A STUDY ON ANALYZE AND INTERPRET THE HISTORY OF

TAXATION, ESPECIALLY DIRECT TAXATION IN INDIA

FROM ANCIENT PERIOD TO MODERN TAX SYSTEM

Submitted to

Osmania University for Completion of the Degree of

Bachelor in Commerce
Semester VI (2023-24)

Under The Faculty of Commerce

Mrs. MALAVIKA
Submitted By
R.Dinesh Sagar - 126921401083
Under the Guidance of

College Code: 1269 (Affiliated to Osmania

University) Durga Nagar, Ameerpet, Hyderabad
 College Code: 1269 (Affiliated to Osmania University)

CERTIFICATE

This is to certify that “A STUDY ON ANALYZE AND INTERPRET THE HISTORY OF TAXATION,
ESPECIALLY DIRECT TAXATION IN INDIA FROM ANCIENT PERIOD TO MODERN PERIOD”
bearing Hall ticket Number “R. Dinesh Sagar - 126921401083” of VI Semester BACHELOR OF
COMMERCE Course has done this practical record work of assigned by Osmania University as
part of their Syllabi, under the Supervision of Mr./Mrs. for the academic year 2023-2024.

Internal Examiner External Examiner

Head of the Department

 STUDENT DECLARATION

I hereby declare that this Project Report titled “A STUDY ON ANALYZE AND
INTERPRET THE HISTORY OF TAXATION, ESPECIALLY DIRECT TAXATION IN
INDIA FROM ANCIENT PERIOD TO MODERN TAX SYSTEM” Submitted by me to
the Bachelor of Commerce Department, O.U., Hyderabad, is a bonafide work undertaken
by me and it is not submitted to any other University or Institution for the award of any
degree diploma / certificate or published any time before.

R. DINESH SAGAR Signature of the Student.

 ACKNOWLEDGEMENT

This acknowledgement is a humble attempt to earnestly thank all those who

are directly or indirectly involved with my project and were of immense help
to me. First of all, I would like to express my sincere thanks to the Director of
the college and H.O.D of Bachelor of Commerce Department, for giving me
thisopportunity to carry out the project. I acknowledge with greatest courtesy
the efforts taken by Mrs. MALAVIKA, my internal guide, who took
genuine interest in my project and helped me understand the basic concepts
of the project when necessary.

R. DINESH SAGAR
5
 INDEX

Chapter Particulars Page no

ABSTRACT 2

1 INTRODUCTION 3-10

2 REVIEW OF LITRATURE 11-19

3 BACKGROUND STUDY 20-49

4 DATA ANALYSIS AND INTERPRETATION 50-58

5 FINDINGS AND SUGGESTIONS

59-66

BIBILOGRHAPHY 67

1
 Abstract
Income tax is levied on the taxable income of an assesses. Direct taxation is a tax that an
assesses pays directly to the entity that imposes it. Direct taxes cannot be passed on by an
assesses to a different person or entity. The assesses on whom the tax is levied is mainly
responsible for paying it. Some of the major examples of direct tax include income tax and
corporate tax. This research paper attempts to make an analytical review of Direct Taxation in
India and accordingly three major research questions are raised. What is the quantum of direct
tax collection? What is the contribution of direct tax collection towards the total tax revenue
collection? And what is the cost of direct tax collection incurred by the government of India?
This research is primarily based on secondary data and the duration for this research works is
for a period of five years starting from the year 2013-14 to 2017-18. Analytical review has
been made to understand the quantum of direct tax collection, the relationship between direct
tax collection with the total tax revenue collection and the cost of direct tax collection in India.

2
 CHAPTER I
INTRODUCTION

3
1.1INTRODUCTION
Recently, India emerged as the fastest-growing economy, with a current growth rate of
8.7 percent. Not just this, the country full of cultures, traditions, and tourist attractions has also
surpassed the United Kingdom to become the fifth largest economy in the world. India even
received the title of ‘Emerging Economy of the World’.
In order to sustain these growth rates and continue growing in every single business cycle, it is
crucial to make optimum use of the available resources. Plan and policy execution requires
resources in order to be successful. Resources can take the form of people, places, politics,
economies, cultures, money, materials, territory, technology, and other natural and human
aspects. In the current situation, the Government of India has taken on a number of duties,
including resource exploitation, industrialization, 4ationalize4n, security, and the
transformation of the economy and society to meet future demands. They must carry out a
variety of tasks in order to fulfil their responsibilities. Large-scale public spending is
necessary for these functions. Massive public funding is needed to cover these expenses. The
primary source of public funding is taxes. It is a cutting-edge tool that encourages social
economic development and national cohesiveness.
India is a sovereign democratic nation with 28 states and 8 union territories supported by a
three-tier federal tax structure. India has a well-established tax structure with clearly defined
jurisdiction boundaries between the governments at the central, state, and local levels. The
central government imposes numerous direct as well as indirect taxes on goods and services
respectively. Stamp duty, Securities Transaction Tax (STT), Entertainment Tax, and Value
Added Tax are examples of indirect taxes for last few years but from 2017 GST came into
force instead of all these for indirect taxes. Direct taxes include personal income tax,
inheritance tax, corporation tax, and gift tax. As per the current scenario, the government at
the central level is highly dependent on corporation tax which constitutes a total of 20 percent
of the overall tax collection.
The last ten years have seen significant reforms in the Indian taxation structure. In order to
improve adherence, tax payment simplicity and regulation, tax rates and tax rules have been
thoroughly reviewed. Even after 75 years of independence, India witnesses an ongoing effort
to 4ationalize the tax system. The scope of direct taxes is not limited to Indian territory.

4
Countries all over the globe have been using direct taxes as a basic source of public funding
for development since time immemorial. For instance, in the United States of America, the
word ‘Direct Taxes’ holds great significance backed by the Constitution of the United States.
As per its Constitution, any direct taxes levied by the federal government shall be distributed
among the states in proportion to their respective populations. In the European Union,
member states continue to be solely in charge of direct taxation in their respective countries.

India’s direct tax system plays a crucial role in the country’s economic growth and
development. Direct taxes are levied on individuals and businesses based on their income,
profits, and gains, and are the primary source of revenue for the government. In recent years,
the Indian government has introduced several reforms to simplify the direct tax system, reduce
tax evasion, and promote investment and growth.

In this project, we will explore the key aspects of India’s direct tax system, including the types
of taxes, tax rates, exemptions, and deductions. We will also discuss the recent changes in the
tax laws, such as the introduction of the Goods and Services Tax (GST) and the
implementation of the Direct Tax Code (DTC). Through this project, we will gain a
comprehensive understanding of India’s direct tax system and its significance for the
country’s economic development

India’s direct tax system is a complex and ever-evolving subject that has a significant impact
on the country’s economy and society. Direct taxes, including income tax, corporate tax, and
wealth tax, are imposed on individuals and entities based on their income and assets.

In recent years, the Indian government has made several reforms to the direct tax system to
make it more efficient, transparent, and taxpayer-friendly. These changes have included the
introduction of electronic filing and processing of tax returns, simplification of tax laws, and
measures to reduce tax evasion.

5
1.2 OBJECTIVES OF THE STUDY

 The objective of the paper is to analyze and interpret the history of taxation, especially
direct taxation in India from ancient period to modern tax system.
 To Evaluate tax throughout the years.
 To Study Different types of collection of taxes.

6
1.3 SCOPE OF THE STUDY
India has undergone fundamental changes especially in accordance with the
recommendations of the Taxation Enquiry Commission (153-54) and Kaldor’s Report on
Indian reforms (1956). New taxes were introduced for strengthening and having an integrated
direct tax structure. However, even today income-tax is the most important of all the taxes in
India. Various types of taxes levied by the Governments are divided into two broad categories:
Direct and indirect taxes. Direct taxes are collected directly from the taxpayers through levies
such as income-tax, agricultural income-tax, professional tax, etc., whereas indirect taxes

7
1.4 NEED AND IMPORTANCE OF THE STUDY
Direct taxes are a form of taxation that is levied directly on individuals or entities based on
their income or wealth. Some examples of direct taxes include income tax, corporate tax,
wealth tax, and property tax.

There are several reasons why direct taxes are important and necessary in modern economies.
Here are a few key reasons:

Revenue Generation: Direct taxes are an important source of revenue for governments. They
help fund various public services and programs, such as healthcare, education, and
infrastructure development.

Progressivity: Direct taxes are generally considered to be more progressive than indirect
taxes (such as sales tax or value-added tax), as they are based on the ability to pay. This means
that those who earn more income or have more wealth pay a higher proportion of their income
or wealth in taxes.

Reducing Inequality: Direct taxes can help reduce income and wealth inequality by
redistributing wealth from high-income earners to low-income earners. This can be achieved
through progressive taxation and policies such as tax credits and deductions.

Fiscal Discipline: Direct taxes can be used to promote fiscal discipline by encouraging
individuals and companies to save and invest their money rather than spending it. This can
help to promote economic growth and stability over the long term.

8
1.5 RESEARCH METHODILOGY
The methodology for studying will involve the following direct tax system steps:

1. Literature review: A comprehensive review of relevant literature on the impact of

taxation on economic development will be conducted. This will involve reviewing
academic journals, books, reports, and other relevant publications.
2. Data collection: Data on history of direct tax, , and other relevant variables will be
collected from secondary sources, such as income tax department page international
organizations, and academic databases.
3. Data analysis: The collected data will be analyzed using statistical tools, such as
regression analysis, to know the ancient history of direct tax and different types of
direct tax and methods of collection of taxes and other relevant variables.
4. Empirical evidence: The results of the data analysis will be compared with empirical
evidence from various countries to validate the findings.

9
1.6 LIMITATIONS:

Limitations of Direct Taxes:

(a) Difficulty in Measuring Ability to Pay:

It is difficult, if not impossible, to measure the ability to pay of each and every taxpayer since
ability to pay taxes is not governed alone by income or wealth of an individual. A highly
salaried person with a large number of dependents may not have higher ability to pay taxes
compared to a middle-income salaried person having no or one or two dependents.
Consequently, the rate of direct taxes becomes—to some extent—arbitrary. The rate of taxes
actually depends on the whims of the government. Further, tax and politics go hand in hand. A
leftist’ government may impose a high rate of taxes while a ‘rightist’ government may levy a
low rate of taxes.

