For the financial administration of any government, taxes are an essential component of any

economy. These kinds of taxes are not new; evidence suggests that they have been imposed since
ancient times in a variety of ways, including in the form of money or in kind like grains, gold, and
forest products. The word tax has been derived from the latin word Taxare or taxo which means
to assess the worth of something.

Manu the great law giver of the country in Manusamriti has described the policy behind the taxes
thus “As the leech the calf and bee take their food little by little even so must the king draw from
his realm moderate annual taxes.” Kalidas in relation to King Dalip has said the taxes should be
collected as the sun draws moisture from the earth to give it back a thousand time. According to
Kautaliya, the Treasury and Army are the means by which the Government obtains its authority,
and the Earth, whose jewel is the Treasury, is the source of that power. Kautaliya, however,
believed that taxes and revenue were the sovereign's way of paying for the protection, law and
order, and services he was supposed to provide to the people. The government also needs a
large amount of money to fund infrastructure projects like roads and railroads, as well as to
manage and operate its administration and provide basic public services like health and
education. In addition, the government must oversee the nation's defense, support the
economically disadvantaged regions of the nation by offering subsidies, and pay its workers.

Evolution, as we all know, is the process of developing through little, progressive changes. India's
taxation history has evolved over time from prehistoric periods to the current era of tax legislation.
James Wilson, the country's first Finance Minister during British rule, introduced the country's first
income tax act in February 1860. He also cited Manu's jurisdiction to impose income taxes in India.
The then-income tax act's notable characteristic was its 259 sections, along with the following
additional noteworthy features:
“Income was classified under four schedules as follows: i) Income from landed property; ii)
Income from professions and trade; iii) Income from securities, annuities and dividends; iv)
Income from salaries and pensions. A tax was imposed on each one of these sources

The exemption limit for the general public was fixed at Rs. 200, against the exemption limit of Rs.
4980 to the military and the police officials, and Rs. 2100 for the naval and marine officers

Agricultural income was subject to tax. The rate of tax was 2 percent for income between rs. 200
and Rs. 499 and over that, 4 percent, out of the 4 percent charge 1 percent was to be retained by
the provincial Governments and 3 percent was to go to the Central Government. Compulsory
returns were required to be submitted by all who were liable to tax. The administration of the tax
was left in the hands of the land revenue officers except in Calcutta and the financial year
commenced on 1st of August, 1860.”
Apart from the aforementioned, there were additional levies such as customs duty and salt tax.
Following Mahatma Gandhi's Dandi March and the Salt Satyagrah, the Salt Tax was eliminated. Lord
Rippon introduced the taxation of urban local bodies in 1882 with the intention of decentralizing,
granting municipalities the authority to levy taxes for local area development and infrastructure. In
1886, the Act of 1860 was amended to improve on some categories that allowed for the imposition
of taxes.

The Income Tax Act of 1922 was the second significant amendment, and it was crucial since it was
the first to establish the Income Tax Department. Following independence, the Ministry of Law was
consulted before the Indian Income Tax Act 1961 was created, and it became operative on April 1st,
1962. Union Budgets and Amendment Acts have been used to periodically amend this Act. It is
interesting to note that throughout India's tax history, the personal income tax rate was formerly as
high as 97.5 percent. Over time, this rate was progressively reduced to 30 percent with additional
surcharges and other variable costs. The 30% tax rate is even lower than in certain developed
nations in the world.