30% |
10% |
2% |
Income Slab rates For
Financial Year 2004-05 Assessment Year 2005-06
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 8,50,000 |
Education cess |
|
1 |
Less than Rs.50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.50,000to Rs.60,000 |
10% |
10% |
2% |
|
3 |
Rs.60,000 to Rs. 1,50,000 |
20% |
10% |
2% |
|
4 |
Greater than Rs.1,50,000 |
30% |
10% |
2% |
Income Slab rates For
Financial Year 2003-04 Assessment Year 2004-05
|
Sr. No. |
Income Tax Slab |
Tax |
Surcharge Total Income> Rs. 8,50,000 |
Education cess |
|
1 |
Less than Rs.50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.50,000to Rs.60,000 |
10% |
10% |
2% |
|
3 |
Rs.60,000 to Rs. 1,50,000 |
20% |
10% |
2% |
|
4 |
Greater than Rs.1,50,000 |
30% |
10% |
2% |
Income Slab rates For
Financial Year 2002-03 Assessment Year 2003-04
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs. 1,50,000 |
|
1 |
Less than Rs.50,000 |
Nil |
Nil |
|
2 |
Rs.50,000to Rs.60,000 |
10% |
5% |
|
3 |
Rs.60,000 to Rs. 1,50,000 |
20% |
5% |
|
4 |
Greater than Rs.1,50,000 |
30% |
5% |
Income Slab rates For
Financial Year 2001-02 Assessment Year 2002-03
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 60,000 |
|
1 |
Less than Rs.50,000 |
Nil |
Nil |
|
2 |
Rs.50,000to Rs.60,000 |
10% |
2% |
|
3 |
Rs.60,000 to Rs. 1,50,000 |
20% |
2% |
|
4 |
Greater than Rs.1,50,000 |
30% |
2% |
Income Slab rates For
Financial Year 2000-01 Assessment Year 2001-02
|
Sr. No. |
Income Tax Slab |
Tax Rate |
Surcharge Total Income> Rs 60,000 |
Surcharge Total Income> Rs 1,50,000 |
|
1 |
Less than Rs.50,000 |
Nil |
Nil |
Nil |
|
2 |
Rs.50,000to Rs.60,000 |
10% |
12% |
17% |
|
3 |
Rs.60,000 to Rs. 1,50,000 |
20% |
12% |
17% |
|
4 |
Greater than Rs.1,50,000 |
30% |
12% |
17% |
Income Tax Rates for
Financial Year 1999-2000 Assessment Year 2000-2001
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs.50,000 |
Nil |
|
2 |
Rs. 50,001 to Rs.60,000 |
10% |
|
3 |
Rs. 60,001 to 1,50,000 |
20% |
|
4 |
Greater than 1,50,000 |
30% |
Income Tax Rates for
Financial Year 1998-99 Assessment Year 1999-2000
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs.50,000 |
Nil |
|
2 |
Rs. 50,001 to Rs.60,000 |
10% |
|
3 |
Rs. 60,001 to 1,50,000 |
20% |
|
4 |
Greater than 1,50,000 |
30% |
Income Tax Rates for
Financial Year 1996-97 Assessment Year 1998-99
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs.40,000 |
Nil |
|
2 |
Rs. 40,001 to Rs.60,000 |
10% |
|
3 |
Rs. 60,001 to 1,50,000 |
20% |
|
4 |
Greater than 1,50,000 |
30% |
Income Tax Rates for
Financial Year 1996-97 Assessment Year 1997-98
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs.40,000 |
Nil |
|
2 |
Rs. 40,001 to Rs.60,000 |
15% |
|
3 |
Rs. 60,001 to 1,20,000 |
30% |
|
4 |
Greater than 1,20,000 |
50% |
Income Tax Rates for
Financial Year 1995-96 Assessment Year 1996-97
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs.40,000 |
Nil |
|
2 |
Rs. 40,001 to Rs.60,000 |
20% |
|
3 |