(b) Inconvenience:

As it is paid in lump-•sum, it becomes inconvenient to the taxpayers particularly when they

experience liquidity crises. Further, a taxpayer is supposed to provide various data relating to
his income or wealth for the satisfaction of the tax-levying authority.

Because of complexities involved in the Indian Income Tax Act, taxpayers are virtually
compelled to take the services of tax consultants. Thus, direct tax system is not only
inconvenient but also expensive to the taxpayers.

Overall, the methodology for studying direct tax system will involve a comprehensive
review of relevant literature, data collection and analysis, empirical evidence, policy
recommendations, and limitations.

10
 CHAPTER II
REVIEW OF LITRATURE

11
2.1 REVIEW OF LITERATURE

Various studies have been made covering different aspects of income tax structure which
includes personal income tax, capital gain taxation efficiency of income tax administration
etc. A few of them have been outlined below:

 Namrat Wagle Manjiri Manerkar (2022): The tax system in India has come a long way,
dating back from the colonial era till now. This paper examines the performance of direct
tax collection in India for the period from the financial year 2001-02 to 2018-19. The data
has been collected from secondary sources i.e., the website of the Central Board of Direct
Taxes (CBDT). It is found that the collection of direct tax witnesses an increasing trend.
The direct tax collected from each state in India was analyzed for the period of the study to
perceive if there is a statistical difference. Also, the study showcases that the net collection
of Direct Tax has a positive impact on GDP of the country.

 Dr. Kishor P. Bholane (2020): The word ‘tax’ is derived from the Latin word ‘Taxon’.
Tax is the compulsory financial charge levied by the government on income, commodity,
services, activities or transactions. Taxes are the basic source of revenue for the
government, which are utilized for the welfare of the people of the country. Taxes in India
are levied by the central government and the state governments. Some minor taxes are also
levied by the local authorities such as the Municipality. Article 265 of the Constitution
states that no tax shall be levied or collected except by the authority of law. Therefore,
each tax levied or collected has to be backed by an accompanying law, passed either by
the Parliament or the State Legislature.

 DR. RABINARAYAN SAMANTARA (2020): The present research is intended to

critically examine different aspects of the tax system in India. As observed by the author,
despite a clear-cut division of powers of taxation between the Centre and the States as per
Constitutional provisions, the Indian tax system has been extremely complex due to the
existence of multiple taxes, numerous tax compliance rules and provisions, inefficient tax
administration and several other issues. In addition to reviewing the available literature on
the subject, the present paper attempts to trace the historical evolution of the Indian tax

12
 system during three different periods - taxes in ancient India, taxes during British rule, and
taxes in independent India. Although the taxation powers of the Union government and the
States have been clearly provided in List 1and List 2of the Seventh Schedule of the
Constitution of India, these original tax provisions have undergone several changes from
time to time through necessary Constitutional Amendments. Attempts have also been
made in this research paper to provide a description of direct taxes including Income tax,
Corporation tax, Wealth tax, Gift tax, Estate duty, and other taxes on capital and property,
and indirect taxes such as Customs duties, Excise duties, Sales tax, Service tax, Value
added tax (VAT), and Goods and services tax (GST). In the end, the research paper
describes certain critical issues and challenges related to tax reforms in India and also
suggests necessary steps that should be taken by the government to streamline the tax
system further.

 Dr. Taralkumar Pinakinbhai Bhatt (2019): The New Direct Tax Code (DTC) has the
object to make the Indian tax structure simple and easy to understand. The Income Tax
Act, 1961 has become very complicated and virtually unintelligible to understand by
common man by virtue of a difficult structure, numerous amendments, frequent policy
changes and a multitude of judgments that gave varying interpretations to already
undecipherable provisions. This complexity has not only increased the cost of compliance
for the average tax payer, but also made it costly for the government to collect the tax. For
the replacement of Income Tax, 1961, the New Direct Tax Code (DTC) which is
completely new gives moderate relief to tax payers, reduce unnecessary exemptions and
improve compliance for improving collections. By the help of New Direct Tax Code
(DTC), the tax payers themselves can compute and file Income Tax Returns (ITR) without
the help of any tax consultant.

 Pradip Kumar Das (2019): Taxation is a major source of revenue for the Government. It
is also a means of economic transformation and socioeconomic cohesion. Taxation policy
of a country has to play a vital role, particularly, by utilizing this weapon to the best
advantage of the national economy. Specially, in a developing country like India, taxation
has been used to promote multiple objectives such as to increase the rate of domestic

13
 savings, reduce inequalities of income and wealth and to maintain price stability. Revenue
from taxes has provided a big support to the Government finances. Revenue from direct
taxes is increasing day by day. Direct taxes are preferred to indirect taxes because they are
more equitable, administratively effective and can be related to individual’s ability to pay.
Income-tax is the oldest tax in the direct taxes and has an important place in the direct tax
revenue. Besides, agricultural income-tax and professional tax are also very important in
the matter of economic stabilization. So, these taxes also play an important role in Indian
direct taxes. This paper is an attempt to analyze and interpret the importance of taxation,
especially direct taxation in India.

 Pramod Kumar Pandey [2017]: In their article titled, “The Impact of Indian Taxation
system on its Economic Growth” Identified that three exist an impact of direct and Indirect
taxes on the Economic Growth of India.

 Komal Jaiswal (2017): Income tax deserves due attention in a developing economy as it
is the most important source of government revenue. Tax system of India has come a
long way. Restructuring of taxation system has been a major component of fiscal reforms.
The main objective of these changes has been to enhance tax revenue by enlarging tax
base, encouraging voluntary tax compliance and simplifying procedural rules. Therefore
the present study is an attempt to evaluate the progressivity of direct tax revenue in India
and also suggest certain recommendations for the improvement of same.

 Piyush Kumar (2016): this study focused on estimating the responsiveness of personal
tax as a result of a change in inequality in the distribution of income. He concluded an
increase in tax inequality in the distribution of income among the tax payers increase yield
of personal tax in India.

 Deepak Bhaghel (2016): in his paper tried to study the role of modern information
technology in tax administration. He compared utilization of IT in India with other
counties like Canada, United states, Singapore New Zealand, Spain, Mexico. the study

14
 highlighted that the use of computer in tax administration was almost universal. the study
concluded that modern information technology could be fully utilized by introducing
organizational change, training to human resources, standardization and supportive legal
framework.

 Sharma [2016]: Wrote about tax system and tax collection of ancient India. The book
reflects a detail idea about philosophy of taxation, ways and means of tax collection in
ancient India. The author poined that revenue collections were core aspects of
administration and governance in that period. Further the study concluded that systems,
followed in respect of taxation and revenue collection in ancient India, are still relevant,
and if adopted, may provide the contemporary fiscal system with a humanitarian face.

 Nishant gauge and kata dare (2015): in the article, "Indian tax structure - An Analytical
perspective "identified the amount of tax revenue collected from different types of taxes
over the period of four years amount of indirect tax collection was nearly twice collected
from direct taxes.

 Dr. Sanjeeb Kumar Dey (2014): Income Tax deserves significant attention in a
developing economy as it is one of the major sources of government revenue. Tax system
of India has come a long way, dating back to the colonial era till now. Restructuring of tax
system has been a major component of fiscal reforms initiated since 1991. The main
objective of these changes has been to enhance tax revenue by enlarging tax base,
encouraging voluntary tax compliance and simplifying procedural rules. The review of
literature on existing subject reveals that many researchers have directed their efforts to
study various aspects of income tax system mainly with regard to tax structure, tax
incentives, compliance cost, un accounted income, overburdened income tax officials, lack
of systematic plan for computerization, increase in number of pending assessments,
outstanding refunds etc. However, it is worth mentioning that existing studies are either
limited in scope or sufficient period has elapsed since these were conducted.

15
 V Rani (2011): expressed her view regarding taxation of Income in India during post
liberalization period and policy perspective in this regard. She has analyzed the growth of
income tax revenue, performance of Income Tax Department and perception of tax
professionals regarding Income Tax System in India. The study found that Government
has tried to achieve the objective of social welfare by providing various incentives for
education, health, housing, savings, pension schemes, etc. The Government has adopted
certain measures for widening tax base such as introduction of PAN, E-filing of income
tax return, online tax accounting system etc. It was also found that share of direct taxes in
total tax revenue of Central Government, number of income tax assesses, income tax to
GDP ratio and buoyancy coefficient showed an upward trend during this period.

 Ahmed &Mohammed [2010]: Examined tax buoyancy of 25 countries. Data collected

from 1998 to 2008 and used pooled least square method for results analysis in their article.
“Determinant of tax buoyancy: Empirical l Edidance from developing countries. The
authors have taken independent variable as tax buoyancy which is calculated by using
GDP as base. Seven dependent variables are employed for the research work such as
growth of manufacturing sector, service sector, agriculture sector, import sector, budget
deficit growth and growth grants. The regression result shows that growth in
manufacturing sector, monetization, service sector, growth of budget deficit is positively
impact of direct tax collection but, the growth in import, agricultural sector, growth of
grants is insignificant.

 Singh and Sharma (2007) made an attempt to study the perception of tax professionals
with regard to Indian Income Tax System by collecting primary data from 100 tax
consultants operating in Punjab and Haryana. Factor Analysis of data showed that seven
factors –reduction in tax evasion, extension of relief to taxpayers, incentives for
dependents and honest taxpayers, broadening the tax base, e-filing of returns, adequacy of
deductions and impact of exempt-exempt tax system played an important role in
determining the effectiveness of Indian tax system. It was observed that most of the tax
consultants were satisfied with tax rates. However, majority showed dissatisfaction with

16
 regard to price level adjustment. It was also observed that most of the taxpayers consulted
tax experts because they found it cheap.

