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INTERNAL ASSIGNMENT

PRINCIPAL OF TAXATION LAW

SUBMITTED TO:

Ms. STUTI TIWARI

(ASSISTANT PROFESSOR)

IUD

SUBMITTED BY:

UTKARSH DIXIT

16FLICDDD01088

B.BA-L.LB (Hons.)

SECTION-B

BATCH: (2016 – 2021)

DATE OF SUBMISSION: 27/11/2020

ICFAI LAW SCHOOL,

THE ICFAI UNIVERSITY, DEHRADUN

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QUESTION
“Indian taxation system has undergone tremendous reforms during the last decade. The tax rates
have been rationalized and tax laws have been simplified resulting in better compliance, ease
of tax payment and better enforcement. The process of rationalization of tax administration is
ongoing in India.”

Keeping in mind the above statement kindly elaborate how direct tax like income tax has
evolved and aided the country .Elaborate.

ANSWER
India has a well-developed tax structure with clearly demarcated authority between Central and
State Governments and local bodies. Central Government levies some direct and indirect taxes
on individual and commodities respectively. Direct taxes are, Personal Income Tax, Wealth Tax,
and Corporation Tax while indirect tax includes; Sales Tax, Excise Duty, Custom Duty and
Service Tax. Currently corporation tax (20% of total tax collection) is the biggest source of
income of central government.

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. In this article, we are discussing how the Income Tax evolved
over the time in India.

1860- The Tax was introduced for the first time by Sir James Wilson. India’s First “Union
Budget” Introduced by Pre-independence finance minister, James Wilson on 7 April, 1860. The
Indian Income Tax Act of 1860 was enforced to meet the losses sustained by the government on
account of the military mutiny of 1857. Income was divided into four schedules taxed separately:

(1) Income from landed property;

(2) Income from professions and trades;

(3) Income from Securities;

(4) Income from Salaries and pensions.

Time to time this act was replaced by several license taxes.

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1886- Separate Income tax act was passed. This act remained in force up to, with various
amendments from time to time. Under the Indian Income Tax Act of 1886, income was divided
into four schedules taxed separately:

(1) Salaries, pensions or gratuities;

(2) Net profits of companies;

(3) Interests on the securities of the Government of India;

(4) Other sources of income.

1918- A new income tax was passed. The Indian Income Tax Act of 1918 repealed the Indian
Income Tax Act of 1886 and introduced several important changes.

1922- Again it was replaced by another new act which was passed in 1922. 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 Income Tax Act
of 1922 remained in force until the year 1961.

The Income Tax Act of 1922 had become very complicated on account of innumerable
amendments. The Government of India therefore referred it to the law commission in1956 with a
view to simplify and prevent the evasion of tax

1961– In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed.
The Income Tax Act 1961 has been brought into force with 1 April 1962.It applies to the whole
of India (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 which also contains Finance Bill. After it is passed by both the
houses of Parliament and receives the assent of the President of India, it becomes the Finance
act.

At present, there are five heads of Income:

(1) Income from Salary;

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(2) Income from House Property;

(3) Income from Profits and Gains of Business or Profession;

(4) Income from Capital Gains;

(5) Income from Other Sources.

During precedings 10-15 years, Indian taxation system has gone through huge changes. The tax
rates have been rationalized and tax laws have been improved bringing about better consistence,
simplicity of taxpaying by payers and better implementation.

Tax slabs are decreasing to the measure of taxpayers' cash that goes toward government
income. Since they set aside citizens' cash, tax cuts are consistently mainstream. Tax
increments are definitely not. Tax cuts happen in various structures. Governments can reduce
government expenditures on pay, benefits, deals, or resources. The cut can be a one-time
refund, a decrease in the general rate, or a tax credit. Tax curtails likewise incorporate tax
derivations, provisos, or credits. Tax cuts are changes in the law that lessen your tax installment
alongside government income. For the time being, all tax cuts increment government obligation
since they diminish income. Advocates of flexibly side financial matters contend that, in the
long haul, tax cuts pay for themselves. Financial specialist Arthur Laffer clarified that tax cuts
have a multiplier impact on the economy. They can animate development enough to in the long
run produce higher tax income. This by and large happens just when tax rates are high. How tax
cuts influence the economy relies upon the sort of tax being cut. Tax cuts support the economy
by placing more cash into flow. They additionally increment the shortage on the off chance that
they aren't counterbalanced by spending cuts. Therefore, tax cuts improve the economy
temporarily however push down the economy in the long haul in the event that they lead to an
expansion in the government obligation. When tax cuts are set up, they are hard to deny.

Direct taxes show the significance of taxes by diminishing pay correspondences with its
reformist tax structure. Residents are taxed in relation to their monetary conditions,
accordingly reassuring social and efficient fairness.

Direct Taxes
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In case of direct taxes (Income Tax, Wealth Tax, Corporation tax etc.), the burden directly falls
on the taxpayer. These are those taxes which can’t be transferred on the others by the tax payers.

• Income Tax: According to Income Tax Act 1961, every person, who are an assessee and whose
total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the
rate or rates prescribed in the Finance Act. Such income tax shall be paid on the total income of
the previous year in the relevant assessment year.
• Corporate Tax: it is a tax imposed on the net income of the company. Description: Companies,
both private and public which are registered in India under the Companies Act 1956, are liable to
pay corporate tax. For the assessment year 2014-15, domestic companies are taxed at the rate of
30%.
Additionally, with direct taxes, taxpayers stay mindful of how much tax they can be required to
pay in a monetary year and get ready well ahead of time. Direct taxes are likewise valuable in
controlling expansion as any adjustment in their rates can help in managing demand and
gracefully in the economy. While the significance of taxes to the nation's administration
couldn't be more important, the focal government additionally makes different arrangements
to assist residents with sparing annual taxes in India. One of the best methods for sparing
personal tax in India while shielding the monetary fate of your friends and family, is to benefit a
confided in term protection plan.