Rs. 60,001 to 1,20,000 |
30% |
|
4 |
Greater than 1,20,000 |
40% |
Income Tax Rates for
Financial Year 1994-95 Assessment Year 1995-96
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs.35,000 |
Nil |
|
2 |
Rs. 35,001 to Rs.60,000 |
20% |
|
3 |
Rs. 60,001 to 1,20,000 |
30% |
|
4 |
Greater than 1,20,000 |
40% |
Income Tax Rates for
Financial Year 1993-94 Assessment Year 1994-95
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs. 30,000 |
Nil |
|
2 |
Rs. 30,001 to Rs.50,000 |
20% |
|
3 |
Rs. 50,001 to 1,00,000 |
30% |
|
4 |
Greater than Rs. 1,00,000 |
40% |
Income Tax Rates for
Financial Year 1992-93 Assessment Year 1993-94
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs. 28,000 |
Nil |
|
2 |
Rs. 28,001 to Rs.50,000 |
20% |
|
3 |
Rs. 50,001 to Rs. 1,00,000 |
30% |
|
4 |
Greater than Rs. 1,00,000 |
40% |
Income Tax Rates for
Financial Year 1991-92 Assessment Year 1992-93
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs. 22,000 |
Nil |
|
2 |
Rs. 22,001 to Rs.30,000 |
20% |
|
3 |
Rs. 30,001 to Rs.50,000 |
30% |
|
4 |
Rs.50,001 to Rs.1,00,000 |
40% |
|
5 |
Greater than Rs. 1,00,000 |
50% |
Income Tax Rates for
Financial Year 1990-91 Assessment Year 1991-92
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs. 22,000 |
Nil |
|
2 |
Rs. 22,001 to Rs.30,000 |
20% |
|
3 |
Rs. 30,001 to Rs.50,000 |
30% |
|
4 |
Rs.50,000 to Rs.1,00,000 |
40% |
|
5 |
Greater than Rs. 1,00,000 |
50% |
Income Tax Rates for
Financial Year 1989-90 Assessment Year 1990-91
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs. 18,000 |
Nil |
|
2 |
Rs. 18,001 to Rs.25,000 |
25% |
|
3 |
Rs. 25,001 to Rs.50,000 |
30% |
|
4 |
Rs.50,000 to Rs.1,00,000 |
40% |
|
5 |
Greater than Rs. 1,00,000 |
50% |
Income Tax Rates for
Financial Year 1985-86 Assessment Year 1986-87 , Financial Year 1987-88 Assessment Year 1988-89
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1 |
Less than Rs. 18,000 |
Nil |
|
2 |
Rs. 18,001 to Rs.25,000 |
25% |
|
3 |
Rs. 25,001 to Rs. 50,000 |
30% |
|
4 |
Rs.50,000 to Rs.1,00,000 |
30% |
|
5 |
Greater than Rs. 1,00,000 |
50% |
Income Tax Rates for
Financial Year 1984-85 Assessment Year 1985-86
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.15,000 |
Nil |
|
2. |
Rs. 15,001 to Rs.20,000 |
20% |
|
3 |
Rs. 20,001 to Rs.25,000 |
25% |
|
4 |
Rs. 25,001 to Rs. 30,000 |
30% |
|
5 |
Rs. 30,000 to Rs.40,000 |
35% |
|
6 |
Rs. 40,001 to Rs. 50,000 |
40% |
|
7 |
Rs. 50,001 to Rs. 70,000 |
45% |
|
8 |
Rs.70,001 to Rs1,00,000 |
50% |
|
9 |
Greater than Rs. 1,00,000 |
55% |
Income Tax Rates for
Financial Year 1983-84 Assessment Year 1984-85
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.15,000 |
Nil |
|
2. |
Rs.15,001 to Rs.20,000 |
25% |
|
3 |
Rs.20,001 to Rs.25,000 |
30% |
|
4 |
Rs.25,001 to Rs.30,000 |
35% |
|
5 |
Rs.30,001 to Rs.50,000 |
40% |
|
6 |
Rs.50,001 to Rs.60,000 |
50% |
|
7 |
Rs.60,001 to Rs.70,000 |
50.50% |
|
8 |
Rs.70,001 to Rs.85,000 |
55% |
|
9 |
Rs.85,001 to Rs.1,00,000 |