 Anil Kumar Jain and Parul Jain (2007): they studied the tax treatment of savings under
the Indian Income Tax Act,1961 during the period of study. They also analyzed and
studied the impact of a switch over from EEE (Exempt-Exempt-Exempt) to EET (Exempt-
Exempt-Taxable) would be desirable in the present economic scenario now a day in India.
The study opined that this temporary change had created uncertainty in the minds of
taxpayers and also in their investments. It was opined that tax incentives should be well
targeted for the savers as well as investors in the tax law. The study suggested that a
sudden switch over to EET system will further create the uncertainty in Income Tax Act of
India.
.
 Roa (2005): canvassed the structure and operation of Indian tax system. One of the most
important reasons for recent tax reforms in many developing and transitional economies
has been to evolve a tax system to meet the requirements of international competition (Rao
1992). The transition from a predominantly centrally planned development strategy to
market based resource allocation has changed the perspective of the role of the state in
development. The transition from a public sector based, heavy industry dominated, import
substituting industrialization strategy to one of allocating resources according to market
signals has necessitated systemic changes in the tax system. the author stunningly
concluded that some progressive tax reforms have helped to enhance tax GDP ratio.
.
 Bhalla [2004]: In his book “Tax rates, Tax Compliance and tax revenues: India 1988-
2004” glossed up the impact of structure of Income tax rates on compliance, and tax
revenue. The author related among consumption, distribution, per capita income, number
of tax payers, number of returns filled and tax revenues from the year 1988-2004. The
author also studied the elasticity of compliance and revenue. The paper concluded that the
tax cuts, tax reform, reduction in tax rates and removal of exemptions would lead to a
significant increase in direct tax revenues. The author also concerned about low levels of
compliance presently existent in India

17
 Mishra (1996): attempted to study the role of Income Tax in overall tax framework in
terms of its coverage, contribution to tax revenue and administration of the tax from 1960-
61 to 1993-94. The study revealed that income tax had a low tax base, which failed to
increase over years because of a number of exemptions, deductions, allowances as well as
tax avoidance and evasion practices. He suggested the introduction of agricultural income
tax, shifting to “family” as basic unit of assessment instead of “individuals” and
withdrawal of favorable tax treatment to firms.

 Das – Gupta, Arindam Radhika Lahiri and Dilip Mookherjee [1995]: In there
research paper Income tax Compliance in India: An Empirical Analysis observed that, the
tax revenues collected and tax compliance was significantly affected by tax structure
{Marginal tax rates and exemption limit}.

 Nahar (1994): tried to examine the impact of personal income tax on household savings
with special reference to salaried class in India. He studied income tax burden,
progressiveness of income tax and special incentive provisions for motivating savings
during the period 1970-71 to 1990-91. The study also highlighted that people shifted their
investment from currency and saving deposits to shares, debentures and provident funds
for availing benefit of incentive provisions. The author opined that the assesses covered by
different income groups had availed the benefit in same manner and all types of assesses
were psychologically attuned to tax incentives. Lastly, he suggested for simplification of
tax incentive provisions and rationalization of tax rate structure.

 Pawan K Agarwal (1991): This study focused on estimating the responsiveness of

personal income tax as a result of a change in inequality in the distribution of income. He
concluded that that an increase in tax inequality in the distribution of income among the
taxpayers increases yield of personal income tax in India. The estimated elasticity 1.17
will vary with the rise and fall of inequality during 1966-67 to 1983-84.

18
 A.B. ATKINSON (1976): The recent literature on optimal taxation may be seen as
attempting to clarify the structure of the arguments advanced to support changes in the tax
system, tracing the implications of taxes and quantifying (analytically) the trade-offs
between the various objectives of tax policy. This literature has examined the optimal
structure for particular types of taxation taken in isolation, such as the optimal rates of
excise tax and the optimal income tax schedule. Our purpose, on the other hand, is to
provide a broader framework and to consider the interaction between different kinds of
taxation. To illustrate this, we reexamine the age-old question of direct versus indirect
taxation and the relationship of these taxes to the goals of efficiency, vertical equity and
horizontal equity. After describing in section 2 the general framework of the analysis, and
arguing that any treatment of the choice of tax structures must be centrally concerned with
distributional considerations, we begin in section 3 with the extension of the classic
Ramsey formula for optimal excise taxation to include vertical equity objectives.

 Mahfooz Ahmed [1968]: In the article “Cost of tax collection in India”, Concluded that if
the cost of collecting taxes is the sole criterion for choosing between various taxes, then of
the major central taxes, customs duties and income tax and excise duties are preferable to
Income tax. Direct taxes are costlier to collect than Indirect tax.

 Manu Nandan and Dr. Gulab Singh: A country is authorized to impose or collect
taxation based on two principles: domicile and citizenship principle and source principle.
The domicile and citizenship principle is the base for worldwide income-based tax.
Income Tax Act was introduced in India by the British Empire in the month of February
1860. It was introduced through Income Tax Act number xxxi of 1860, which was passed
by the legislative council of India and received the assent of the Governor General on 24th
July 1860, (Priyabatra Panda et al, YEAR). Ever since then, income tax act has gone
through numerous changes within its structure and design. Numerous amendments have
been made from years to years to reach its present form of Income Tax Act 1961. In this
research paper we shall be making analytical review of direct taxation in India.

19
 CHAPTER III

BACKGROUND STUDY

20
 BACKGROUND STUDY

HISTORY OF TAX

It is a matter of general belief that taxes on income and wealth are of recent origin but
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. These were levied either on the sale and purchase of merchandise or
livestock and were collected in a haphazard manner from time to time. Nearly 2000 years ago,
there went out a decree from Ceaser Augustus that all the world should be taxed. In Greece,
Germany and Roman Empires, taxes were also levied sometime on the basis of turnover and
sometimes on occupations. For many centuries, revenue from taxes went to the Monarch. 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 and 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 India, the system of direct taxation as it is known today, has been in force in one form
or another even from ancient times. There are references both in Manu Smriti and Arthasastra
to a variety of tax measures. Manu, the ancient sage and law-giver stated that the king could
levy taxes, according to Sastras. 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 and stated that both extremes should be avoided namely either complete absence of
taxes or exorbitant taxation. According to him, the king should arrange the collection of taxes
in such a manner that the subjects 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. The
detailed analysis given by Manu on the subject clearly shows the existence of a well-planned
21
taxation system, even in ancient times. Not only this, taxes were also levied on various classes
of people like actors, dancers, singers and even dancing girls. Taxes were paid in the shape of
gold-coins, cattle, grains, raw-materials and also by rendering personal service. The learned
author K.B. Sarkar commends the system of taxation in ancient India in his book "Public
Finance in Ancient India"(1978 Edition) as follows:-

"Most of the taxes of Ancient India were highly productive. The admixture of direct taxes
with indirect Taxes secured elasticity in the tax system, although more emphasis was laid on
direct tax. The tax-structure was a broad based one and covered most people within its fold.
The taxes were varied and the large variety of taxes reflected the life of a large and composite
population".

However, it is Kautilya's Arthasastra, which deals with the system of taxation in a real
elaborate and planned manner. This well-known treatise on state crafts written sometime in
300 B.C., when the Mauryan Empire was as its glorious upwards move, is truly amazing, for
its deep study of the civilisation of that time and the suggestions given which should guide a
king in running the State in a most efficient and fruitful manner. A major portion of
Arthasastra is devoted by Kautilya to financial matters including financial administration.
According to famous statesman, the Mauryan system, so far as it applied to agriculture, was a
sort of state landlordism and the collection of land revenue formed an important source of
revenue to the State. The State not only collected a part of the agricultural produce which was
normally one sixth but also levied water rates, octroi duties, tolls and customs duties. Taxes
were also collected on forest produce as well as from mining of metals etc. Salt tax was an
important source of revenue and it was collected at the place of its extraction. 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 Dvarodaya which was
paid by the concerned businessman for the import of foreign goods. In addition, ferry fees of
all kinds were levied to augment the tax collection.

22
 Collection of Income-tax was well organized and it constituted a major part of the revenue of
the State. A big portion was collected in the form of income-tax from dancers, musicians, actors and
dancing girls, etc. This taxation was not progressive but proportional to the fluctuating income. An
excess Profits Tax was also collected. General Sales-tax was also levied on sales and the sale and the
purchase of buildings was also subject to tax. Even gambling operations were centralized 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 over-tax people
but to provide them as well as to the State and the King, immunity from external and internal danger.
The revenues collected in this manner were spent on social services such as laying of roads, setting
up of educational institutions, setting up of new villages and such other activities beneficial to the
community.

The reason why 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
depended upon the strength of its treasury. He states – "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". However, he regarded revenue and taxes as the earning of the sovereign
for the services which were to be rendered by him to the people and to afford them protection
and to maintain law and order. 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. According to him, tax
was not a compulsory contribution to be made by the subject to the State but the relationship
was based on Dharma and it was the King's sacred duty to protect its citizens in view of the
tax collected and if the King failed in his duty, the subject had a right to stop paying taxes, and
even to demand refund of the taxes paid.

Kautilya has also described in great detail 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 arbitratiness. Precision 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 advalorem basis. The
import duties on foreign goods were roughly 20 per cent of their value. Similarly, tolls, road
23
cess, ferry charges and other levies were all fixed. Kautilya's concept of taxation is more or
less akin to the modern system of taxation. His over all 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. The revenue collectors maintained up-to-date records of collection and
exemptions. The total revenue of the State was collected from a large number of sources as
enumerated above. There were also other sources like profits from Stand land (Sita) religious
taxes (Bali) and taxes paid in cash (Kara). Vanikpath was the income from roads and traffic
paid as tolls.

He placed land revenues and taxes on commerce under the head of tax revenues. These were
fixed taxes and included half yearly taxes like Bhadra, Padika, and Vasantika. Custom duties
and duties on sales, taxes on trade and professions and direct taxes comprised the taxes on
commerce. The non-tax revenues consisted of produce of sown lands, profits accuring from
the manufacture of oil, sugarcane and beverage by the State, and other transactions carried on
by the State. Commodities utilized on marriage occasions, the articles needed for sacrificial
ceremonies and special kinds of gifts were exempted from taxation. All kinds of liquor were
subject to a toll of 5 precent. Tax evaders and other offenders were fined to the tune of 600
panas.

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, it can be said without fear of contradiction that Kautilya's Arthasastra
was the first authoritative text on public finance, administration and the fiscal laws in this
country. His concept of tax revenue and the on-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.

