SOME INTERESTING FACTS OF THE FIRST INCOME TAX ACT.

In India, the Concept of Income-tax was introduced by James Wilson in the year 1860. He is the first finance minister of British India. He is regarded as the father of Income Tax in India. The act was introduced to recover the losses government suffered on account of the 1^st Independence War of 1857. The incomes were classified into four schedules as listed below.

a)    Income from landed property

b)    Income from profession and trade

c)    Income from securities, annuities, and trade

d)    Income from salaries and pensions.

The Income Tax Act, 1860 was enforced effectively from 1^st July 1860.

THE INCOME TAX SLAB THEN

Total Income (Annual)	Tax Rate
Up to Rs. 200	NIL
Rs. 200 to Rs. 500	2%
Rs. 500 and above	3%

 

An additional tax at the rate of 1% was charged for “reproductive public works”. These funds were to be used for roads, canals, and other infrastructure. However, persons with income up to Rs. 500 were exempted from paying this additional tax of 1%.  So effective rate of tax for those whose income exceeds Rs. 500 was 4% including the 1% of the tax for “reproductive public works”.

Although, the income tax was not payable for income up to Rs. 200, as stated in the table above, the persons falling in the 2^nd and 3^rd category viz income up to Rs. 500 and income exceeding Rs. 500 were supposed to pay the taxes on their income starting from Rs. 1. Hence, the higher income persons were not supposed to reduce Rs. 200 from their Total Income to compute the tax liability.

House Owners were taxed on yearly market rent of the property; while deduction of up to six months of rent was allowed once in three years. Rental income from both agricultural and non-agricultural land was taxed.

The companies were also taxed under this act and were subject to the same rates as stated above.

The notices of new income tax were sent in the languages of Hindi, Urdu, and English 

and displayed in Police Stations and other prominent places.

The tax was required to be paid on a quarterly basis. The Collectors were forced to sell the property of any kind if the taxpayer failed to pay taxes.

Though the newly introduced tax did not generate the revenue for the government to the expected level, it paved the foundation of India’s journey into the era of Income Tax. The same act has been in force for the next 5 years and it was withdrawn later. Several other amendments were brought in. This act was succeeded by other acts like License Act, 1867, Certificate Act, 1868, General Income-tax Act II- 1869, The Income Tax Act 1886 Income Tax Act, 1922, Income Tax Act, 1939, and so on.

 

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CA Ramakrishna Sanjay