History of taxation notes-

MODULE 1
The origin of tax impositions in India dates back to ancient times when rulers
required contributions from their subjects to maintain governance and
infrastructure. Over centuries, taxation evolved as a formalized system
influenced by various rulers and administrative needs.
Key Drivers of Early Tax Imposition
 State Governance: Funding administration and defense.
 Infrastructure: Building roads, irrigation, and public works.
 Religious Contributions: Taxes like Zakat and Jizya were faith-based
obligations.
 Trade and Commerce: Taxes on imports, exports, and market activities.

history
Taxes have been a cornerstone of organized societies since ancient times,
serving as a primary means for governments to finance public expenditures.
The concept of taxation dates back to the earliest human civilizations, where
contributions were levied on citizens to support communal projects, military
endeavors, and administrative activities.
Ancient Period
1. Vedic Era (1500–500 BCE):
o The concept of taxation finds its roots in the Vedic texts, where
subjects were required to contribute a portion of their produce
or wealth to the king, referred to as "Bali."
o Taxes were voluntary in nature and were viewed as a
contribution to the state.
2. Mauryan Empire (321–185 BCE):
o The Mauryan administration under Chandragupta Maurya and
later Ashoka formalized the taxation system.
o Kautilya's Arthashastra, written during this period, provides
detailed guidelines on tax collection, trade duties, and
agriculture-based taxes.
o Taxes like Bhaga (a share of the produce, typically one-sixth)
and customs duties were prominent.
 3. Gupta Period (4th–6th Century CE):
o The Gupta rulers relied heavily on land revenue and trade
duties.
o Taxes on salt, irrigation, and imports were introduced to
enhance state revenue.
Medieval Period
1. Delhi Sultanate (1206–1526):
o Islamic rulers introduced the Zakat (a religious tax on Muslims)
and Jizya (a tax on non-Muslims).
o Other taxes included Kharaj (land revenue) and taxes on trade,
livestock, and markets.
2. Mughal Empire (1526–1857):
o The Mughal administration, especially under Akbar, streamlined
the taxation system.
o The Zabt system assessed land revenue based on average
production and price.
o Abolition of the Jizya tax under Akbar marked a significant
development.
o Aurangzeb later reimposed the Jizya tax, leading to
controversies.
Colonial Period
1. British East India Company (1757–1857):
o The British revamped the taxation system to maximize revenue.
o The Permanent Settlement of 1793 under Lord Cornwallis fixed
land revenue, benefiting landlords but often exploiting
peasants.
o Other systems like the Ryotwari (individual cultivators paying
tax) and Mahalwari (village-based assessment) were introduced.
2. British Raj (1858–1947):
o The British imposed various direct and indirect taxes, including
excise, customs duties, and income tax.
o Income tax was first introduced in 1860 by James Wilson to
meet financial deficits from the 1857 uprising.
 o The Salt Tax and other exploitative taxes fueled resentment,
culminating in movements like Gandhi's Salt March.
Post-Independence Period
1. 1947–1990:
o After independence, India adopted a mixed economy, and
taxation became a key tool for development.
o The Income Tax Act of 1961 consolidated tax laws.
o Introduction of wealth tax, estate duty, and corporate taxes
helped diversify the revenue base.
2. 1991 Onwards:
o Economic liberalization in 1991 marked a shift towards a more
simplified tax regime.
o Reduction in tax rates and the introduction of modern
mechanisms like Tax Deducted at Source (TDS) streamlined tax
compliance.
3. GST Era (2017):
o The Goods and Services Tax (GST) was introduced on July 1,
2017, as a landmark reform to unify indirect taxes into a single
system.
o GST replaced multiple taxes like VAT, excise duty, and service
tax, creating a uniform market across the country.
Modern Taxation System
 Today, India follows a dual taxation system:
o Direct Taxes: Income tax, corporate tax, and wealth tax.
o Indirect Taxes: GST, customs duties, and excise duties.
 Technology-driven tax collection through platforms like the GST
Network (GSTN) and Income Tax e-filing has improved compliance and
transparency.
