Income Tax / I am the income tax system... this is how my rules have been changing since 1860

Income Tax: The Union Budget of India is set to be presented on February 1, 2025. With the announcement of the budget, a key question arises in the minds of citizens: Will there be any relief in income tax this time? Revenue plays a crucial role in running any country smoothly. This is the reason why the tax system was implemented. The history of income tax in India is 165 years old and has evolved over time with various changes. Let us take a look at the historical journey of the income tax system in India.

How Did Income Tax Begin in India?

Income tax in India was first introduced in 1860 by British officer James Wilson. The primary objective was to compensate for the losses incurred due to the revolt of 1857. In the initial phase, individuals with an annual income of less than ₹200 were exempt from paying tax. A 2% tax was imposed on incomes between ₹200 and ₹500, while a 4% tax was levied on incomes above ₹500. Military and police officers were granted tax exemptions. Several amendments were made to the income tax law after its introduction. A new Income Tax Act was passed in 1886. It was revised again in 1961 and came into effect on April 1, 1962, covering the entire country. Since then, changes have been made to the law in every budget as per the needs and circumstances.

Timeline of the Income Tax System

Year	Event
1860	James Wilson introduced income tax in India.
1922	Income tax was fully implemented.
1924	The Central Board of Revenue was established.
1946	Recruitment of Group A officers began.
1981	Computerization was introduced in the Income Tax Department.
2009	A new website for the Income Tax Department was launched.
2014	The Central Processing Center (CPC) was established in Bengaluru.
2020	A new e-filing portal was launched.
2021	The “Vivad se Vishwas” scheme was introduced.

Increase in the Number of ITR Filers

Over time, people’s participation in paying taxes has increased. The data on income tax return (ITR) filings supports this trend. In the financial year 2019-20, a total of 6.48 crore people filed ITRs. In 2020-21, this number rose to 6.72 crore. In 2021-22, it further increased to 6.94 crore, and in 2022-23, it reached 7.40 crore. This indicates that India’s income tax system is becoming more effective and user-friendly over time.

Tax Slab at the Time of Independence vs Current Tax Slab

After independence, India’s income tax system was relatively simple. The first change in the tax slab was introduced by then Finance Minister John Mathai in 1947. The tax slab at that time was as follows:

• No tax on income up to ₹1,500.

• 1 anna (1/16 of a rupee) tax on income between ₹1,501 and ₹5,000.

• 2 anna tax on income between ₹5,001 and ₹10,000.

• 3 anna tax on income between ₹10,001 and ₹15,000.

• 5 anna tax on income above ₹15,000.

The tax rates and slabs were quite complex in this system. Major reforms were made in 1974, 1985, and 1997 to simplify the tax slabs. In 2010, a significant change was made to the income tax slab, making income up to ₹1.6 lakh tax-free. In 2017, this exemption limit was increased to ₹2.5 lakh, bringing a large section of people out of the tax net.

Current Income Tax Slab (2025)

According to the current tax slab:

• No tax on income up to ₹3 lakh.

• 5% tax on income between ₹3 lakh and ₹7 lakh.

• 10% tax on income between ₹7 lakh and ₹10 lakh.

• 15% tax on income between ₹10 lakh and ₹12 lakh.

• 20% tax on income between ₹12 lakh and ₹15 lakh.

• 30% tax on income above ₹15 lakh.

Conclusion

India’s income tax system has evolved and improved over time. It plays a vital role in the country’s development. Numerous reforms have been made to simplify the process for ordinary citizens, making tax filing easier and more transparent. All eyes are now on the upcoming budget on February 1, 2025, to see what new tax policies will be announced. The question remains whether the common man will receive any relief in income tax this time or not.