57.50% |
|
10 |
Greater than Rs.1,00,000 |
60% |
Income Tax Rates for
Financial Year 1982-83 Assessment Year 1983-84
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.15,000 |
Nil |
|
2. |
Rs.15,001 to Rs.25,000 |
30% |
|
3 |
Rs.25,001 to Rs.30,000 |
34% |
|
4 |
Rs.30,001 to Rs.50,000 |
40% |
|
5 |
Rs.50,001 to Rs.70,000 |
50% |
|
6 |
Rs.70,001 to Rs.1,00,000 |
55% |
|
7 |
Greater than Rs.1,00,000 |
60% |
Income Tax Rates for
Financial Year 1981-82 Assessment Year 1982-83
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.8,000 |
Nil |
|
2. |
Rs.8,001 to Rs.15,000 |
15% |
|
3 |
Rs.15,001 to Rs.20,000 |
18% |
|
4 |
Rs.20,001 to Rs.25,000 |
25% |
|
5 |
Rs.25,001 to Rs.30,000 |
30% |
|
6 |
Rs.30,001 to Rs.50,000 |
40% |
|
7 |
Rs.50,001 to Rs.70,000 |
50% |
|
8 |
Rs.70,001 to Rs.1,00,000 |
55% |
|
9 |
Greater than Rs.1,00,000 |
60% |
Income Tax Rates for
Financial Year 1980-81 Assessment Year 1981-82
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.8,000 |
Nil |
|
2. |
Rs.8,001 to Rs.15,000 |
15% |
|
3 |
Rs.15,001 to Rs.20,000 |
18% |
|
4 |
Rs.20,001 to Rs.25,000 |
25% |
|
5 |
Rs.25,001 to Rs.30,000 |
30% |
|
6 |
Rs.30,001 to Rs.50,000 |
40% |
|
7 |
Rs.50,001 to Rs.70,000 |
50% |
|
8 |
Rs.70,001 to Rs.1,00,000 |
55% |
|
9 |
Greater than Rs.1,00,000 |
60% |
Income Tax Rates for
Financial Year 1976-77 , Financial Year 1977-78 , Financial Year 1978-79 ,
Financial Year 1979-80
Assessment Year 1977-1978
, Assessment Year 1978-1979 , Assessment Year 1979-1980 , Assessment Year
1980-81
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.8,000 |
Nil |
|
2. |
Rs.8,001 to Rs.15,000 |
15% |
|
3 |
Rs.15,001 to Rs.20,000 |
18% |
|
4 |
Rs.20,001 to Rs.25,000 |
25% |
|
5 |
Rs.25,001 to Rs.30,000 |
30% |
|
6 |
Rs.30,001 to Rs.50,000 |
40% |
|
7 |
Rs.50,001 to Rs.70,000 |
50% |
|
8 |
Rs.70,001 to Rs.1,00,000 |
55% |
|
9 |
Greater than Rs.1,00,000 |
60% |
Income Tax Rates for
Financial Year 1974-1975 Assessment Year 1975-1976, Financial Year 1975-1976
Assessment Year 1976-1977
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.6,000 |
Nil |
|
2. |
Rs.6,001 to Rs.10,000 |
12% |
|
3 |
Rs.10,001 to Rs.15,000 |
15% |
|
4 |
Rs.15,001 to Rs.20,000 |
20% |
|
5 |
Rs.20,001 to Rs.25,000 |
30% |
|
6 |
Rs.25,001 to Rs.30,000 |
40% |
|
7 |
Rs.30,001 to Rs.50,000 |
50% |
|
8 |
Rs.50,001 to Rs.70,000 |
60% |
|
9 |
Greater than Rs.70,000 |
70% |
Income Tax Rates for
Financial Year 1970-71 , Financial Year 1971-72 , Financial Year 1972-73 Financial Year 1973-74
Assessment Year
1971-1972 , Assessment Year 1972-1973 , Assessment Year 1973-1974 , Assessment
Year 1974-1975
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.5,000 |
Nil |
|
2. |
Rs.5,001 to Rs.10,000 |
10% |
|
3 |
Rs.10,001 to Rs.15,000 |
17% |
|
4 |
Rs.15,001 to Rs.20,000 |
23% |
|
5 |
Rs.20,001 to Rs.25,000 |
30% |
|
6 |
Rs.25,001 to Rs.30,000 |
40% |
|
7 |
Rs.30,001 to Rs.40,000 |
50% |
|
8 |
Rs.40,001 to Rs.60,000 |
60% |
|
9 |
