- The gift tax law introduced in 1957 was withdrawn in 1988 and taken into account indirectly via the income tax law.
- The introduction of the 10-digit alphanumeric Permanent Account Number (PAN) has brought great benefits to the government in providing information tracking and money tracking.
- The past decade has seen some transformative changes in tax systems that have resulted in a significant change in personal taxes.
Taxation has been widespread in India since Manusmriti and Arthashastra. The British introduced 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 political and administrative reforms to facilitate governance for tax authorities and compliance for taxpayers. From a personal taxation perspective, policy reforms included measures such as lowering tax rates (the maximum marginal tax rate was once up to 97%), simplifying tax blocks, introducing alleged taxation and expanding the tax base. The administrative tax reforms included the electronic filing of tax returns, the simplification of tax forms, the creation of transparency in operations and faster processing of tax refunds.
Several laws have been introduced and abolished since independence, such as the Wealth Tax Act introduced by the government in 1957, which was abolished in 2015 because administrative costs exceeded the revenue the tax could generate. Likewise, the Gift Tax Act introduced in 1957 was withdrawn in 1988 in order to be included indirectly via the Income Tax Act.
In the administrative area, the introduction of the 10-digit alphanumeric Permanent Account Number (PAN) and the obligation to indicate this in all correspondence for the tax department, as well as the link with all investments, opening of bank accounts, etc., benefited the government strongly by tracking them of information and follows the money trail. For taxpayers, the introduction of the Income Tax Department portal (www.incometaxindia.gov.in) in 2002 was the first step towards providing a virtual interface between the department and taxpayers. This was expanded further in June 2021. In 2007, the first citizen-friendly single-window Aayakar Seva Kendra (ASK) was established for the central receipt and registration of certain categories of documents, including income tax returns.
Changes over the past decade
The past decade has seen some transformative changes in tax systems that have resulted in a significant change in personal taxes. Some of these are listed below –
- Tax return processing: Central processing centers were set up in 2012 for the bulk processing of tax returns as well as for the tax withholding declarations of e-mail registrations. This enabled at least simple tax returns to be processed more quickly and refunds to be issued more quickly. The TRACES (TDS Reconciliation Analysis and Correction Enabling System) website was created to serve as an integrated central platform for stakeholders to provide information on tax withholding, investments, etc.
- Comprehensive Tax Return Forms: The tax returns have been amended several times over the years to not only report the income generated over the year, but also additional information such as Indian assets, foreign assets, bank accounts, loans, etc. Simplified tax forms like ‘Sugam’ has been created for put in place presumed taxation and a simplified tax system to cope with the compliance burden of small taxpayers.
- Relief for seniors – Seniors (without income from trade / work) are exempt from input tax exemption and partially from filing tax returns (only pension income and interest income)
- New Updated Website Launched – In 2021, the restructuring of the Income Tax Department was approved by the Cabinet to meet the goals of higher productivity and revenue collection, improved experience and service to taxpayers, etc.
Other special regulations on tax collection
The goal of the tax department was to increase the revenue base by adding more individuals to the tax network and to close revenue losses. With this goal in mind, the government launched several programs such as the Voluntary Disclosure Scheme in 1951, the Kar Vivad Samadhan Scheme in 1998, the Income Declaration Scheme in 2016 and the Black Money Act in 2015 to which taxpayers could disclose income that had previously escaped taxation and sought immunity through payment of taxes and fines.
It is clear that the income tax department is moving to a digitized 24/7 service that it can offer taxpayers. The tax department tries to counteract corruption crimes and bureaucratic delays with faceless reports. By linking Aadhaar and PAN, the government wants to eliminate the possibility of a single taxpayer with multiple PANs. It is to be expected that in future tax returns, at least for natural persons, will be completely pre-filled with all information and processed in real time and that the evaluations will be carried out via video conference.
Aarti Raote is a guest author. Views expressed are personal.