Abolition of Wealth Tax to introduction of Black Money Act-How personal income tax has evolved in India
Taxation has been prevalent in India since the time of Manusmriti and Arthashastra. The British did introduce tax laws in India as early as 1860. The current Income-tax Act was introduced in 1961 under the aegis of the Direct Tax Administrative Commission.
Since then, tax laws have undergone several policy and administrative reforms to make governance for tax authorities and compliance for the taxpayers, easier. From a personal taxation perspective, the policy reforms included measures such as reduction of tax rates (the maximum marginal tax rate was as high as 97% at one time), simplification of tax slabs, introduction of presumptive taxation and widening of the taxation base. The administrative tax reforms included electronic filing of tax returns, simplification of tax forms, providing transparency in operations and swifter processing of tax refunds.
Since independence, several laws have been introduced and abolished, like the Wealth Tax Act introduced by the government in 1957 which was subsequently abolished in 2015 as the cost of governance was more than the revenue the tax was able to generate. Similarly, the Gift Tax Act introduced in 1957 was rolled back in 1988, to be included indirectly through the Income-tax Act.
On the administrative front, introduction of the 10 digit alphanumeric Permanent Account Number (PAN) and the requirement to quote the same in all correspondence for the tax department, as well as linking the same with all investments, opening of bank accounts etc. benefitted the government greatly by ensuring tracking of information and in following the money trail. For taxpayers’ convenience, the launch of the Income Tax Department portal (www.incometaxindia.gov.in) in 2002 was the first step in providing a virtual interface between the Department and taxpayers. This has now been further upgraded in June 2021. The first citizen-friendly single-window Aayakar Seva Kendra (ASK) was set up in 2007, for centralised receipt and registration of specified categories of documents, including income tax returns.
Changes in the last decade
The last decade witnessed some transformational changes in the tax systems that has resulted in bringing in a significant change in personal taxes. Some of these are listed below -
Tax return processing: Centralized Processing Centres were set up for bulk processing of tax returns as well as tax withholding returns of e-filed returns in 2012. This has enabled swifter processing of at least straightforward returns and faster issuance of refunds. The TRACES (TDS Reconciliation Analysis and Correction Enabling System) website was launched to serve as an integrated one-stop platform for stakeholders to provide information related to tax withholding, investments etc.
Comprehensive Tax returns forms: Tax returns have seen several changes over the years not only to report income earned during the year, but also additional information such as Indian assets, foreign assets, bank accounts, loans etc. Simplified tax forms such as ‘Sugam’ was introduced for presumptive taxation, and simplified tax regime was introduced, keeping in mind the compliance burden of small taxpayers.
Relief to Senior Citizens – Senior citizens (not having any income from business/profession), have been relieved from payment of advance tax, and exempt from filing tax returns in some cases (having only pension income and interest income)
New updated website launched - In the year 2021 restructuring of the income tax department was approved by the Cabinet to achieve the objectives of increased productivity and revenue collection, improved taxpayer experience and service etc.
Other Special tax collection Schemes
The aim of the tax department has been to increase the revenue base by bringing in more individuals into the tax net and to plug revenue leakages. With this objective in mind, the government had initiated several schemes such as the Voluntary Disclosure Scheme in 1951, “Kar Vivad Samadhan Scheme” in 1998, the Income Declaration Scheme in 2016 and the Black Money Act in 2015, where taxpayers could disclose income that had escaped taxation in the past and seek immunity via payment of taxes and penalty.
It is clear that the income tax department is moving towards a digitized 24/7 service to offer to taxpayers. With faceless assessments, the tax department is seeking to address malpractices of corruption and bureaucratic delays. With the linking of Aadhaar and PAN, the government aims to rule out the possibility of a single taxpayer with multiple PANs. One can expect that in future, tax returns, at least for individuals, will be completely pre-filled with all information and processed on a real time basis and assessments done via video conferencing.
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