Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
LAW OF TAXATION
COURSE OBJECTIVES:
This course aims to help students to comprehend the basic principles of the laws governing Direct
and Indirect taxes. It also helps to understand the basic principles underlying the Income Tax Act
and Compute the taxable income of an assessee. It will also analyse the assessment procedure and
explain about the representation before appropriate authorities under the law. The direct taxation
is a powerful incentive or disincentive to economic growth, a lever which can rise or depress
savings and capital formation, and instrument of reducing income disparities. The following
course content has been designed to provide a comprehensive picture of taxation in India.
COURSE OUTCOMES:
After completing of this course, the students will be able to:
1. Understand and appreciate the history of taxation in India and the Indian
Constitutional principles and provisions relating to Taxation
2. Understand and apply the Income Tax Act, 1961 provisions
3. Grasp the significant provisions of Central Goods and Services Act, 2017
4. Understand the Integrated Goods and Services Act, 2017
5. Understand the Maharashtra Goods and Services Act, 2017
6. Know the Maharashtra law on state tax on professions
Page 1 of 80
, Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
MODULE 1:
1.1 History of Tax Law in India
The history of tax law in India is both long and complex, shaped by various dynasties, rulers, and
colonial powers that have governed the subcontinent over the centuries. The evolution of tax laws
in India has been influenced by the ancient, medieval, and colonial periods, each of which
contributed to the current tax structure of the nation. Today, tax laws in India are governed by a
detailed framework that ensures the collection of taxes for the development of the nation, but the
roots of this system go back several centuries.
This section delves into the historical evolution of tax law in India, tracing its development from
the early Vedic period to the current framework under the Indian Constitution and various
statutes.
1.1.1 Taxation in Ancient India
Taxation in ancient India can be traced back to the Vedic period (around 1500 BCE – 500 BCE).
The earliest references to taxes are found in the Vedas, the oldest texts of Indian civilization.
Taxes during this period were not as formalized as modern tax laws, but the concept of taxation
was embedded in the agrarian society.
Vedic Period:
In the Rigveda, one of the oldest scriptures of Hinduism, references to taxes (referred to as "Bali"
or "Bhaga") were made. These taxes were mostly agricultural in nature, as the society was
predominantly agrarian. The early tax system was simple and levied on the surplus agricultural
produce. The tax was generally in the form of a share of the crop, which was given to the king or
rulers.
Maurya Period (circa 322–185 BCE):
The first formal taxation system can be traced to the Mauryan Empire, particularly under the
reign of Chandragupta Maurya and his advisor Chanakya (also known as Kautilya). In his
treatise Arthashastra, Kautilya discussed the administration of taxes in great detail. Taxes were
levied on land, agriculture, and trade. The central authority under Chandragupta Maurya
organized the tax collection into a structured system, and revenue was used for administrative
functions and public welfare.
• Arthashastra mentions taxes like Hastivala (elephant tax), Karma (agriculture tax), and
Vyavaharika (trade tax).
The Mauryan taxation system was highly structured, with revenue officers responsible for the
assessment, collection, and remittance of taxes. This laid the foundation for future taxation
systems.
1.1.2 Taxation in Medieval India
In medieval India, the taxation system was again influenced by various rulers, notably the Mughal
Empire, which established a more comprehensive and codified taxation system.
Delhi Sultanate (1206–1526):
Under the Delhi Sultanate, the land tax or Kharaj became one of the most important sources of
revenue. The Sultanate employed tax collectors (referred to as Amils) who assessed and
collected taxes from the landowners. The tax rate was one-fifth of the land produce, which was
seen as a Kharaj (land revenue tax).
The Sultans also levied taxes on trade, particularly through the imposition of custom duties. The
taxation system was not uniform across all parts of the Sultanate, and it varied based on the
region, but the revenue was largely directed toward the royal treasury.
Mughal Empire (1526–1857):
The Mughal Empire, especially during the reign of Akbar, saw the development of one of the
most advanced and organized tax systems in medieval India. Akbar's Revenue Minister, Raja
Page 2 of 80
, Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
Todar Mal, played a key role in reforming the tax structure. He introduced a land revenue
system known as Zabt, which was a standardized method for assessing agricultural produce.