24
 In 1860, income-tax was introduced by Sir James Wilson as an emergency measure
particularly to solve the economic crises of 1857. Beginning with a source of revenue
exclusively since 1860, it has maintained its sanctity. Thereafter, several amendments were
made in it from time to time. In 1886, a separate Income tax act was passed. especially in the
Indian tax management. This act remained in force up to, with various amendments from time
to time. In 1918, a new income tax was passed and again it was replaced by another new act
which was passed in 1922.This Act remained in force up to the assessment year 1961-62 with
numerous amendments. The Income Tax Act 1961 has been brought into force with 1 April
1962.It applies to the whole of India and Sikkim (including Jammu and Kashmir). Since 1962
several amendments of far-reaching nature have been made in the Income Tax Act by the
Union Budget every year. Currently, income-tax is one of those Union taxes in which States
have got increase. While immediately after independence, the net proceeds of taxes on income
other than corporation tax are distributed among States and the Finance Commission has
increased the share of states in this Union tax. To make the distribution meaningful and
commensurate with the requirements of the states, weight age to population for distribution of
divisible pool of income-tax amongst States has also been increased. The present scheme of
taxation of income operates through the Income Tax Act, 1961. After independence, structure
of direct taxation in India has undergone fundamental changes especially in accordance with
the recommendations of the Taxation Enquiry Commission (153-54) and Kaldor’s Report on
Indian reforms (1956). New taxes were introduced for strengthening and having an integrated
direct tax structure. However, even today income-tax is the most important of all the taxes in
India. Various types of taxes levied by the Governments are divided into two broad categories:
Direct and indirect taxes. Direct taxes are collected directly from the taxpayers through levies
such as income-tax, agricultural income-tax, professional tax, etc.

History of Taxation Post 1922

1. Preliminary:

The rapid changes in administration of direct taxes, during the last decades, reflect the history
of socio-economic thinking in India. From 1922 to the present-day changes in direct tax laws

25
have been so rapid that except in the bare outlines, the traces of the I.T. Act, 1922 can hardly
be seen in the 1961 Act as it stands amended to date. It was but natural, in these
circumstances, that the setup of the department should not only expand but undergo structural
changes as well.

2. Changes in administrative set up since the inception of the department:

The organizational history of the Income-tax Department starts in the year 1922. The Income-
tax Act, 1922, gave, for the first time, a specific nomenclature to various Income-tax
authorities. The foundation of a proper system of administration was thus laid. In 1924,
Central Board of Revenue Act constituted the Board as a statutory body with functional
responsibilities for the administration of the Income-tax Act. Commissioners of Income- tax
were appointed separately for each province and Assistant Commissioners and Income-tax
Officers were provided under their control. The amendments to the Income tax Act, in 1939,
made two vital structural changes: (i) appellate functions were separated from administrative
functions; a class of officers, known as Appellate Assistant Commissioners, thus came into
existence, and (ii) a central charge was created in Bombay. In 1940, with a view to exercising
effective control over the progress and inspection of the work of Income-tax Department
throughout India, the very first attached office of the Board, called Directorate of Inspection
(Income Tax) - was created. As a result of separation of executive and judicial functions, in
1941, the Appellate Tribunal came into existence. In the same year, a central charge was
created in Calcutta also.

2.1 World War II brought unusual profits to businessmen. During 1940 to 1947, Excess
Profits Tax and Business Profits Tax were introduced and their administration handed
over to the Department (These were later repealed in 1946 and 1949 respectively). In
1951, the 1st Voluntary Disclosure Scheme was brought in. It was during this period, in
1946, that a few Group 'A' officers were directly recruited. Later on in 1953, the Group
'A' Service was formally constituted as the 'Indian Revenue Service'.
2.2 This era was characterized by considerable emphasis on development of investigation
techniques. In 1947, Taxation on Income (Investigation) Commission was set up which
was declared ultra vires by the Supreme Court in 1956 but the necessity of deep
investigation had by then been realized. In 1952, the Directorate of Inspection

26
(Investigation) was set up. It was in this year that a new cadre known as Inspectors of
Income Tax was created. The increase in 'large income' cases necessitated checking of
the work done by departmental officers. Thus in 1954, the Internal Audit Scheme was
introduced in the Income-tax Department.
2.3 As indicated earlier, in 1946, for the first time a few Group A officers were recruited
in the department. Training them was important. The new recruits were sent to Bombay
and Calcutta where they were trained, though not in an organized manner. In 1957, I.R.S.
(Direct Taxes) Staff College started functioning in Nagpur. Today this attached office of
the Board functions under a Director-General. It is called the National Academy of
Direct Taxes. By 1963, the I.T. department, burdened with the administration of several
other Acts like W.T., G.T., E.D., etc., had expanded to such an extent that it was
considered necessary to put it under a separate Board. Consequently, the Central Board
of Revenue Act, 1963 was passed. The Central Board of Direct Taxes was constituted,
under this Act.
2.4 The developing nature of the economy of the country brought with it both steep rates
of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme was brought in
followed by the 1975 Disclosure Scheme. Finally, the need for a permanent settlement
mechanism resulted in the creation of the Settlement Commission.
2.5 A very important administrative change occurred during this period. The recovery of
arrears of tax which till 1970 was the function of State authorities was passed on to the
departmental officers. A whole new wing of Officers - Tax Recovery Officers was
created and a new cadre of post of Tax Recovery Commissioners was introduced w.e.f.
1-1-1972.
2.6 In order to improve the quality of work, in 1977, a new cadre known as IAC
(Assessment) and in 1978 another cadre known as CIT (Appeals) were created. The
Commissioners' cadre was further reorganized and five posts of Chief Commissioners
(Administration) were created in 1981.
2.7 Tax Reforms: Certain important policy and administrative reforms carried out over
the past few years are as follows: -

27
(a). The policy reforms include: -

 Lowering of rates;

 Withdrawals/reduction of major incentives;

 Introduction of measures for presumptive taxation;

 Simplification of tax laws, particularly relating to capital gains; and

 Widening the tax base.

(b). The administrative reforms include: --

 Computerization involving allotment of a unique identification number to tax payers

which is emerging as a unique business identification number; and

 Realignment of the available human resources with the changed business needs of the
organization.

2.8 Computerization: Computerisation in the Income-tax Department started with the

setting up of the Directorate of Income tax (Systems) in 1981. Initially computerisation
of processing of challans was taken up. For these 3 computer centers were first set up in
1984-85 in metropolitan cities using SN-73 systems. This was later extended to 33 major
cities by 1989. The computerized activities were subsequently extended to allotment of
PAN under the old series, allotment of TAN, and pay roll accounting. These computer
centers used batch process with dumb terminals for data entry.
In 1993 a Working Group was set up by the Government to recommend computerisation
of the department. Based on the report of the Working Group a comprehensive
computerisation plan was approved by the Government in October, 1993. In pursuance
of this, Regional Computer Centers were set up in Delhi, Mumbai, and Chennai in 1994-
95 with RS6000/59H Servers. PCs were first provided to officers in these cities in
phases. The Plan involved networking of all users on LAN/WAN. Network with leased
data circuits were accordingly set up in Delhi, Mumbai and Chennai in Phase-I during
1995-96. A National Computer Centre was set up at Delhi in 1996-97. Integrated
application software was developed and deployed during 1997-99. Thereafter, RS6000

28
 type mid-range servers were provided in the other 33 Computer Centers in various major
cities in 1996-97. These were connected to the National Computer Centre through leased
lines. PCs were provided to officers of different level up to ITOs in stages between 1997
and 1999. In phase II offices in 57 cities were brought on the network and linked to
RCCs and NCC.
2.9 Restructuring of the Income-tax department: The restructuring of the Income-tax
Department was approved by the Cabinet in its meeting held on 31-8-2000 to achieve the
following objectives: -

 Increase in effectiveness and productivityy;

 Increase in revenue collection;

 Improvement in services to tax payers;

 Reduction in expenditure by downsizing the workforce;

 Improved career prospects at all levels;

 Induction of information technology; and

 Standardization of work norms

The aforementioned objectives have been sought to be achieved by the department

through a multi-pronged strategy of:

 a. redesigning business processes through functionalization;

 b. increasing the number of officers to rationalize the span of control for better
supervision, control and management of workload and to improve tax-payer services and

 c. re-orient, retrain and redeploy the workforce with appropriate incentives in the form of
career advancement.

29
3. Important events affecting the administrative set up in the Income-tax department:

 1939

 Appellate functions separated from inspecting functions.

 A class of officers known as AACs came into existence.
 Jurisdiction of Commissioners of Income tax extended to certain classes of cases and
a central charge was created at Bombay.
 1940

 Directorate of Inspection (Income-tax) came into being.

 Excess Profits Tax introduced w.e.f. 1-9-1939.
 1941

 Income-tax Appellate Tribunal came into existence.

 central charge created at Calcutta.
 1943

 Special Investigation Branches set up.

 1946

 A few officers of Class-I directly recruited.

 Demonetization of high denomination notes made.
 Excess Profits Tax Act repealed.
 1947

 Business Profits Tax enacted (for the period 1-4-1946 to 31-3-1949).

 1951

 Report of Income-tax Investigation Commission known as Vardhachari Commission

received.
 Voluntary Disclosure Scheme introduced.
 1952

 Directorate of Inspection (Investigation) set up.

 Inspector of Income-tax declared as an I.T. authority.

30
 1953

 Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953.

 Act XXV of 1953 gave effect to the recommendations of Commission appointed
under Taxation of Income (Investigation Commission) Act, 1947.

 1954

 Internal Audit Scheme in the Income-tax Department introduced.

 Taxation Enquiry Commission known as John Mathai Commission set up.
 1957

 The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957.

 I.R.S.(DT) Staff College started functioning at Nagpur and much later four R.T.Is.
stationed at Bombay, Calcutta, Bangalore and Lucknow opened.
 1958

 LI>The Gift-tax Act, 1958 introduced w.e.f. 1-4-1958.

 Report of Law Commission received.
 1959

 Direct Taxes Administration Enquiry Committee submitted its report.

 1960

 Directorate of Inspection (Research, Statistics & Publications) was set up.

 Two grades of Inspectors - selection and ordinary grades - merged into one single
grade.
 1961

 Direct Taxes Advisory Committee set up - Direct Taxes Administrative Enquiry

Committee constituted.
 Income-tax Act, 1961 came into existence w.e.f. 1-4-1962.
 Revenue Audit introduced for the first time in the Department.
 New system for evaluation of work done by Income-tax Officers introduced.

31
 1963, 1964

 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.
 For the first time an officer from the department became Chairman of the CBDT
w.e.f. 1-1-1964.
 The Companies (Profits) Sur -tax Act, 1964 was introduced.
 Annuity Deposit Scheme, 1964 introduced.
 1965

 Voluntary Disclosure Scheme came into operation.

