Evolution of Tax System in India The systematic attempt to evolve a tax system in independent India started with implementation of the report of Taxation Enquiry Commission in India in 1953. But the personal income tax rates were extraordinarily high during the decades of 1950-80. In 1970-71, the personal income tax had 11 tax brackets with the tax rates progressively rising from 10 per cent to 85 per cent. When the surcharge of 10 per cent was taken into account, the maximum marginal rate for individuals was a mind boggling 93.50 per cent In 1973-74 the highest tax rate applicable to an individual could have gone up to an astronomical level of 97.50 per cent! The Direct Taxes Enquiry Committee, 1971 attributed the large scale tax evasion to the exorbitant tax rates and recommended reduction in the marginal tax rate to 70 per cent. This change was implemented in 1974-75, when the marginal rate was brought down to 77 per cent, including 10 per cent surcharge. In 1976-77, the marginal rate was further reduced to 66 per cent. A major simplification and rationalization initiative came in 1985-86, when the number of tax brackets were reduced from eight to four and the highest marginal rate was brought down to 50 per cent. Liberalization of Personal Income Taxation The last wave of reform in personal income taxation was initiated on the basis of the recommendation of the Tax Reform Committee, 1991. The tax rates were considerably simplified to have only three tax brackets of 20, 30 and 40 per cent in 1992-93. Further reductions came in 1997-98, when the three rates were brought down to 10, 20 and 30 per cent. Personal income tax rates have remained stable since then, with some changes in the tax slabs.
Posted on: Thu, 26 Sep 2013 07:00:24 +0000
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