Ancient and Medieval Taxation System in India: Detailed Overview
The taxation system in India has deep historical roots, stretching back to
ancient times, and it evolved significantly throughout the medieval period.
Ancient Indian taxation, as discussed in texts like Kautilya’s Arthashastra, laid
the foundation for the taxation structures of later empires, including the
Mauryas, Guptas, Delhi Sultanate, and the Mughal Empire. This system of
taxation was largely agrarian, trade-based, and integral to the governance and
administration of these empires.
Ancient Indian Taxation System
In ancient India, particularly during the Mauryan period, the taxation system
was well-organized and covered various economic sectors, including
agriculture, trade, and industry. Kautilya's Arthashastra, written in the 4th
century BCE, is the earliest and most comprehensive treatise on governance,
including taxation. It provided a systematic approach to collecting taxes and
maintaining the economy.
Kautilya's Arthashastra and Taxation
Kautilya (Chanakya) was an advisor to Emperor Chandragupta Maurya and his
treatise, Arthashastra, lays out detailed principles for statecraft, military
strategy, and economics, including taxation. Kautilya's emphasis was on
creating a fair and efficient tax system that ensured the welfare of the state
without overburdening the people.
Key features of the taxation system in the Arthashastra include:
1. Land Revenue (Bhoj): The central tax in the ancient system was the
land revenue, primarily levied on agricultural produce. The
Arthashastra mentions a standard tax rate of one-sixth (16.67%) of the
agricultural output. However, this rate could vary depending on land
fertility, crop yield, and environmental factors.
o Bigha and Bhaga: In ancient India, land measurement units such
as Bigha and Bhaga were used. A Bigha referred to a traditional
unit of area, and Bhaga was the share of the produce the state
took as tax. Bhaga was often one-sixth of the yield, as per the
standard set in the Arthashastra. Thus, the system was based on
a detailed and systematic assessment of land and its yield.
2. Trade and Market Taxes: Taxes were also levied on goods sold in
markets and traded through cities. Kautilya's Arthashastra notes the
taxation of both domestic and foreign trade, which included tolls on
goods passing through trade routes, as well as customs duties on
imports and exports.
3. Excise and Custom Duties: The state imposed duties on products like
salt, alcohol, and other goods. Excise taxes on domestic production of
goods, and customs duties on foreign trade, were essential for the
state's revenue generation. The taxation on salt was particularly
important due to its widespread use in ancient Indian society.
 4. Toll Taxes: Toll taxes were collected from merchants and travelers using
roads, rivers, or ports for transportation or trade. These taxes
contributed to the maintenance of infrastructure, such as roads and
bridges, which were essential for trade and communication.
5. Wealth and Property Taxes: Kautilya also proposed taxes on personal
wealth, including land holdings, property, and assets. These taxes were
meant to ensure that the wealthier segments of society contributed
their fair share to the state’s coffers.
6. Cattle and Animal Tax: Livestock was an important part of the
economy, and the state also levied taxes on cattle, which were used for
agricultural labor and transportation.
Mauryan and Gupta Periods
The Mauryan Empire (321–185 BCE) was one of the first large-scale empires to
formalize and centralize the taxation system based on Kautilya’s Arthashastra.
The land revenue system continued to be the backbone of the empire's
economy.
1. Land Revenue: The Mauryas continued the practice of levying a one-
sixth (Bhaga) share on agricultural production. Land was categorized
into different grades based on fertility, and tax rates were adjusted
accordingly. The administration maintained detailed records of
landholdings and crop yields.
2. Trade Taxes: The Mauryan period saw the development of extensive
trade networks, and taxes on trade became an important source of
revenue. Customs duties were imposed on goods entering or leaving
the empire, and tolls were collected on goods transported along trade
routes.
The Gupta Empire (circa 320–550 CE) retained the core principles of the
Mauryan taxation system but made certain adjustments. Gupta rulers, known
for promoting economic prosperity and trade, generally implemented lighter
taxes on the general populace but focused on increasing revenue from
merchants and traders.
