1.

2 Introduction:
The provisions of income-tax are contained in the Income-tax Act,1961 which extends to
the whole of India. The Income-tax Act 1961 is a revenue law. Every year a Budget is
presented before the Parliament by the Finance Minister. One of the most important
components of the Budget is the Finance Bill, which declares the financial proposals of
the Central Government for the next financial year. When the Finance Bill is approved by
the both the Houses of Parliament and receives the assent of the President of India, it
becomes the Finance Act which gives the rates for computation of Advance Tax.

1.3 Origin of Tax System in India:

It was in 1850 that Sir James Willson formally introduced the tax in India. He was the finance
minister of the pre -Independent India. He introduced the tax during the first union budget
session under British rule.
The Direct Taxes Administration Enquiry Committee, under the chairmanship of Mahavir
Tyagi, submitted its report on 30 November 1959 and its recommendations took shape in the
Income-tax Act, 1961. The act, which became effective on 1 April 1962, replaced the Indian
Income Tax Act, 1922.
Income tax in India is governed by 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.
1.3.1 Taxation – Voluntary practice to involuntary system
Tax compliance represents the most inclusive and neutral term for taxpayers’ willingness
to pay taxes.
a. Voluntary Taxation System:
Voluntary compliance originates from taxpayers’ trust in authorities. Voluntary compliance
are motivated and originates from spontaneous willingness to cooperate, emanating from
taxpayers’ moral obligation to contribute to the public welfare.
It refers to the principle that citizens will cooperate with their government by filing honest
and accurate annual returns. It implies that the individual taxpayer will prepare and file a
return without proactive action by the government.
b. Involuntary Taxation System:
The term "taxation" applies to all types of involuntary levies. The government compels
taxation through an implicit or explicit threat of force. Taxes are mandatory contributions
levied on individuals or corporations by a government entity—whether local, regional, or
national. Enforced compliance is fostered through the power of authorities to effectively
carry out audits and impose fines more costly than cooperation.
In India, taxes are mandatory contributions collected by government. Taxes are levied by
governments on their citizens to generate income for undertaking projects to boost the
economy of the country and to raise the standard of living of its citizens.
1.3.2 Kautilay views on taxation:
The foundation of taxation was laid during the time of Kautilya. Most of the concepts of
modern taxation find seminal ideas in have Arthasastra. Kautilya implicitly suggests a
linear income tax.
According to Kautilya, some linkage between the ability to pay (i.e. provision of a safety
net to the poor, old and the sick) and the benefit principle may be better than the current
approaches, which treat the ability to pay and the expenditure side of the taxation
separately.
He advocates fixing a time table for payment of taxes and also what share of the produce
or product value is to be paid as tax. Further, the stance of Kautilya on a kind of
progressive taxation and ability to pay principle are followed in modern day practice
also.
The philosophy of Kautilya can be seen in the following saying:
“The way the sun collects ocean water in the form of vapor to supply rain water to the
fields; in the same way the government should also collect taxes from the public”
The basic premise of Kautilya’s taxation doctrine was that public should not be exploited
by imposing tax more than their competence to pay.