Under the Zabt system, land was categorized based on its productivity, and taxes were levied
accordingly. The tax rate was fixed at one-third of the crop yield. This system brought in much-
needed revenue for the Mughal Empire, supporting the military and the administration.
Trade taxes were also significant in the Mughal period. The empire imposed custom duties,
market taxes, and tolls on goods transported across its vast territories. The Mughal tax
administration was one of the most sophisticated in medieval India, with a well-organized
bureaucracy for tax collection and regulation.
1.1.3 Colonial Taxation System under the British
The British colonial rule in India saw a significant shift in the tax system, largely influenced by
the British need for revenue from its colonies. The taxation system under the British was aimed at
extracting resources from India to finance Britain's industrialization and expansionist goals.
The East India Company and Early British Rule (1757–1857):
Under the East India Company, the land revenue system was the primary form of taxation. The
Company introduced a permanent settlement (known as the Zamindari system) in Bengal in
1793 under Lord Cornwallis. This system allowed landlords (Zamindars) to collect land revenue
from peasants and remit it to the British government. However, the system led to exploitation, as
the Zamindars often increased rents and extracted heavy taxes from the peasants.
• Permanent Settlement (1793): This system fixed land taxes permanently, which led to
the exploitation of peasants. The Zamindars were made responsible for collecting taxes,
and the revenue was fixed based on the land's potential agricultural yield.
Regulation of Trade Taxes:
Under the British, custom duties were imposed on both imports and exports. Import duties
were levied on goods entering India, while export duties were imposed on Indian goods being
shipped abroad, particularly on textiles and raw materials. This led to the impoverishment of
India, as the British government sought to extract wealth from Indian trade.
Reforms Post-1857:
After the Indian Rebellion of 1857, the British government took direct control of India, and new
tax systems were introduced. The Income Tax Act of 1860 was introduced by Sir James Wilson,
the then British Finance Minister, as a temporary measure to collect revenue to fund the British
army. This is considered the first formal introduction of income tax in India.
• The introduction of corporation taxes, sales taxes, and other taxes followed in the late
19th and early 20th centuries.
By the early 20th century, taxation in India had evolved into a complex system involving multiple
taxes like corporation tax, income tax, land revenue, excise duties, and custom duties.
1.1.4 Post-Independence Taxation System (1947–Present)
After India gained independence in 1947, the country faced the task of creating a fair and
equitable taxation system that could support economic development while ensuring social justice.
Constitutional Foundation of Taxation:
The Indian Constitution, adopted in 1950, established the framework for taxation in India. Part
XIII of the Constitution deals with taxation and defines the powers of the Union and State
governments to levy taxes. The Union List (Article 246) specifies taxes that the central
government can levy, while the State List defines the taxes that the state governments can
impose.
Some key taxes listed in the Union List include:
• Income Tax
• Customs Duties
• Excise Duties
Page 3 of 80
, Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
• Corporation Tax
The Concurrent List includes taxes like estate duty and GST (Goods and Services Tax), which can
be levied by both the Union and State governments.
Income Tax Act of 1961:
The Income Tax Act, 1961 is the cornerstone of India’s direct taxation system. It governs the
taxation of income earned by individuals, companies, and other entities. This Act, still in force
today with amendments, provides for the assessment and collection of income tax and other
related taxes, such as capital gains tax, wealth tax, and corporation tax.
Goods and Services Tax (GST) – 2017:
One of the most significant changes to India's tax system in recent years was the introduction of
the Goods and Services Tax (GST) in 2017. This indirect tax replaced multiple indirect taxes
like service tax, sales tax, excise duty, and VAT, thereby simplifying the taxation structure and
creating a unified national market.