1. Revenue from Mines: The Gupta empire also taxed mining operations,
particularly those related to salt and precious metals, which
contributed significantly to the empire’s wealth.
2. Artisan and Guild Taxes: The Gupta Empire saw the rise of urban
centers and artisan guilds. Taxes were levied on these industries to fund
urban development and other administrative needs.
Medieval Indian Taxation System
The medieval period in India saw the establishment of new dynasties, including
the Delhi Sultanate (1206–1526) and the Mughal Empire (1526–1857), each of
which contributed to the evolution of the Indian taxation system. While the
basic structure remained agrarian, new forms of taxation and centralized
revenue collection systems were introduced.
Delhi Sultanate (1206–1526)
The taxation system under the Delhi Sultanate was more centralized than
earlier systems. The Sultanate inherited the land revenue model from earlier
periods but introduced new taxes to suit its needs.
1. Kharaj (Land Tax): The Kharaj was a land tax, typically levied at one-half
of the agricultural produce. This tax was based on the yield of the land,
and the rate could vary depending on the fertility of the land and the
nature of the crop.
2. Jizya (Poll Tax): The Jizya was a tax levied on non-Muslims, which
allowed them to practice their religion in exchange for paying the tax. It
was an important source of revenue, especially in a multi-religious
state.
3. Zakat (Religious Tax): A tax on the wealth of Muslims, the Zakat was
part of the Islamic social welfare system. It was mandatory for Muslims
and was used for charity and the welfare of the poor.
4. Customs Duties: As trade flourished, customs duties became an
important source of revenue. The Sultanate also collected taxes on
goods passing through important trade hubs like Delhi, Lahore, and
Gujarat.
Mughal Empire (1526–1857)
The Mughal Empire, especially during the reign of Emperor Akbar, refined and
formalized the taxation system. Akbar's reforms in revenue collection helped
stabilize the empire’s finances and enhance agricultural productivity.
1. Zabt (Land Revenue): Under Akbar’s reign, the Mughal empire
formalized the land revenue system. The Zabt system required detailed
measurement of land and assessment of agricultural production. Tax
was typically levied at one-third of the crop yield, although the rate
could vary based on land fertility and the economic situation.
2. Jagir System: Under this system, land was granted to nobles and
military officials in exchange for services, and these holders were
 responsible for collecting taxes from their assigned lands. However, this
system sometimes led to exploitation and corruption.
3. Customs and Excise Taxes: The Mughal empire continued the practice
of collecting taxes on trade. Duties were imposed on both domestic and
international trade, contributing significantly to the imperial treasury.
4. Jizya (Poll Tax): The Jizya tax was abolished during Akbar’s reign to
promote religious tolerance but was reinstated by his successors,
notably Aurangzeb.
The ancient and medieval taxation systems in India evolved from the agrarian-
based system outlined in Kautilya's Arthashastra to more centralized systems
under the Mauryas, Guptas, Delhi Sultanate, and Mughals. Taxes on land,
trade, and various commodities were the primary sources of revenue. While
the core principles remained constant, the administration’s approach to tax
collection became increasingly sophisticated, with the introduction of detailed
land assessments, new tax categories, and the expansion of state control over
economic activities. The ancient system, based on units like Bigha and Bhaga,
paved the way for the complex taxation systems of medieval India, which
supported the growth of empires and the prosperity of their trade networks.

Taxation System During the Delhi Sultanate and Mughal Period

Taxation System During the Delhi Sultanate (1206–1526)
The Delhi Sultanate, established by Qutb-ud-din Aibak in 1206, marked the
beginning of Islamic rule in India. The taxation system during this period was
heavily influenced by Islamic law (Sharia) as well as local practices. The
revenue system was a critical component of governance and was primarily
based on land revenue, trade, and other forms of economic activity.
1. Land Revenue (“Kharaj”):
 The largest source of income for the Sultanate was land revenue,
known as Kharaj. This was typically set at one-third to one-half of the
agricultural produce.
