INCOME TAX

An income tax is a tax levied on the income of individuals or business (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported).
HISTORY

The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records. For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common. Practices such as tithing, or an offering of firstfruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.
Modern History of Income Tax

The Income Tax history in modern India dates back to 1860. In this year first Income Tax Act was introduced and which remained in force for a period of 5 years. This Act lapsed in 1865. Thereafter Act-II of 1886 was in force. This Act of 1886 was the improved version. It introduced the definition of agricultural income and the exemption it granted in respect of agricultural income has continued to be a feature of all subsequent legislations.

The year 1918 saw the introduction of Act VII of 1918, it recasted the entire tax laws. This Act was designed keeping in mind the remedy to certain inequalities in the assessment of individual tax payers
under the 1886 Act. The Act introduced the scheme of aggregating income from all sources for the purpose of determining the rate of tax.

The Indian Income Tax Act, 1922 which came into being as a result of the recommendations of the All India Income Tax Committee is a milestone in the evolution of Direct Tax Laws in India. Its importance lies in the fact that the administration of the Income Tax hitherto carried on by the Provincial Governments came to be vested in the Central Government.

The Act of 1922, similar to the Act of 1918, applied to all incomes "accruing or arising", or received in British India, or deemed to be accrued, arisen or received.

This Act marked an important change from the Act of 1918 by establishing the charge in the year of assessment on the income of the previous year instead of merely adopting the previous year's income as a measure of income of the year of assessment.

The Act made a departure by abandoning the system of specifying the rates of taxation in its own Schedules. It left the rates to be announced by the Finance Acts, a feature which survives to this day. It also enabled loss under one head of income to be set-off against profits under any other head, so that the tax was chargeable only on net income.

The Act of 1922 remained in force till the year 1961. In 1956 the Government had referred the Act to the Law Commission to recast it on logical lines and to make it simple without changing the basic tax structure. The present Income Tax Act is the Act of Sept., 1961.


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