Rs.60,001 to Rs.80,000 |
70% |
|
10 |
Rs.80,001 toRs.1,00,000 |
75% |
|
11 |
Rs.1,00,001 to Rs.2,00,000 |
80% |
|
12 |
Greater than Rs.2,00,000 |
85% |
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Income Tax Rates for
Financial Year 1968-69 Assessment Year 1969-1970 & Financial Year
1969-70 Assessment Year 1970-71
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.5,000 |
5% |
|
2. |
Rs.5,001 to Rs.10,000 |
10% |
|
3 |
Rs.10,001 to Rs.15,000 |
15% |
|
4 |
Rs.15,001 to Rs.20,000 |
20% |
|
5 |
Rs.20,001 to Rs.25,000 |
30% |
|
6 |
Rs.25,001 to Rs.30,000 |
40% |
|
7 |
Rs.30,001 to Rs.50,000 |
50% |
|
8 |
Rs.50,001 to Rs.70,000 |
60% |
|
9 |
Rs.70,001 to Rs.1,00,000 |
65% |
|
10 |
Rs.1,00,001 to Rs.2,50,000 |
70% |
|
11 |
Greater than Rs.2,50,000 |
75% |
Income Tax Rates for
Financial Year
1965-66, Financial Year 1966-67, Financial Year 1967-68
Assessment Year
1966-67, Assessment Year 1967-68 , Assessment Year 1968-69
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.5,000 |
5% |
|
2. |
Rs.5,001 to Rs.10,000 |
10% |
|
3 |
Rs.10,001 to Rs.15,000 |
15% |
|
4 |
Rs.15,001 to Rs.20,000 |
20% |
|
5 |
Rs.20,001 to Rs.25,000 |
30% |
|
6 |
Rs.25,001 to Rs.30,000 |
40% |
|
7 |
Rs.30,001 to Rs.50,000 |
50% |
|
8 |
Rs.50,001 to Rs.70,000 |
60% |
|
9 |
Greater than Rs.70,001 |
65% |
Income Tax Rates for
Financial Year 1964-65 Assessment Year 1965-66
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.3,200 |
Nil |
|
2. |
Rs.3,201 to Rs.5,000 |
6% |
|
3 |
Rs.5,001 to Rs.7,500 |
10% |
|
4 |
Rs.7,501 to Rs.12,500 |
15% |
|
5 |
Rs.12,501 to Rs.20,000 |
20% |
Income Tax Rates for
Financial Year 1963-64 Assessment Year 1964-65
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,000 |
Nil |
|
2. |
Rs.1,001 to Rs.5,000 |
3% |
|
3 |
Rs.5,001 to Rs.7,500 |
6% |
|
4 |
Rs.7,501 to Rs.10,000 |
9% |
|
5 |
Rs.10,001 to Rs.12,500 |
11% |
|
6 |
Rs.12,501 to Rs.15,000 |
14% |
|
7 |
Rs.15,001 to Rs.20,000 |
18% |
|
8 |
Greater than
Rs.20,000 |
25% |
Income Tax Rates for
Financial Year
1958-59, Financial Year 1959-60 , Financial Year 1960-61, Financial Year
1962-63
Assessment Year
1959-60, Assessment Year 1960-61, Assessment Year 1962-63, Assessment Year
1963-64
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,000 |
Nil |
|
2. |
Rs.1,001 to Rs.5,000 |
3% |
|
3 |
Rs.5,001 to Rs.7,500 |
6% |
|
4 |
Rs.7,501 to Rs.10,000 |
9% |
|
5 |
Rs.10,001 to Rs.12,500 |
11% |
|
6 |
Rs.12,501 to Rs.15,000 |
14% |
|
7 |
Rs.15,001 to Rs.20,000 |
18% |
|
8 |
Greater than
Rs.20,000 |
25% |
Income Tax Rates for
Financial Year 1957-58, Assessment Year 1958-59
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,000 |
Nil |
|
2. |
Rs.1,001 to Rs.5,000 |
Nine Pies in the Rupee |
|
3 |
Rs.5,001 to Rs.7,500 |
One Anna and Nine Pies in the Rupee |
|
4 |
Rs.7,501 to Rs.10,000 |
Two Annas and Three Pies in the Rupee |
|
5 |
Rs.10,001 to Rs.15,000 |
Three Annas and Three Pies in the Rupee |
|
6 |
Greater than
Rs.15,000 |