 1966

 Functional Scheme introduced.

 Special Recovery Unit created.
 Intelligence Wing created and placed under the charge of Directorate of Inspection
(Investigation).
 1968

 Valuation Cell came into existence in the Income tax Department.

 Report of rationalization and simplification of tax structure (Bhoothalingam
Committee) received.
 Administrative Reforms Commission set up.
 1969

 Direct Recruitment to Class II Income-tax Officers made.

 The post of IAC (Audit) created in the Income-tax Department.
 1970

 The posts of Addl. Commissioner of Income-tax created and abolished after one year.
 Recovery functions which were hitherto performed by Income- tax Officers, given to
Tax Recovery Officers. Prior to that State Government officials exercised the
functions of a Tax Recovery Officer.

32
 1971

 A new cadre of posts known as Tax Recovery Commissioners introduced w.e.f.

1.1.1972.
 Report of Direct Taxes Enquiry Committee received.
 Summary Assessment Scheme introduced w.e.f. 1-4-1971.
 1972

 A Special Cell within the Directorate of Inspection (Investigation) created to oversee

the cases of big industrial houses.
 A new cadre of posts known as IAC(Act.) created and IAC appointed as Competent
Authority with the insertion of new Chapter XXA in the Income Tax Act, 1961 on
the acquisition of immovable properties in certain cases of transfer to counter evasion
of tax.
 Directorate of Organization & Management Services (Income- tax) created.
 The post of I.T.O. (Internal Audit) created.
 Bradma Scheme in the Income-tax Department introduced.
 System of Permanent Account Number introduced.
 Valuation Officers given statutory powers under the Income-tax Act, 1961 and
Wealth-tax Act, 1957.
 1974

 Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced.

 Action Plan for the Income-tax Officers introduced for the first time.
 Concept of M.B.O introduced.
 1975

 Voluntary Disclosure Scheme for Income and Wealth implemented.

 Special Cell for dealing with Smugglers' cases created.

33
 1976

 Settlement Commission created and Taxation Laws (Amendment) Act,1975 inserted

a new Chapter XIXA in the Income Tax Act w.e.f.1-4-1976.
 Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
introduced w.e.f. 25-1-1976.
 A new scheme for departmentalization of accounts introduced.
 Chokshi Committee submitted its interim report.
 1977

 A new cadre of posts known as IAC (Assessment) created.

 1978

 Appellate functions given to a new cadre of Commissioners known as Commissioner

(Appeals).
 Directorate of Inspection (Recovery) set up.
 A new directorate known as Directorate of Inspection (Vigilance) came into
existence by bifurcating the functions of Directorate of Inspection (Investigation).
 Chokshi Committee submitted its final report.
 1979

 A new directorate designated as Directorate of Inspection (Publication & Public

Relations) created out of the Directorate of Inspection (RS&P).
 1980

 Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981.
 1981

 Economic Administrative Reforms Commission set up.

 Three new Directorates viz. Directorate of Inspection (Intelligence), Directorate of
Inspection (Survey) and Directorate of Inspection (Systems) created.
 Within the Directorate of Inspection (Income Tax and Audit), a separate Director of
Inspection (Audit) appointed.
 Directorate of Inspection (RS&P) re-organized and Directorate of Inspection (P&PR)
re-designated as Directorate of Inspection (Printing & Publications).

34
  I.R.S.(DT) Staff College, Nagpur, re-designated as National Academy of Direct
Taxes.
 Special Bearer Bonds (Immunities & Exemptions) Act promulgated.
 Director General (Special Investigation) and Director General (Investigation)
appointed to control the functioning of various Directorates under the control of
Central Board of Direct Taxes.
 Five posts of Chief Commissioner (Administration) created.
 A few posts of Commissioner of Income-tax were earmarked as Commissioner of
Income-tax (Inv.) and Commissioner of Income- tax (Recovery).

 1982

 Special Cell within the Directorate of Inspection (Investigation) converted into a

separate Directorate and re-designated as Directorate of Inspection (Special
Investigation).
 DIT (Systems) appointed in the Directorate of Income-tax (Organisation and
Management Services) to coordinate efforts in introducing electronic data processing
in the IT Deptt. A microprocessor based EDP system along with data entry system
was installed heralding the era of computerisation.
 Levy of Hotel Receipts Tax discontinued.
 Regional Training Institute at Nagpur started functioning under the control of the
National Academy of Direct Taxes.
 1983

 The vigilance set up reorganised and the strength of Dy. Director (Vigilance) and
Asstt. Director (Vigilance) augmented.
 Computerised systems for processing challans and PAN designed and developed.
 1984

 Taxation Laws (Amendment) Act 1984 passed to streamline procedures in the

interest of better work management; avoid inconvenience to tax payers; reduce
litigation; remove anomalies and rationalise some provisions.

35
 1985

 Post of Director General (Investigation) created for more effective checking of tax
evasion.
 E.D.(Amendment) Act 1985 discontinues levy of estate duty on deaths occurring on
or after 16.03.1985.
 Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinued w.e.f.
1.4.1985.
 Interest Tax Act, 1974 discontinued w.e.f. 31.3.1985
 A new "Reward Scheme" for motivating officers introduced w.e.f. 1.4.1985.
 1986

 The I.T. Act and W.T. Act amended by Taxation Laws (Amendment and
Miscellaneous Provisions) Act: -
 Established Settlement Commission.
 Introduced Block assets concept for depreciation.
 Four offices of Appropriate Authority for acquiring property in which unaccounted
money is invested set up in metropolitan cities.
 1987

 Government's approval obtained to set up three new benches of Settlement

Commission.
 L.K. Jha Committee set up for simplification and rationalisation of tax laws.
 Office of Directorate General (Tax Exemption) set up at Calcutta.
 The Direct Tax Law (Amendment) Act 1987 introduced uniform previous year
and redesignated the following authorities: -

 Director of Inspection
 Insp. Asstt. Commissioner of I. Tax
 Appellate. Asstt. Commissioner
 Income tax Officer Gr. A

36
  Income tax Officer Gr. B
 Director of Income Tax
 Dy. Commissioner of Income Tax.
 -Do- (Appeals)
 Asstt. Commissioner of I. Tax
 Income tax Officer
 Expenditure Tax Act 1987 brought into force.
 1988

 Benami Transactions Prohibition Act 1988 introduced.

 The Government announced a "Time Window Scheme" which allowed tax payers
50% rebate of interest u/s 220(2) if they pay the tax and balance interest. The scheme
was in operation between 1.7.88 to 30.9.88.
 CIT (Central) placed under the control and supervision of Director General
(Investigation).
 Government decided that cadre control for Group 'C' and 'D' posts would be with
Chief Commissioner and with CBDT for Group 'A' and 'B'posts.
 Extension of Direct Tax Law to the State of Sikkim by a notification of the President
of India dated 7.11.1988.
 1989

 Creation of an attached office of DGIT (Management Systems) to supervise

Directorate of I. Tax (Research, Statistics, Publication & Public Relations) and
Directorate of I. Tax (Organisation and Management Services) from Sept. 1989.
 1990

 Gift tax Bill introduced on 31.5.1990.

 Creation of 65 posts of Dy. Commissioner of I. Tax by upgradation of equal number
of posts of Asstt. Commissioner of I. Tax.
 1991

 Interest Tax Act, 1974 revived.

 Directorate of I. Tax (Systems) started reporting directly to Board.

37
 1992

 Rs. 1400 Presumptive Taxation scheme introduced as a measure to widen tax base.
 The post of Director General of Income-tax (Management Systems) was abolished.
 1993

 40 additional posts of Commissioner of Income-tax (Appeals) created.

 Authority for Advance Rulings set up.
 A comprehensive phased cadre review for Group B, C and D initiated.
 1994

 2068 additional posts in Group B, C and D sanctioned.

 New PAN introduced.
 Regional Computer Centres (RCCs) were set up in Chennai, Delhi and Mumbai.
 1995

 New procedure for search assessment introduced.

 50 years of training commemorated and "Seminar Twenty-Five" introduced by
National Academy of Direct Taxes.
 1996

 77 posts of Commissioners of Income-tax created.

 Infrastructure for operational needs strengthened.
 Study report on 4th cadre review of Group 'A' officers (IRS) of the Department
prepared by Directorate of Income Tax (Organisation and Management Services).
 1997

 Rates of Income-tax reduced significantly.

 Legal measures to widen tax base on certain economic indicators introduced in
selected cities.
 Presumptive tax scheme discontinued.
 Voluntary Disclosure Scheme 1997 introduced.
 Minimum Alternate Tax introduced.
 National Computer Centre (NCC) was set up in Delhi.

38
 1998

 Sec. 260A introduced enabling direct appeals to High Court.

 1/6 Scheme & penalty for non-filing of return introduced to widen tax base.
 Gift-tax abolished for gifts made after 1.10.1998.
 Kar Vivad Samadhan Scheme 1998 introduced.
 Silver Jubilee of Regional Training Institutes celebrated.
 Designation of Asstt. Commissioner (Senior Time Scale) changed to Dy.
Commissioner and that of Dy. Commissioner (Junior Administrative Grade) to Joint
Commissioner.
 1999

 Furnishing details of bank account and credit cards in the prescribed form made
mandatory for refund purpose.
 Prima-facie adjustments to return done away with; acknowledgments to serve as
intimations.
 Samman Scheme introduced in 1999 to honour deserving tax payers.
 2000

 The process of implementation of restructuring of the Department commenced to

increase efficiency and to deal with increased workload.
 Total sanctioned work force reduced from 61,031 to 58,315.
 Certain rationalisation measures at structural levels introduced.
 Interest-tax Act terminated with effect from 1-4-2000.
 2001

 The restructuring of the Department resulted in reducing the stagnation at all levels
and large number of personnel were promoted in various grades.
 Jurisdiction pattern was revamped.
 New posts were created at the level of DGIT/DIT in the areas of Research,
International Taxation and Infrastructure.

39
 2002

 Computerised processing of returns all over the country introduced.