 Land was classified based on productivity and ownership. Fertile lands
yielded higher taxes, while less productive areas were taxed at lower
rates.
 Iqta System: Under this system, land was granted to nobles or officials
(Iqta holders) in lieu of salaries. The Iqta holders were responsible for
collecting taxes from the assigned territories and maintaining local
administration and military contingents.
2. Religious Taxes:
 Zakat: A tax levied on Muslims, usually 2.5% of their income or wealth,
as per Islamic law. It was used for charitable purposes and welfare
activities.
 Jizya: A poll tax imposed on non-Muslims (dhimmis) in lieu of military
service. This tax ensured protection for non-Muslims under Islamic rule.
Women, children, the elderly, and clergy were often exempt.
3. Trade and Commerce Taxes:
 Taxes on imports, exports, and market transactions were significant
revenue sources.
 The Sair was a tax levied on goods in transit and trade activities.
 Duties were collected at ports and marketplaces, ensuring revenue
from the thriving Indo-Islamic trade networks.
4. Other Taxes:
 Taxes on livestock, water usage for irrigation, and other economic
activities were prevalent.
 Grazing taxes and taxes on artisans and craftsmen contributed to the
Sultanate’s treasury.
Administration of Tax Collection:
 The Sultan appointed officials such as Amil (revenue collectors) and
Shiqdar (local administrators) to oversee tax collection.
 Corruption and inefficiency in the system often led to exploitation of
peasants and economic discontent.
Taxation System During the Mughal Period (1526–1857)
The Mughals, under rulers like Akbar, Shah Jahan, and Aurangzeb, established
one of the most organized and efficient taxation systems in pre-modern India.
The Mughal taxation system was designed to maximize revenue while ensuring
administrative efficiency.
1. Land Revenue System:
 Todar Mal’s Reforms: During Akbar’s reign, Raja Todar Mal introduced
significant reforms in land revenue administration. Key features
included:
 o Zabt System: Revenue was assessed based on the average
productivity and market value of crops over the past ten years.
One-third of the produce was fixed as tax.
o Standardized measurement units (Ilahi Gaj) were introduced to
calculate land areas accurately.
o Farmers had the option to pay taxes in cash or kind.
 Other revenue systems included:
o Ghalla Bakshi: Share of produce collected directly from the
fields.
o Nasq: Taxes based on rough estimates, used in less accessible
regions.
 Land was categorized into three types: fertile (Polaj), fallow (Parauti),
and barren (Banjar), with tax rates adjusted accordingly.
2. Religious Taxes:
 Jizya: Aurangzeb reintroduced this tax on non-Muslims after Akbar’s
policy of its abolition, leading to resentment among non-Muslim
communities.
 Zakat: Continued as a contribution by Muslims for welfare purposes.
 Taxes on pilgrimage and religious activities were also levied.
3. Trade and Commerce Taxes:
 The Mughal Empire had a robust trade taxation system:
o Import and export duties were levied on goods passing through
ports and trade routes.
o Taxes were collected from markets, shopkeepers, and artisans.
o Custom duties on luxury goods, including silk, spices, and
precious metals, provided significant revenue.
4. Other Taxes:
 Taxes on salt production, livestock grazing, and fisheries contributed to
the treasury.
 Urban taxes on houses and professions, such as taxes on weavers,
blacksmiths, and potters, were common.
5. Administration of Taxation:
  The Diwan was the chief revenue officer responsible for overseeing tax
administration.
 The empire was divided into Subas (provinces), each managed by a
Subedar. Revenue collection was supervised by provincial officers like
Amil and Qanungo.
 Corruption and inefficiency were minimized through audits and strict
monitoring by central authorities.
Comparison Between the Delhi Sultanate and Mughal Period
 While the Delhi Sultanate’s taxation was influenced by Islamic
principles, the Mughal system was more secular and integrated local
customs and practices.
 The Mughals introduced more sophisticated administrative and
revenue collection mechanisms, particularly under Akbar’s rule.
 Land revenue remained the primary source of income during both
periods, but the Mughals’ reforms ensured higher efficiency and less
exploitation.