1.2 Constitutional provisions relating to Taxation
The Constitution of India, adopted in 1950, provides a detailed and structured framework for
taxation. It divides the authority to levy taxes between the Union (Central) Government and the
State Governments through the Union List, State List, and Concurrent List in the Seventh
Schedule. This division of taxing power ensures that the central government and state
governments can raise revenue independently while also having some shared jurisdiction over
certain taxes.
The Constitution of India lays down various provisions related to taxation, which are aimed at
achieving economic stability, ensuring fairness, and promoting development. These provisions are
enshrined in different parts of the Constitution, primarily in Part XIII (Trade, Commerce, and
Intercourse), Article 246 (Legislative Power), and Articles 265 to 289 (Taxation and
Finance).
1.2.1 Structure of Taxation in India
The Seventh Schedule of the Constitution, which consists of three lists—Union List, State List,
and Concurrent List—plays a crucial role in defining the powers and responsibilities of the Union
and State Governments regarding taxation.
• Union List (List I): This list includes subjects on which only the Union Government can
legislate and levy taxes. It covers important taxes like Income Tax, Customs Duties,
Excise Duties, Corporation Tax, Service Tax, Customs, and Wealth Tax.
• State List (List II): This list includes subjects on which only State Governments can levy
taxes. It includes taxes like Land Revenue, State Excise, VAT (Value Added Tax), and
Stamp Duty.
• Concurrent List (List III): This list allows both the Union and State Governments to
legislate on certain matters. For example, Taxes on goods and services (GST), Estate
Duty, and Tax on advertisements are subjects in the Concurrent List.
1.2.2 Key Articles of the Constitution Relating to Taxation
1. Article 265 – Taxes Not to Be Levied Except by Authority of Law:
o This article is the foundational principle of taxation in India. It states that no tax
shall be levied or collected except by the authority of law. This ensures that taxes
are not arbitrarily imposed and provides the legal framework for the imposition,
collection, and regulation of taxes. It embodies the fundamental principle of legality
in taxation.
2. Article 246 – Subject Matter of Laws Made by Parliament and by the Legislatures of
States:
Page 4 of 80
LAW OF TAXATION
COURSE OBJECTIVES:
This course aims to help students to comprehend the basic principles of the laws governing Direct
and Indirect taxes. It also helps to understand the basic principles underlying the Income Tax Act
and Compute the taxable income of an assessee. It will also analyse the assessment procedure and
explain about the representation before appropriate authorities under the law. The direct taxation
is a powerful incentive or disincentive to economic growth, a lever which can rise or depress
savings and capital formation, and instrument of reducing income disparities. The following
course content has been designed to provide a comprehensive picture of taxation in India.
COURSE OUTCOMES:
After completing of this course, the students will be able to:
1. Understand and appreciate the history of taxation in India and the Indian
Constitutional principles and provisions relating to Taxation
2. Understand and apply the Income Tax Act, 1961 provisions
3. Grasp the significant provisions of Central Goods and Services Act, 2017
4. Understand the Integrated Goods and Services Act, 2017
5. Understand the Maharashtra Goods and Services Act, 2017
6. Know the Maharashtra law on state tax on professions
Page 1 of 80
, Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
MODULE 1:
1.1 History of Tax Law in India
The history of tax law in India is both long and complex, shaped by various dynasties, rulers, and
colonial powers that have governed the subcontinent over the centuries. The evolution of tax laws
in India has been influenced by the ancient, medieval, and colonial periods, each of which
contributed to the current tax structure of the nation. Today, tax laws in India are governed by a
detailed framework that ensures the collection of taxes for the development of the nation, but the
roots of this system go back several centuries.
This section delves into the historical evolution of tax law in India, tracing its development from
the early Vedic period to the current framework under the Indian Constitution and various
statutes.
1.1.1 Taxation in Ancient India
Taxation in ancient India can be traced back to the Vedic period (around 1500 BCE – 500 BCE).
The earliest references to taxes are found in the Vedas, the oldest texts of Indian civilization.
Taxes during this period were not as formalized as modern tax laws, but the concept of taxation
was embedded in the agrarian society.