 Kelkar Committee Report, inter alia, recommended:-
i. Outsourcing of non-core functions of the department ;
ii. Reduction in exemptions, deductions, reliefs, rebates etc.
 The National Website of the Income Tax Department (www.incometaxindia.gov.in)
was launched to provide a vital interface between the Department and taxpayers.
 2003

 The National Website of the Department (www.incometaxindia.gov.in) won the

Silver Medal in the category of the 'Government Websites ‘under the National e-
Governance Awards.
 2004

 As a measure of widening of tax base, the concept of AIR (Annual Information

Return) was introduced.
 Fringe Benefit Tax (FBT) was introduced as a major step towards widening of tax
base and bolstering of the Direct Tax Collection.
 Securities Transaction Tax (STT) was introduced.
 2005

 Tonnage Tax was introduced for the Shipping Companies.

 Banking Cash Transaction Tax (BCTT) was introduced w.e.f. 01-06-2005.
 2006

 A project for enabling electronic filing (e-filing) of Income Tax Returns was
launched.
 Tax Return Preparer Scheme (TRPS) was launched to assist individuals and HUF
taxpayers to file their Return of Income.
 The institution of Income Tax Ombudsman set up in 12 cities throughout the country
to look into tax related grievances of the common public.

40
 2007

 The Refund Banker Scheme was launched in Delhi and Patna charges.
 Sevottam Scheme was launched to standardize service delivery to the taxpayers.
 The first citizen-friendly single window Aayakar Seva Kendra (ASK)was setup, for
centralized receipt and registration of specified categories of documents, including
income tax returns.
 The Income Tax Department became the biggest revenue mobiliser for the
Government in 2007-08, with its share increasing from 34.76%in 1997-98 to
52.75%in 2007-08.
 All India Tax Network (TAXNET) was setup connecting more than 700 offices in
more than 500 cities. Consolidation of 36 (RCC) independent regional databases into
a single centralized database (PDC or Primary Data Centre) was carried out.
 Integrated Taxpayer Data Management System (ITDMS) for drawing of 360°
taxpayer profile was launched.
 2008

 Cyber Forensic Labs were setup to identify relevant digital data during search and
survey operations, recover hidden or password protected or deleted data and store
retrieved data in a manner so that it could be used as evidence in judicial
proceedings.
 Electronic filing of Income Tax Returns Project was awarded Silver Award in the
category "Outstanding Performance in Citizen Centric Service Delivery" under the
National e-Governance Awards for the year 2007-08.
 2009

 Centralized Processing Centre was setup in Bengaluru for bulk processing of e-filed
and paper returns. The Centre operates without any interface with taxpayers in a
jurisdiction – free manner.
 2010

 Integrated Tax Payer Data Management System (ITDMS) was conferred the Prime
Minister's Award for 'Excellence in Governance and Administration'.

41
  CPC Bengaluru awarded the Gold Award for 'Excellence in Government Process Re-
engineering' under the National e-Governance Awards for the year 2010-2011.
 To simplify the 50 years old Income-tax Act, 1961,'The Direct Taxes Code Bill,
2010' was introduced in the Parliament.
 2011

 Foreign Tax Division of CBDT was strengthened to effectively handle the increase in
tax information exchange and transfer pricing issues.
 Various IT initiatives were taken for efficient tax administration. These include e-
filing and e-payment of taxes, adoption of 'Sevottam' concept by CBEC and CBDT,
web-based facility for tax payers to track the resolution of refunds and credit for pre-
paid taxes and augmentation of processing capacity.
 A new simplified form 'Sugam' was introduced to reduce the compliance burden of
small tax payers falling within presumptive taxation.
 2012

 Senior Citizens (not having any income from business/profession), were exempted
from payment of advance tax.
 TRACES (TDS Reconciliation, Accounting and Correction Enabling System)
launched to serve an integrated one-stop platform for the stakeholders to facilitate the
services related to TDS operations.
 2013

 The Government approved the Cadre restructuring of the Department for the creation
of 20,751 additional posts and for carrying out various measures to increase the
effectiveness of the Department.
 Briefly, the salient features of the approved restructuring are as under:
 a. Number of assessment units (AUs) increased by 1080 from 3420 to 4500, for
strengthening the tax-administration;
 b. Each Range to have one more Assessing Officer;
 c. Increase in the number` of Administrative CsIT deployed on assessment
related functions to increase from 228 to 250;
 d. 114 Special Ranges to be created, with adequate supporting manpower;

42
  e. Creation of reserves numbering 620 created in the IRS cadre;
 f. Bifurcation of the posts of the CITs in the HAG and SAG scales, on functional
basis;
 g. Upgradation of all existing 116 posts of CCsIT in HAG+ and Apex scales
along with an increase of their number by 1 post;
 h. Strengthening of the training set-up with creation of three more RTIs;
 i. Strengthening the Appellate/Advocacy Structure by increasing the number of
CIT Appeals and providing them supporting manpower. Advocacy structure in
the ITAT to be strengthened.
 2014

 New National Website of the Income Tax Department www.incometaxindia.gov.in

launched with enhanced new features and content.
 SIT to investigate Black Money in Swiss Bank Accounts formed.
 Tax Administrative Reforms Commission (TARC) headed by Dr. Parthasarathi
Shome submitted its report of reviewing the applicability of tax policies and tax laws
in the context of global best practices and recommending measures for reforms
required in tax administration to enhance its effectiveness and efficiency.

what is income tax?

Annual charge levied on both earned income (wages, salaries, commission) and unearned
income (dividends, interest, rents). In addition to financing a government's operations,
progressive income taxation is designed to distribute wealth more evenly in a population and
to serve as automatic fiscal stabilizer to cushion the effects of economic cycles. Its two basic
types are (1) Personal income tax, levied on incomes of individuals, households, partnerships,
and sole-proprietorships; and (2) Corporation income tax, levied on profits (net earnings) of
incorporated firms. However, presence of tax loopholes (whose number increases in direct
proportion to the complexity of tax code) may allow some wealthy persons to escape higher
taxes without violating the letter of the tax laws.

As per the income tax act 1961, assesses income is divided into 5 categories:

43
> Income from Salary

> Income from House Property

> Income from Profits and Gains of Profession or Business

> Income from Capital Gain

> Income from Other Sources

Components for Calculating Income

Tax

A few key components should be remembered when calculating income taxes. Here’s a list of
these key components:

Financial Year (FY) -The year in which money is earned is referred to as the financial year. It
is the time period from April 1st of this year to March 31st of the next year. You must prepare
all of your investment proofs and gather all of your documentation throughout this time.

For example – FY 2022-23 is period between 1st April 2022 to 31st March 2023

Assessment Year (AY) – A year in which your income from a particular financial year will be
assessed is called an assessment year.

For example – AY 2023-24 is the year when your income from 1 st April 2022 to 31st March
2023 will be calculated.

Tax Deductions – They allows you to reduce your total taxable income as per the Section 80
under the Chapter VI-A of Income Tax Act.

For example – As per tax provisions under Section 80C of Chapter VIA you can claim tax
deduction of up to ₹ 1,50,000 on premiums paid for life insurance policies, other investments
prescribed under Chapter VI. This is one of the most-opted ways of saving tax.

44
Tax Exemption – Exemption means exclusion, i.e., if certain income is exempt from tax, then
it will not contribute to the total income of a person. The exempted income is not considered
as a part of total income, the whole amount is an exemption for the taxpayer. Some of the
exemptions are as follows:

Salary Income Exemptions, Allowances and Deductions

Leave travel concession as contained in clause (5) of section 10;

House rent allowance as contained in clause (13A) of section 10;

Some of the allowance as contained in clause (14) of section 10;

Death-cum-retirement gratuity received by Government servants [Section 10(10)(i)]

Standard deduction, the deduction for entertainment allowance and employment/ professional
tax as contained in section 16;

Rental Income from House Property Deductions:

Interest paid on home loan under section 24. Deduction against interest on home loan is
applicable in respect of self-occupied or vacant property.

In any assessment year, if there is a loss under the head “Income from house property”, such
loss will first be set-off against income from any other head to the extent of ₹2,00,000 during
the same year. The unabsorbed loss will be carried forward to the following assessment year
and this carry forward loss cannot be set -off from any other head except income under the
head “Income from house property”. Such loss shall be carry forward for 8 years.

Deduction From Business or Profession Income

Expense incurred in relation to running such business or profession

Depreciation on assets, and additional depreciation on such assets.

Deduction for donation for or expenditure on scientific research

Rent, Rates, Taxes, Repairs, and Insurance of building

45
Any bonus or commission paid to the employees

A contribution made to the employees recognized provident fund or approved superannuation

fund or approved gratuity fund.

TDS – TDS stands for tax deducted at source. As per the Income Tax Act, a person (diductor)
who is required to make a payment of a specific nature to another person (deducted) must
deduct tax at source and send it to the Central Government’s account. Tax is required to be
deducted at source by the payer at the rate as prescribed under the Income Tax Act, 1961.
TDS will be deducted at the time of accrual or payment of such income to the payee,
whichever is earlier. However, if you are an “individual” or a “Hindu Undivided Family”
(HUF), whose total revenue from the business or professional carried on by him does not
exceed one crore rupees in case of business, or fifty lakh rupees in case of profession during
the Financial Year immediately preceding the current financial year, no TDS is required to be
deducted at source.

Salary Breakup – Understanding your salary breakup is the first step toward calculating the
income tax on your salary. The salary breakdown can be found on the pay slip or salary
statement.

You may understand the main components and basic structure of your compensation by
closely studying the slip or statement.

Taxable Income = Total Income (Sum of all Your Earnings) – Eligible Deductions

You must determine your taxable income after you have the breakdown of your salary. The
term “taxable income” refers to any sources of income other than your salary on which you
must pay taxes

Income Source Description

Income from Salary

An Income can be taxed under head Salaries if there is a relationship of an employer and
employee between the payer and the payee. If this relationship does not exist, then the income
would not be deemed to be income from salary. “Salary” for the purposes of Income-tax Act,

46
1961 will include both monetary payments (e.g., basic salary, bonus, commission, allowances
etc.) as well as non-monetary facilities (e.g., housing accommodation, medical facility,
interest free loans etc.).

Income from House Property

Any amount of money that is received by the landlord from tenant for using the property is
called rental income. Here, property refers to any building including house, office building,
warehouse etc. And any land attached to the building like compound, garage, car parking
space etc. Different types of house property (like rental or self-occupied property) are taxed
differently.

