India Income Tax History: Evolution from 1860 to Modern-Day Tax Slabs

India Income Tax History: India’s income tax system has undergone significant changes since its inception in 1860. Introduced by British officer James Wilson to recover losses from the 1857 revolt, it has evolved over 165 years to become a key contributor to India’s economy. Today, the tax structure includes Goods and Services Tax (GST) and modern reforms.

How It All Began: The First Income Tax in 1860

In 1860, individuals earning less than ₹200 per year were exempt from income tax.
Tax rates were 2% for incomes between ₹200 and ₹500 and 4% for incomes above ₹500.
Special exemptions were provided for military and police officers.
In 1886, a new Income Tax Act was introduced. Later, the Income Tax Act of 1961 replaced it and became the foundation for today’s taxation system, effective from April 1, 1962. Since then, annual budget sessions have brought updates to the law.

The Growth of Tax Filers Over the Years

With time, more Indians have started participating in the tax system. Here’s how the number of income tax returns (ITR) filed has grown:

2019-20: 6.48 crore
2020-21: 6.72 crore
2021-22: 6.94 crore
2022-23: 7.40 crore
This steady increase reflects improved compliance and a growing awareness of the tax system’s role in national development.

Income Tax Slabs: Then vs. Now

Post-Independence Tax System (1947):

No tax for incomes up to ₹1,500.
₹1,501–₹5,000: 1 anna (1/16 of a rupee).
₹5,001–₹10,000: 2 annas.
Incomes over ₹15,000: 5 annas.
The slabs were complex and rates steep. Reforms in 1974, 1985, and 1997 simplified tax rates significantly.

Modern-Day Tax Slabs (2025)

As of 2025, India’s income tax system offers simplified slabs:

Up to ₹3 lakh: No tax.
₹3 lakh–₹7 lakh: 5%.
₹7 lakh–₹10 lakh: 10%.
₹10 lakh–₹12 lakh: 15%.
₹12 lakh–₹15 lakh: 20%.
Above ₹15 lakh: 30%.
These changes, especially exemptions for incomes under ₹3 lakh, have significantly reduced the tax burden for low-income groups.

Impact of Income Tax on India’s Growth

Over time, income tax has become a major contributor to India’s GDP. By expanding the tax base and introducing reforms like GST, the government has streamlined revenue collection. This system supports critical infrastructure projects, public services, and national development.