Vedic Period:
In the Rigveda, one of the oldest scriptures of Hinduism, references to taxes (referred to as "Bali"
or "Bhaga") were made. These taxes were mostly agricultural in nature, as the society was
predominantly agrarian. The early tax system was simple and levied on the surplus agricultural
produce. The tax was generally in the form of a share of the crop, which was given to the king or
rulers.
Maurya Period (circa 322–185 BCE):
The first formal taxation system can be traced to the Mauryan Empire, particularly under the
reign of Chandragupta Maurya and his advisor Chanakya (also known as Kautilya). In his
treatise Arthashastra, Kautilya discussed the administration of taxes in great detail. Taxes were
levied on land, agriculture, and trade. The central authority under Chandragupta Maurya
organized the tax collection into a structured system, and revenue was used for administrative
functions and public welfare.
• Arthashastra mentions taxes like Hastivala (elephant tax), Karma (agriculture tax), and
Vyavaharika (trade tax).
The Mauryan taxation system was highly structured, with revenue officers responsible for the
assessment, collection, and remittance of taxes. This laid the foundation for future taxation
systems.
1.1.2 Taxation in Medieval India
In medieval India, the taxation system was again influenced by various rulers, notably the Mughal
Empire, which established a more comprehensive and codified taxation system.
Delhi Sultanate (1206–1526):
Under the Delhi Sultanate, the land tax or Kharaj became one of the most important sources of
revenue. The Sultanate employed tax collectors (referred to as Amils) who assessed and
collected taxes from the landowners. The tax rate was one-fifth of the land produce, which was
seen as a Kharaj (land revenue tax).
The Sultans also levied taxes on trade, particularly through the imposition of custom duties. The
taxation system was not uniform across all parts of the Sultanate, and it varied based on the
region, but the revenue was largely directed toward the royal treasury.
Mughal Empire (1526–1857):
The Mughal Empire, especially during the reign of Akbar, saw the development of one of the
most advanced and organized tax systems in medieval India. Akbar's Revenue Minister, Raja
Page 2 of 80
, Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
Todar Mal, played a key role in reforming the tax structure. He introduced a land revenue
system known as Zabt, which was a standardized method for assessing agricultural produce.
Under the Zabt system, land was categorized based on its productivity, and taxes were levied
accordingly. The tax rate was fixed at one-third of the crop yield. This system brought in much-
needed revenue for the Mughal Empire, supporting the military and the administration.
Trade taxes were also significant in the Mughal period. The empire imposed custom duties,
market taxes, and tolls on goods transported across its vast territories. The Mughal tax
administration was one of the most sophisticated in medieval India, with a well-organized
bureaucracy for tax collection and regulation.
1.1.3 Colonial Taxation System under the British
The British colonial rule in India saw a significant shift in the tax system, largely influenced by
the British need for revenue from its colonies. The taxation system under the British was aimed at
extracting resources from India to finance Britain's industrialization and expansionist goals.
The East India Company and Early British Rule (1757–1857):
Under the East India Company, the land revenue system was the primary form of taxation. The
Company introduced a permanent settlement (known as the Zamindari system) in Bengal in
1793 under Lord Cornwallis. This system allowed landlords (Zamindars) to collect land revenue
from peasants and remit it to the British government. However, the system led to exploitation, as
the Zamindars often increased rents and extracted heavy taxes from the peasants.
• Permanent Settlement (1793): This system fixed land taxes permanently, which led to
the exploitation of peasants. The Zamindars were made responsible for collecting taxes,
and the revenue was fixed based on the land's potential agricultural yield.
Regulation of Trade Taxes:
Under the British, custom duties were imposed on both imports and exports. Import duties
were levied on goods entering India, while export duties were imposed on Indian goods being
shipped abroad, particularly on textiles and raw materials. This led to the impoverishment of
India, as the British government sought to extract wealth from Indian trade.
Reforms Post-1857:
After the Indian Rebellion of 1857, the British government took direct control of India, and new
tax systems were introduced. The Income Tax Act of 1860 was introduced by Sir James Wilson,
the then British Finance Minister, as a temporary measure to collect revenue to fund the British
army. This is considered the first formal introduction of income tax in India.