Income from Business/Profession

Any income shown in profit and loss account after taking into account all the allowed
expenditures by an assesses. The income also includes both positive (profit) and negative
incomes. Here is a list of the income chargeable under the head:

Profits earned by the assesses 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

47
Any profits or gains arising from the transfer of a capital asset effected in the previous year
will be chargeable to income-tax under the head ‘Capital Gains’. Such capital gains will be
deemed to be the income of the previous year in which the transfer took place.

Income from other Sources

Any income that is not eligible for tax under any other head of income and cannot be excluded
from the total income is taxed as residual income under the head “Income from Other
Sources”. The following three conditions must be satisfied according to Section 56 of the
Income Tax Act for an income to qualify as income from other sources.

Income is generated.

Any other provision of the Income Tax Act does not exempt such income.

Income from such sources cannot be claimed as salary, house property income, profits and
gains from business or profession, or capital gains.

Types

Corporate Tax:

The income tax a company pays from its revenue earned by it is called a corporate tax. The
corporate tax also has a slab of its own, which decides the amount of tax to be paid. The
company’s income is treated separately from the shareholder’s dividend under the corporate
tax and is levied on domestic companies as well as foreign companies

Domestic Corporates

Any company registered under the Companies Act 1956 is treated as domestic corporation.
Corporate Tax Rate for Domestic Companies The tax rate is as per the assessment year 2021-
2022

Foreign Corporates

Any company not of Indian origin is considered to be a foreign

company. Minimum Alternate Tax:

48
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 15%. This type of tax
came into existence when Section 115JA of the IT Act was introduced. Nevertheless, the
companies that are involved in power sectors and infrastructure are exempted from making
payments 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.

49
 CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

50
 Actual figures based on internal reporting/ MIS of the Income Tax Department or
figures reported by Controller General of Accounts or data published by other Government
agencies, as the case may be.
1.1 Direct Tax Collection of pasts

(Rs. crore)

Financial Personal Income Other Direct

Corporate Tax Total
Year Tax@ Taxes
2000-01 35,696 31,764 845 68,305

2001-02 36,609 32,004 585 69,198

2002-03 46,172 36,866 50 83,088

2003-04 63,562 41,386 140 1,05,088

2004-05 82,680 49,268 823 1,32,771

2005-06 1,01,277 63,689 250 1,65,216

2006-07 1,44,318 85,623 240 2,30,181

2007-08 1,93,561 1,20,429 340 3,14,330

2008-09 2,13,395 1,20,034 389 3,33,818

2009-10 2,44,725 1,32,833 505 3,78,063

2010-11 2,98,688 1,46,258 1,049 4,45,995

2011-12 3,22,816 1,70,181 990 4,93,987

2012-13 3,56,326 2,01,840 823 5,58,989

2013-14 3,94,678 2,42,888 1,030 6,38,596

2014-15 4,28,925 2,65,772 1,095 6,95,792

2015-16 4,53,228 2,87,637 1,079 7,41,945

2016-17 4,84,924 3,49,503 15,286 8,49,713

51
2017-18* 5,71,202 4,20,084 11,452 10,02,738

2018-19* 6,63,572 4,73,179 967 11,37,718

2019-20* 5,56,876 4,92,717 1,088 10,50,681

2020-21* 4,57,719 4,87,560 1,897 9,47,176

2021-22* 7,12,037 6,96,604 3,781 14,12,422

Source: Union Finance Accounts of respective years and reports of C&AG/Receipt Budget
upto 2016-17. *Pr.CCA, CBDT. @ Figures under Personal Income Tax include collections
of Securities Transaction Tax also

Corporate Tax
2020-21*
2018-19*
2016-17
2014-15
2012-13
2010-11
2008-09

Corporate Tax

2006-07
2004-05
2002-03
2000-01

0 1,00,000 2,00,000 3,00,000 4,00,000 5,00,000 6,00,000 7,00,000 8,00,000

52
 Personal Income Tax
2020-21*
2018-19*
2016-17
2014-15
2012-13
2010-11
2008-09
2006-07 Personal Income Tax
2004-05
2002-03
2000-01

0100000 200000 300000 400000 500000 600000 700000 800000

Other Direct Taxes

2020-21*
2018-19*
2016-17
2014-15
2012-13
2010-11
2008-09
2006-07 Other Direct Taxes
2004-05
2002-03
2000-01

05000100001500020000

Total collection: Look at the total amount of direct taxes collected each year it is
gradually increasing year by year as we see the last 22 years of data of direct tax we can know
that direct tax has a huge impact on tax revenue in the financial year 2001-02 it was just 68
thousand crores but now it has increased to 11 lakhs crores in the previous year it has
increasing rapidly and helping government to run better every year.

53
Type of tax: Different types of direct taxes include income tax, corporate tax, and other direct
taxes Analyzing the collection of each type of tax can give insights into which areas of the
economy are performing well and which are struggling as per the data the corporate tax
playing a major role in direct tax as the corporate tax percentage is high.

Contribution of Direct Taxes to Total Tax Revenue

Financial Year Direct Taxes* Indirect Taxes** Total Taxes Direct Tax As %
Of
(Rs. crore) (Rs. crore) (Rs. crore)
Total Taxes
2000-01 68,305 1,19,814 1,88,119 36.31%

2001-02 69,198 1,17,318 1,86,516 37.10%

2002-03 83,088 1,32,608 2,15,696 38.52%

2003-04 1,05,088 1,48,608 2,53,696 41.42%

2004-05 1,32,771 1,70,936 3,03,707 43.72%

2005-06 1,65,216 1,99,348 3,64,564 45.32%

2006-07 2,30,181 2,41,538 4,71,719 48.80%

2007-08 3,14,330 2,79,031 5,93,361 52.97%

2008-09 3,33,818 2,69,433 6,03,251 55.34%

2009-10 3,78,063 2,43,939 6,22,002 60.78%

2010-11 4,45,995 3,43,716 7,89,711 56.48%

2011-12 4,93,987 3,90,953 8,84,940 55.82%

2012-13 5,58,989 4,72,915 10,31,904 54.17%

2013-14 6,38,596 4,95,347 11,33,943 56.32%

54
2014-15 6,95,792 5,43,215 12,39,007 56.16%

2015-16 7,41,945 7,11,885 14,54,180 51.03%

2016-17 8,49,713 8,61,515 17,11,228 49.65%

2017-18 10,02,738 9,15,256 19,17,994 52.28%

2018-19 11,37,718 `9,37,322 20,75,040 54.83%

2019-20 10,50,681 9,53,513 20,04,194 52.42%

2020-21 9,47,176 10,74,809 20,21,985 46.84%

2021-22 14,12,422 12,89,662 27,02,084 52.27%

contribution of direct tax in % of total revenue

2021-22
2019-20
2017-18
2015-16
2013-14
2011-12
2009-10 contribution of direct tax in % of
2007-08 total revenue
2005-06
2003-04
2001-02

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

55
 DIRECT -TAX GDP RATIO
Net
Collection of GDP Current GDP
Financial Direct Tax Tax Growth Buoyancy
Direct Taxes Market Price Growth
year GDP Ratio Rate Factor
(Rs. Crore) (Rs. Crore) Rate

2000-01 68,305 21,02,376 3.25% 7.7% 17.85% 2.32

2001-02 69,198 22,81,058 3.03% 8.5% 1.31% 0.15

2002-03 83,088 24,58,084 3.38% 7.76% 20.07% 2.59

2003-04 1,05,088 27,54,621 3.81% 12.06% 26.48% 2.19

2004-05 1,32,771 32,42,209 4.1% 17.7% 26.34% 1.49

2005-06 1,65,216 36,93,369 4.47% 13.92% 24.44% 1.76

2006-07 2,30,181 42,94,706 5.36% 16.28% 39.32% 2.42

2007-08 3,14,330 49,87,090 6.3% 16.12% 35.56% 2.27

2008-09 3,33,818 56,30,063 5.93% 12.89% 6.20% 0.48

2009-10 3,78,063 64,57,352 5.85% 14.69% 13.25% 0.90

2010-11 4,45,995 76,74,148 5.81% 18.84% 17.97% 0.95

2011-12 4,93,987 90,09,722 5.48% 17.4% 10.76% 0.62

2012-13 5,58,989 1,01,13,281 5.53% 12.25% 13.16% 1.07

2013-14 6,38,596 1,13,55,073 12.28% 14.24% 1.16

5.62%
2014-15 6,95,792 1,25,41,208 5.55% 10.45% 8.96% 0.86

2015-16 7,41,945 1,35,67,192 5.47% 8.25% 6.63% 0.80

2016-17 8,49,713 1,53,62,386 5.53% 13.23% 14.53% 1.10

2017-18 10,02,738 1,70,98,304 5.86% 11.30% 18.00% 1.59

2018-19 11,37,718 6.02% 10.46% 13.46% 1.29

56
 1,88,86,957
2019-20 10,50,681 2,00,74,856 5.23% 6.29% -7.65% -1.21

2020-21 9,47,176 1,98,00,914 4.78% -1.36% -9.85% _ _**

2021-22 14,12,422 2,36,64,637 5.97% 19.51% 49.12% 2.52

Cost of Collection

Financial Year Total Collections Total Cost of Collection

Expenditure*
(Rs. Crore)
(Rs. Crore)

2000-01 68,305 929 1.36%

2001-02 69,198 933 1.35%

2002-03 83,088 984 1.18%

2003-04 1,05,088 1,050 1.00%

2004-05 1,32,771 1,138 0.86%

2005-06 1,65,216 1,194 0.72%

2006-07 2,30,181 1,349 0.59%

2007-08 3,14,330 1,687 0.54%

2008-09 3,33,818 2,248 0.67%

2009-10 3,78,063 2,726 0.72%

57
2010-11 4,45,995 2,698 0.60%

2011-12 4,93,987 2,976 0.60%

2012-13 5,58,989 3,283 0.59%

2013-14 6,38,596 3,641 0.57%

2014-15 6,95,792 4,101 0.59%

2015-16 7,41,945 4,593 0.61%

2016-17 8,49,713 5,578 0.66%

2017-18 10,02,738 6,087 0.61%

2018-19 11,37,718 7,074 0.62%

2019-20 10,50,681 6,952 0.66%

2020-21 9,47,176 7,223 0.76%

2021-22 14,12,422 7,479 0.53%

Cost of Collection
1.40%
1.20%
1.00%
0.80%
0.60%
0.40% Cost of Collection
0.20%
0.00%
2000-

2002-

2004-

2006-

2008-

2010-
01

03

05

07

09

11

58
 CHAPTER V
FINDINGS AND SUGGESTIONS

59
OVER VIEW OF THE PROJECT

The study of direct tax system involves an analysis of the taxation system that is levied on
the income and assets of individuals and corporations. Direct taxes are different from indirect
taxes, which are levied on goods and services.