Four Annas in the Rupee Rs. 0.25 |
Income Tax Rates for
Financial Year 1955-56 Assessment Year 1956-1957
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.2,000 |
Nil |
|
2. |
Rs.2,001 to Rs.5,000 |
Nine Pies in the Rupee |
|
3 |
Rs.5,001 to Rs.7,500 |
One Anna and Nine Pies in the Rupee |
|
4 |
Rs.7,501 to Rs.10,000 |
Two Annas and Three Pies in the Rupee |
|
5 |
Rs.10,001 to Rs.15,000 |
Three Annas and Three Pies in the Rupee |
|
6 |
Greater than
Rs.15,000 |
Four Annas in the Rupee
Rs. 0.25 |
Income Tax Rates for
Financial Year 1951-52 Assessment Year 1952-53 , Financial Year 1954-55 Assessment Year 1955-1956
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,500 |
Nil |
|
2. |
Rs.1,501 to Rs.5,000 |
Nine Pies in the Rupee |
|
3 |
Rs.5,001 to Rs.10,000 |
One Anna and Nine Pies in the Rupee |
|
4 |
Rs.10,001 to Rs.15,000 |
Three Annas and Three Pies in the Rupee |
|
5 |
Greater than
Rs.15,000 |
Four Annas in the Rupee Rs.0.25 |
Income Tax Rates for
Financial Year 1949-50, Assessment Year 1950-51
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,500 |
Nil |
|
2. |
Rs.1,501 to Rs.5,000 |
Nine Pies in the Rupee |
|
3 |
Rs.5,001 to Rs.10,000 |
One Anna and Nine Pies in the Rupee |
|
4 |
Rs.10,001 to Rs.15,000 |
Three Annas and Half Annas in the Rupee Rs.0.05 |
|
5 |
Greater than
Rs.15,000 |
Five Annas in the Rupee Rs.0.03125 |
Income Tax Rates for
Financial Year 1948-49, Assessment Year 1949-50
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,500 |
Nil |
|
2. |
Rs.1,501 to Rs.5,000 |
One Annas in the Rupee Rs. 0.0625 |
|
3 |
Rs.5,001 to Rs.10,000 |
Two Annas in the Rupee Rs 0.0125 |
|
4 |
Rs.10,001 to Rs.15,000 |
Three Annas and Half Annas in the Rupee Rs.0.05 |
|
5 |
Greater than
Rs.15,000 |
Five Annas in the Rupee Rs.0.03125 |
Income Tax Rates for
Financial Year 1947-48, Assessment Year 1948-49
|
Sr. No. |
Income Slab Rs. |
Tax Rate |
|
1. |
Less than Rs.1,500 |
Nil |
|
2. |
Rs.1,501 to Rs.5,000 |
One Annas in the Rupee
Rs. 0.0625 |
|
3 |
Rs.5,001 to Rs.10,000 |
Two Annas in the Rupee
Rs 0.0125 |
|
4 |
Rs.10,001 to Rs.15,000 |
Three Annas and Half Annas in the Rupee Rs.0.05 |
|
5 |
Greater than
Rs.15,000 |
Five Annas in the Rupee
Rs.0.03125 |
CONCLUSION
To sum up, my work completely focused on income taxation, with special emphasis given to the Indian context. I had presented, summarized and explained various aspects related to income tax , such as history of taxation in India and the world till present, the types of taxes levied in India since independence, types of income taxes in India, the 5 heads of income for computation of income tax, how the income tax is collected, income tax return, income tax deductions, the definition of financial year (FY) and assessment year (AY), and ended with the complete income tax slabs implemented since independence, with the aim of being a reference to show the reader how income tax rates have evolved in our country since its inception.