• The introduction of corporation taxes, sales taxes, and other taxes followed in the late
19th and early 20th centuries.
By the early 20th century, taxation in India had evolved into a complex system involving multiple
taxes like corporation tax, income tax, land revenue, excise duties, and custom duties.
1.1.4 Post-Independence Taxation System (1947–Present)
After India gained independence in 1947, the country faced the task of creating a fair and
equitable taxation system that could support economic development while ensuring social justice.
Constitutional Foundation of Taxation:
The Indian Constitution, adopted in 1950, established the framework for taxation in India. Part
XIII of the Constitution deals with taxation and defines the powers of the Union and State
governments to levy taxes. The Union List (Article 246) specifies taxes that the central
government can levy, while the State List defines the taxes that the state governments can
impose.
Some key taxes listed in the Union List include:
• Income Tax
• Customs Duties
• Excise Duties
Page 3 of 80
, Sub- LAW OF TAXATION, SEM - 6, Mum. Univ. New Syllabus – 2025
• Corporation Tax
The Concurrent List includes taxes like estate duty and GST (Goods and Services Tax), which can
be levied by both the Union and State governments.
Income Tax Act of 1961:
The Income Tax Act, 1961 is the cornerstone of India’s direct taxation system. It governs the
taxation of income earned by individuals, companies, and other entities. This Act, still in force
today with amendments, provides for the assessment and collection of income tax and other
related taxes, such as capital gains tax, wealth tax, and corporation tax.
Goods and Services Tax (GST) – 2017:
One of the most significant changes to India's tax system in recent years was the introduction of
the Goods and Services Tax (GST) in 2017. This indirect tax replaced multiple indirect taxes
like service tax, sales tax, excise duty, and VAT, thereby simplifying the taxation structure and
creating a unified national market.
1.2 Constitutional provisions relating to Taxation
The Constitution of India, adopted in 1950, provides a detailed and structured framework for
taxation. It divides the authority to levy taxes between the Union (Central) Government and the
State Governments through the Union List, State List, and Concurrent List in the Seventh
Schedule. This division of taxing power ensures that the central government and state
governments can raise revenue independently while also having some shared jurisdiction over
certain taxes.
The Constitution of India lays down various provisions related to taxation, which are aimed at
achieving economic stability, ensuring fairness, and promoting development. These provisions are
enshrined in different parts of the Constitution, primarily in Part XIII (Trade, Commerce, and
Intercourse), Article 246 (Legislative Power), and Articles 265 to 289 (Taxation and
Finance).
1.2.1 Structure of Taxation in India
The Seventh Schedule of the Constitution, which consists of three lists—Union List, State List,
and Concurrent List—plays a crucial role in defining the powers and responsibilities of the Union
and State Governments regarding taxation.
• Union List (List I): This list includes subjects on which only the Union Government can
legislate and levy taxes. It covers important taxes like Income Tax, Customs Duties,
Excise Duties, Corporation Tax, Service Tax, Customs, and Wealth Tax.
• State List (List II): This list includes subjects on which only State Governments can levy
taxes. It includes taxes like Land Revenue, State Excise, VAT (Value Added Tax), and
Stamp Duty.
• Concurrent List (List III): This list allows both the Union and State Governments to
legislate on certain matters. For example, Taxes on goods and services (GST), Estate
Duty, and Tax on advertisements are subjects in the Concurrent List.
1.2.2 Key Articles of the Constitution Relating to Taxation
1. Article 265 – Taxes Not to Be Levied Except by Authority of Law:
o This article is the foundational principle of taxation in India. It states that no tax
shall be levied or collected except by the authority of law. This ensures that taxes
are not arbitrarily imposed and provides the legal framework for the imposition,
collection, and regulation of taxes. It embodies the fundamental principle of legality
in taxation.
2. Article 246 – Subject Matter of Laws Made by Parliament and by the Legislatures of
States:
Page 4 of 80