The main objective of the direct tax system is to generate revenue for the government to fund
public goods and services. The direct tax system is also used to promote equity and fairness in
society, by ensuring that those who earn higher incomes and own more assets pay a higher
share of taxes.

A study of the direct tax system would involve an examination of the different types of direct
taxes, such as income tax, corporate tax, wealth tax, and capital gains tax. It would also
involve an analysis of the tax rates, exemptions, and deductions that are applied to different
income and asset categories.

Other important aspects that would be covered in a study of the direct tax system include the
administration of the tax system, including tax collection and enforcement measures, as well
as the impact of the tax system on the economy and society. This could involve examining the
effects of tax policy on economic growth, income distribution, and poverty reduction.

Overall, a study of the direct tax system is important for understanding the role of taxation in
society and the ways in which tax policy can be used to achieve social and economic
objectives.

60
IMPLICATIONS

A study of the direct tax system has several implications that are relevant for policymakers,
tax authorities, and taxpayers. Firstly, it can help improve tax policy by identifying areas
where the tax system can be improved. This may involve examining tax rates, exemptions,
and deductions to identify areas where tax policy may be distorting economic incentives or
creating unintended consequences. Secondly, it can enhance tax administration by helping tax
authorities identify areas where tax collection and enforcement can be improved. Thirdly, a
study of the direct tax system can promote tax compliance among taxpayers, as increasing
transparency and fairness in the tax system can make taxpayers more willing to comply with
tax laws and regulations. Fourthly, it can help reduce tax evasion by identifying areas where
tax evasion may be occurring and developing more effective enforcement measures to reduce
its incidence. Finally, a study of the direct tax system can help address inequities in the tax
system by analyzing the distributional impact of tax policies and developing measures to
ensure that the tax system is fair and equitable. Overall, the study of the direct tax system is
important for understanding the role of taxation in society and the ways in which tax policy
can be used to achieve social and economic objectives.

61
RECOMMENDATIONS

Based on the implications of studying the direct tax system, here are some
recommendations:

Increase Transparency: Tax authorities should strive to increase transparency in the tax system
by providing taxpayers with clear and easy-to-understand information on tax rates,
exemptions, and deductions. This can help promote tax compliance and reduce the incidence
of tax evasion.

Simplify Tax Laws: Policymakers should aim to simplify tax laws and regulations to make it
easier for taxpayers to comply with them. This may involve reducing the number of tax
brackets, simplifying the tax code, and reducing the number of exemptions and deductions.

Strengthen Tax Administration: Tax authorities should invest in improving tax administration
by increasing the use of technology, improving data collection and analysis, and providing
better training to tax officials. This can help improve tax collection and reduce the incidence
of tax evasion.

Evaluate the Impact of Tax Policies: Policymakers should regularly evaluate the impact of tax
policies to determine their effectiveness and identify areas where improvements can be made.
This can involve analyzing the distributional impact of tax policies, assessing their impact on
economic growth and investment, and evaluating the effectiveness of tax incentives.

Address Inequities: Policymakers should strive to address inequities in the tax system by
developing policies that promote fairness and reduce inequality. This may involve
implementing progressive tax policies, increasing the tax burden on high-income earners, and
providing targeted tax relief to low-income earners.

Overall, a study of the direct tax system can help policymakers and tax authorities identify
areas where improvements can be made to promote tax compliance, reduce tax evasion, and
achieve social and economic objectives. By implementing these recommendations, tax
authorities can develop a tax system that is fair, transparent, and effective.

62
SCOPE OF FURTHER RESEARCH

While the study of the direct tax system has provided valuable insights into the functioning
of tax policies, there is still scope for further research. Here are some areas where further
research can be undertaken:

Impact of Tax Policies on Economic Growth: Future research can examine the impact of tax
policies on economic growth, particularly in developing countries. This can involve analyzing
the relationship between tax rates and investment, innovation, and entrepreneurship.

Analysis of Tax Evasion: Future research can analyze the determinants of tax evasion,
including the role of tax morale, tax complexity, and enforcement. This can help develop more
effective strategies to reduce tax evasion and improve tax collection.

Comparative Analysis of Tax Systems: Future research can undertake comparative analysis of
tax systems in different countries, examining their strengths and weaknesses. This can help
identify best practices in tax policy and administration that can be applied to other countries.

Taxation of Digital Economy: With the increasing importance of the digital economy, future
research can examine the challenges and opportunities for taxation of digital platforms and
online transactions. This can involve developing new tax policies that reflect the changing
nature of the economy.

Behavioral Economics and Taxation: Future research can incorporate insights from behavioral
economics to understand the factors that influence tax compliance and behavior. This can help
design tax policies that are more effective in promoting tax compliance.

Overall, further research on the direct tax system can help policymakers and tax authorities
develop more effective tax policies and administration strategies that promote economic
growth, fairness, and compliance.

63
FINDINGS

From the collected data we found that there is a rapid growth in corporate tax from the past 20
years especially from the FY 2017-18 to 2018-19 and then it deceased gradually in the FY
2019-20 this might be because of covid.

Look at the total amount of personal income tax collected each year it is gradually
increasing year by year as we see the last 20 years of data of direct tax we can know that
direct tax has a huge impact on tax revenue in the financial year 2001-02 it was just 68
thousand crores but now it has increased to 11 lakhs crores in the previous year it has
increasing rapidly and helping government to run better every year.

The provisional figures for direct tax collections up to March 2017 show that net collections
are at Rs. 8.47 lakh crore which is 14.2% more than the net collections for the corresponding
period last year, which is a major increase compared to the growth rate of the previous
financial year,” the official statement said. “Net direct tax collections stand at Rs 8.47 lakh
crore which shows 100% achievement for financial year 2016-17.”

“Refunds amounting to Rs.1.62 lakh crore have been issued during April 2016-March 2017,
which is 32.6% higher than the refunds issued during FY 2015-16,” the statement added.

“Corporate tax revenue being low characterises the economic slowdown, and customs revenue
shows low import growth particularly even of the petroleum products,” Mr Srivastava added.
“They indicate weakness in the economy. Their lack of performance has been made up by
personal income tax and service tax. Personal income tax has increased largely due to
demonetisation and the two income disclosure schemes.

Within indirect tax, net excise collections at Rs 3.83 lakh crore grew 33.9% over the previous
year. Net service tax collections grew 20.2% to Rs 2.54 lakh crore. Net customs duty
collections grew 7.4% to Rs 2.26 lakh crore

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SUGGETIONS

 Assessment of the Effectiveness of Direct Taxation in India: This project can focus on
evaluating the effectiveness of the direct tax system in India in terms of its ability to
generate revenue and distribute the tax burden equitably among taxpayers. The project
can
also explore the efficiency of the tax administration and compliance mechanism.

 Study of the Impact of Tax Reforms on Direct Taxation in India: This project can
examine the impact of various tax reforms introduced in India over the years on the direct
tax system. It can analyze the effectiveness of these reforms in achieving their objectives
and
suggest further reforms that can improve the tax system's efficiency and equity.

 Study of the Taxation of High-Net-Worth Individuals in India: This project can explore
the taxation of high-net-worth individuals in India and its implications for the tax system's
equity and efficiency. It can analyze the tax rates, exemptions, and incentives available
to high-net-worth individuals and suggest measures to improve the taxation of this group.

 Comparative Analysis of the Direct Tax System of Indian States: This project can
compare the direct tax systems of different Indian states and analyze their effectiveness in
generating revenue and distributing the tax burden equitably among taxpayers. It can also
examine the efficiency of tax administration and compliance mechanisms in different
states.

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CONCLUSIONS

In conclusion, the study of the direct tax system is essential for understanding the role of
taxation in society and the economy. A study of the direct tax system can help identify areas
where the tax system can be improved, promote tax compliance, reduce tax evasion, and
address inequities in the tax system. The recommendations derived from the study of the
direct tax system include increasing transparency, simplifying tax laws, strengthening tax
administration, evaluating the impact of tax policies, and addressing inequities in the tax
system. Furthermore, there is still scope for further research in areas such as the impact of tax
policies on economic growth, analysis of tax evasion, comparative analysis of tax systems,
taxation of the digital economy, and behavioral economics and taxation. By implementing the
recommendations derived from the study of the direct tax system and undertaking further
research, tax authorities and policymakers can develop a tax system that is fair, transparent,
and effective in achieving social and economic objectives.

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BIBILOGRHAPHY

1. Tax Foundation: This website provides research and analysis on tax policies,
including direct and indirect taxes, at the federal, state, and local levels.
https://taxfoundation.org/
2. Internal Revenue Service (IRS): This is the official website of the United States
federal government agency responsible for collecting taxes. It provides information
on various types of taxes, including direct taxes such as income tax and indirect taxes
such as excise tax. https://www.irs.gov/
3. Investopedia: This website provides articles and guides on various financial topics,
including direct and indirect taxes. It also offers a glossary of financial terms related to
taxes. https://www.investopedia.com/terms/t/tax.asp
4. Tax Policy Centre: This is a joint venture between the Urban Institute and Brookings
Institution that provides analysis and research on tax policies in the United States. It
includes information on both direct and indirect taxes.
https://www.taxpolicycenter.org/
5. National Bureau of Economic Research (NBER): This website provides research
and analysis on various economic issues, including taxation. It includes articles and
working papers on direct and indirect taxes.
https://www.nber.org/research/subject/taxation
6. KPMG: This is a professional services firm that provides tax and advisory
services. Its website includes articles and insights on various tax topics, including
direct and indirect taxes. https://home.kpmg/xx/en/home/services/tax.html
7. PWC: This is another professional services firm that provides tax and advisory
services. Its website includes articles and insights on various tax topics, including
direct and indirect taxes. https://www.pwc.com/gx/en/services/tax.html .

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