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History of Direct Taxation in India

29-09-2022 |

Paying taxes is an obligation that every Indian citizen is supposed to fulfil. And to help citizens follow through with their duty, the Government of India and the Income Tax* Department have simplified the process of paying taxes and filing tax* returns online. However, the process of tax* collection dates back to the times when scriptures.
 

In today’s time, the collection of taxes is based on the taxpayer’s income and category, much like it was in ancient times. Since then, the Indian tax* system has changed dynamically in various ways. Today, even filing income tax* returns on life insurance in India can be carried out online on the official Income Tax* Department website.
 

Here is a brief outline of how far the direct taxes have come.
 

What is Direct Tax Definition?
 

Direct tax* is the type of tax* that is paid by the taxpayer on their income, earnings and profits. This tax* is not levied on goods and services but on the taxpayer. The taxpayer can be an individual or an organisation, and the tax* is collected by the authority that imposes it, i.e., the Government of India and is a source of revenue for the government.
 

An important feature of direct taxes is that the responsibility of paying it cannot be passed on to another person or entity, as in the case of indirect taxes.
 

What is Direct Tax History?
 

The first tax* structure was laid out by the Income Tax Department in 1922 that outlined specific terminologies for Income Tax* authorities. Since 1922, the changes and amendments in the Indian Tax System have been quite rapid. The second World War, during which the business communities made excellent profits, also saw the introduction of the Excess Profits Tax* and Business Profits Tax* between 1940-1947, which were then repealed in 1946. The administration of this tax* that was handed over to the Income Tax* Department was also repealed in 1949.
 

But most importantly, there were numerous policy and administrative tax reforms were carried out.
 

For instance, under policy reforms, tax* rates were lowered, tax laws, especially the ones concerning capital gains, were simplified, measures for presumptive taxation were brought in, and the tax* base was widened.
 

Under administrative reforms, the tax* collection system was computerised, which involved allotting unique identification numbers to taxpayers, and human resources were realigned to meet the business needs of the department.
 

Digitisation of Tax Collection



The tax* system at the Income Tax Department was computerised in 1981 when the Directorate of Income Tax* (Systems) was set up. Three computer centres using SN-73 systems were set up between 1984-85 in metropolitan cities for processing challans. By 1989, 33 major cities had this setup, and computerised activities started the allotment of PAN (Permanent Account Number) and TAN (Tax Collection Account Number) and the accounting of payroll.
 

The major landmarks in the digitisation of the taxation system were the e-filing of tax* returns and the electronic payment of taxes through the official Income Tax* Department website. In 2006, filing tax returns was digitised with a project that helped in e-filing (electronic filing) of income tax* returns. A centralised processing centre (CPC) was launched in Bengaluru in 2009 for the purpose of bulk processing of e-filed and paper returns without any jurisdiction.
 

One of the major benefits of electronic filing of returns and online tax* payments is that there is less scope for manual errors in the tax* collection process, and taxpayers can save a lot of time with online tax* payments and when filing online tax* returns.
 

As of today, these are the different types of direct taxes that can be paid online.
 

Types of direct tax

  • Income Tax – Income tax* is a type of direct tax* that everyone is familiar with. Income tax* has to be paid on the basis of an individual’s age and earnings. The tax* slabs determined by the Government of India help you know how much income tax* is to be paid. To claim your tax* returns, you will need to file Income Tax* Returns (ITR) every year.

  • Corporate Tax – The corporate tax* is paid by domestic companies but not their shareholders. This direct tax* is also levied on foreign companies and corporations that have set up business in India and are making an income here. Under this tax*, the income earned from the sale of assets, the fees for technical services, royalties, interest and dividends are taxable. Corporate tax* is divided into:

    • Securities Transaction Tax (STT): Income earned from the transactions via the sale and purchase of stock market securities will be eligible for the Securities Transaction Tax*.
    • Dividend Distribution Tax (DDT): If a domestic company declares, distributes or pays out a dividend amount to its shareholders, the Dividend Distribution Tax* is levied on them. Foreign companies do not have to pay the DDT.
    • Minimum Alternate Tax (MAT): The Minimum Alternate Tax* is applicable for companies, and Limited Liability Partnerships (LLPs) that have book profit but do not pay taxes under the Income Tax* Act, as their income calculated is nil. Like the MAT, the Alternate Minimum Tax* (AMT) is levied on Limited Liability Partnerships (LLPs).

However, this does not apply to an individual, a Hindu Undivided Family (HUF) or a Partnership if the total adjusted income is below ₹20 lakhs.
 

  • Capital Gains Tax: This direct tax* is levied and paid on the income earned from the sale of investment assets. Investments in bonds, shares, real estate, etc., are considered capital assets. Based on its holding period, tax* can be classified into long-term capital gains tax* (for securities held for over 36 months) and short-term capital gains tax* (for securities held for less than 36 months).
     

Saving methods such as insurance policies in India, though taxable in the hands of the policyholder, also offer tax* benefits. With a life insurance policy from Tata AIA life insurance, you can claim tax* deductions and benefits on the policy premiums and the proceeds as per the prevailing tax* laws.
 

Conclusion


Over the years, it is not only the taxation system but also the Income Tax* Department and its rules that have undergone a number of organisational and regulatory changes. In keeping with the times, after the computerisation of the tax* process, digitisation also took over, enabling taxpayers to access their tax* statements from anywhere, through any electronic device.
 

Along with these changes, the Indian tax* system has seen an increase in revenue collection, redesigned business processes and more improvement in tax-payer services.


L&C/Advt/2022/Sep/2327

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA), Tata AIA Life Insurance is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

When was the Gift Tax Act first introduced?

The Gift Tax* Act was introduced in 1958, and then the Gift Tax* Bill was introduced in 1990, under which special gifts were exempt from taxation. However, the gift tax* was abolished for gifts that were offered after 1998.

When was the new Income Tax Department website launched?

The new national Income Tax* Department website was launched in 2014 and included new features to make the taxation process more convenient and offer more information to taxpayers in a consolidated form.

Disclaimer

  • Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

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