I had selected this topic as I personally felt that a vast majority of Indians are ignorant when it comes to income tax and its laws and aspects, which led to only 1.46 crore Indians paying income tax last year. That is just a little over 1% of India's population and only 1.6% of the country's adult (over 20 years) population.
What's even more striking is that the number of taxpayers has shrunk sharply in the past one year. Estimates show that in the assessment year 2018-19 (financial year 2017-18), 3.29 crore Indians paid income tax. Compared to that, 1.46 crore taxpayers in 2019-20 represent a fall of 55% in just one year.
Thus, we can see tax compliance is abysmal. People feel that calculating money to pay tax and tax law's complexities make income taxation a daunting topic and difficult responsibility. My paper was an overview of income taxation in India, with the primary aim of being an introductory help for people who want to begin comprehending income taxation.
I honestly believe that income tax:
- HELPS BUILD THE NATION
The cost of running an entire country, especially one that is as large and populated as ours, is humongous. It is through the taxes we pay that the government can perform civil operations. In other words, without taxes, it would be impossible for the government to run the country.
Income tax is one of the biggest sources of income for the Indian government. If people start thinking that income tax is a burden and avoid paying the same, it will directly impact the growth of our nation and also result in social collapse.
- CONTRIBUTES TO WELFARE SCHEMES
There are currently more than 50 union government schemes in India. From employment programs, subsidy on home loans, concession on cooking gas, to pension schemes, the government has launched several schemes to help all the different sectors of the society.
These schemes benefit millions of Indians and require crores of rupees to run successfully. By paying income tax, you play your role in the success of these schemes and also provide the government with the ability to work on more welfare schemes and programs.
- LEADS TO IMPROVED HEALTHCARE AND EDUCATION
A significant chunk of the collected taxes is spent on improving healthcare in the country. There are government hospitals that offer medical services without any cost or at minimum cost. Over the years, the quality of service provided by government hospitals has improved by leaps and bounds, and it has only happened because of taxpayers paying tax.
Similarly, there are government schools with a negligible fee. Moreover, thousands of crores are also spent every year on defense and infrastructure developments. All of this ultimately helps in making the country more powerful and prosperous.
My seminar paper has succeeded in presenting the topic of income taxation in a simplified form an I can earnestly say considerable progress has been made and insight has been gained with regard to this topic. My seminar paper provides the framework and encouragement for a way to do study income taxation. This study is has gone some way towards enhancing our understanding of a complex topic like income taxation. This work has demonstrated and proved that even a complex topic like income taxation can be simplified and be made in an easily digestible form for the Indian masses. I hope my seminar paper provides a springboard for further simplifications of complex topics in the future.
As I see it, Complex and truthfully speaking dry topics like income tax don't have to be difficult to teach, or difficult to understand. By knowing your audience and simplifying the information you present, you can explain difficult concepts with clarity and ease.
Bibliography
- facelesscompliance.com/4435/know-income-tax-slab-rate-since-independence-fy-1947-48-till-fy-2020-21-highest-rate-85-in-1970-74
- https://www.freepressjournal.in/business/itr-filing-find-out-the-type-of-itr-filing-that-suits-you
- https://en.m.wikipedia.org/wiki/Tax
- kids.britannica.com/scholars/article/MTV/108610
- http://taxesndia.blogspot.com/2015/02/
- https://www.canarahsbclife.com/tax-university/articles/income-tax-slab-for-fy-2022-23.html
Written By: Mohammed Arafat Mujib Khan
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