A brief history of Income tax in India and its extraordinary limbs

It is said that Nothing is certain except death and taxes. This statement is true because we can make an effort to avoid all incidents, but death and taxes cannot be avoided. It is well-known fact that nothing is free in any country. Anything that you receive in form of infrastructure, roads, bridges, parks, and other amenities is developed from the money you pay in form of Direct and Indirect taxes.

Today we are discussing one of the hot topics that everyone would like to read on. In India, the history of income tax is so long. When the British ruled the country, they collected taxes from the people of India. The Income tax was first introduced in 1860 in India when by Sir James Wilson to meet the financial difficulties that arose in 1857. The law was in force for 5 years initially and later on, it was discontinued. For the first time in 1886, the tax law was legislated. In 1918 the tax law was reintroduced with many changes and the 6 heads of income tax were introduced. At present, we have 5 heads of income i.e.

  1. Income from salary,
  2. income from house property,
  3. income from capital gain,
  4. income and gain from business and profession and
  5. income from other sources.

The income tax act 1922 was replaced after 40 years with the income tax act 1961. The 1961 act received the assent of the president of India on September 13, 1961, and came into force from April 1, 1962.

The constitution of India is the supreme law of the land and all the acts including the income tax act work in the light of the constitution. The income tax drives its levied power from the constitution of India. The provision of the income tax act should be read with the constitution of India to check its validity. One of the most important articles of the constitution is article 265, which provides that ‘’No tax shall be levied or collected except by authority of law. This means that the law should be enacted by a competent legislature. Thus, the imposition of tax without legislative authority is void.

The income tax act was passed under entry 82 of List I, which is ‘’taxes in income other than agriculture income’’. The ‘Tax’ is a wider term, and it sometimes includes ‘Cess’. Income under article 82 of the constitution should be construed in a liberal and wider manner. Thus, entry 82 does not only authorise the imposition of tax but enactment of prevention of tax, to provide taxation on a presumptive basis or provides liability.

In India, it is said that ‘We legislate first and think afterwards’

The great lawyer sir Nani Palkhivala, who fought income tax cases and was a legend in the field of income tax had the ability to read the constitutional provisions with the income tax act, wrote the following quote about the income tax that every professional, taxpayer and the government authority should be remembered;

1. Tax laws, like all other laws, to be respected, must be made respectable,

2. Laws, to be respectable, must be fair and intelligible, stable and simple; easy to administer and easy obey.

3. Revenues rise with tax cuts; when income-tax is scaled up, income is scaled down.

4. If there is widespread tax evasion, it may be more meaningful to search for the cause in the tax system than in the taxpayer.

5. Enlightened administration is as essential as enlightened enactment, and it can be good recompense for a bad law.

The hardest thing to understand in the world is the Income tax- Albert Einstein

About the author: Nitin Bhatia is a qualified chartered accountant practising in Delhi, Gurgaon, Noida and Faridabad. He is the best CA in Gurgaon. During his professional journey, he has gained advanced experience in International Taxation, Transfer Pricing, Expatriate Taxation, Corporate Taxation, Domestic Taxation and litigation matters. International Taxation and Domestic taxation are his study topic, and he is deeply involved and updated with the recent judicial pronouncements. It helps him to give efficient and legitimate tax planning to his clients.

For any information/query/concerns related to income tax provisions, please feel free to contact us at mail@nbaoffice.com