DIRECT TAX – LAWS AND

PRACTICE

Overview of Lesson 1.2

Income tax in India has an old history. Before, we discuss various intricacies
of income tax in India, it will be appropriate to discuss the background of
income tax in India. In this part, we will be discussing the history of income
tax in India right from the ancient stage, introduction of income tax laws in
modern India, major improvement in income tax administration like
introduction of PAN in all transactions, various tax authorities, appeal
mechanism, type of tax etc.

Presence of Tax in Ancient times

We can get the evidence of presence of taxation in India from Manusmrti and
Arthashastra itself. According to Manusmrti, traders, artisans or agriculturist
had to pay a fixed rate of their earning like in case of traders they need to pay
1/5th of their profits in silver and gold. Similarly, in Arthashastra also, Kautliya
emphasized on the part of removing arbitrariness in case of taxation. In most of
the times, general people had to deposit certain fixed share of earning to the
king. Kautliya also mentioned about the duties (taxes) which one had to pay at
the time of war or emergencies.

Brief history of Income Tax in India

In modern India, Income Tax was introduced for the first time in the year 1860
where Sir James Wilson decided to impose it to meet the amount of losses
sustained by the government due to Sepoy Mutiny, 1857. After that, in 1918 a
new income tax Act was passed but it was replaced by another new Act which
was passed in the year 1922. This Act remained in the force up to the year
1961-62.

Based on the recommendations of Prof. Nicholas Kaldor, the Wealth Tax Act,
1957, the Expenditure Tax Act,1957 and Gift Tax Act, 1958 were introduced.
In the year 1958, a report on new Income Tax Act was submitted by the Law
Commission and based on these recommendations, Income-tax Act,1961 came
into existence with effect from 1st of April, 1962. Since 1962, several
amendments have been made every year through the Union Budget. Now, it has
become a regular feature to present the Finance Bill every year along with Union
Budget that include rates of income tax for the next year.
Permanent Account Number (PAN)
In India, one of the popular terms which is associated with Taxation is PAN
(Permanent Account Number). It is a 10-character alpha – numeric identification
code issued to various classes of persons. It has been made mandatory to quote
PAN while filling income tax return, TDS or any other communication with
Income Tax Department

Income Tax Authorities

The following income-tax authorities have been constituted under the Income
tax Act, 1961 to discharge executive and administrative functions:

1. The Central Board of Direct Taxes

2. Principal Directors-General of Income-tax or Principal Chief
Commissioners of Income-tax
3. Directors-General of Income-tax or Chief Commissioners of Income-tax
4. Principal Directors of Income-tax or Principal Commissioners of Income-
tax
5. Directors of Income-tax or Commissioners of Income-tax or
Commissioners of Income-tax (Appeals)
6. Additional Directors of Income-tax or Additional Commissioners of
Income-tax or Additional Commissioners of Income-tax Appeals
7. Joint Directors of Income-tax or Joint Commissioners of Income-tax
8. Deputy Directors of Income-tax or Deputy Commissioners of Income-tax
or Deputy Commissioners of Income tax Appeals
9. Assistant Directors of Income-tax or Assistant Commissioners of
Incometax
10. Income-tax Officers
11. Tax Recovery Officers
12. Inspector of Income Tax

Authorities of Appeal a) Appeal before Commissioner (Appeals)

Aggrieved taxpayer can file appeal before the Commissioner (Appeals) in Form
No. 35, signed by the taxpayer/director or his authorized representative.
b) Appeal before Income Tax Appellate Tribunal (ITAT)

Appeal against an order of Commissioner (Appeals) lies with the Income Tax
Appellate Tribunal (ITAT). Both taxpayer and the Assessing Officer can file
appeal before ITAT. Appeal is to be filed (in Form 36) before the Appellate
Tribunal within 60 days of the date on which order appealed against is
communicated to the taxpayer or the Commissioner, as the case may be.

c) Appeal before High Court

If anyone is not satisfied with the verdict of Tax appellate Tribunal, they can
approach the High Court, where the High Court is satisfied that the case
involves a substantial question of law. Appeal to the High Court against
Appellate Tribunal’s order can be filed by the tax payer or the Chief
Commissioner/Commissioner within 120 days of receipt of the order and in the
form of memorandum of appeal, precisely stating the substantial question of law
involved.

Appeal filed before High Court is heard by bench of not less than two Judges
and decision is by majority.

d) Appeal before Supreme Court

Appeal against High Court’s order in respect of Appellate Tribunal’s order lies
with the Supreme Court in those cases, which are certified to be fit for appeal
to the Supreme Court. Special leave can also be granted by the Supreme Court
under Article 136 of the Constitution of India against the order of the High
Court.

Types of Taxation a) Regressive Tax System

Under regressive taxation system, person with low level of income pays a higher
portion of their income as taxes in proportion to that of person with high
income. As the income of the person rises the percentage of tax expense to the
total income become less. Best example of regressive taxation is Indirect Tax
on commodities and services.
 b) Proportional Tax
A proportional taxation system is also known as Flat Tax System. Under this
system every individual or entity of must pay the tax amount at the same tax
rate regardless of Income or Wealth.
c) Progressive Tax
Under a progressive taxation system, amount of tax is calculated on the basis of
income or business profits. High income earners pay more amount of tax than
low income earners, and the tax rate, along with tax liability, increases as the
income of an individual or entity increases. The best example of progressive tax
in India is Income tax or the Direct Tax.

Income tax slabs and rates

The income tax rates are proposed by the Union Finance Minister along with
the Union Budget 2019-20 stands as follows:

Income Tax Slab Rate for AY 2020-21 for Individuals:

a) Individual (resident or non-resident), who is of the age of less than 60

years on the last day of the relevant previous year:
Net income range Income-Tax rate

Up to Rs. 2,50,000 Nil

Rs. 2,50,000- Rs. 5,00,000 5%

Rs. 5,00,000- Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

b) Resident senior citizen, i.e., every individual, being a resident in India, who
is of the age of 60 years or more but less than 80 years at any time during
the previous year:
Net income range Income-Tax rate

Up to Rs. 3,00,000 Nil

Rs. 3,00,000- Rs. 10,00,000 5%

Rs. 5,00,000- Rs. 10,00,000 20%

 Above Rs. 10,00,000 30%

b) Resident super senior citizen, i.e., every individual, being a resident in

India, who is of the age of 80 years or more at any time during the
previous year:
Net income range Income-Tax rate

Up to Rs. 5,00,000 Nil

Rs. 5,00,000- Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

Plus: -

Surcharge: - 10% of income tax where total income exceeds Rs. 50,00,000.

15% of income tax where total income exceeds Rs. 1,00,00,000.

Health and Education cess: - 4% of income tax and surcharge.

Note: - A resident individual is entitled for rebate under section 87A if his
total income does not exceed Rs. 5,00,000. The amount of rebate shall be 100%
of income-tax or Rs. 12,500, whichever is less.