The 24th of July is celebrated as Income Tax Day in India to commemorate the introduction of income tax and to honour the important role that taxpayers play in the growth of our country. This day serves as a reminder of how taxes contribute to the creation and operation of our economy.
Let’s take a look at how India’s tax structure has changed throughout the years.
Origins of the Indian Income Tax
The concept of income tax was introduced in 1860 by Sir James Wilson, a member of the British Finance Council. The intent was to raise funds to deal with the 1857 uprising, which had depleted the colonial treasury. What began as a temporary measure has evolved into a cornerstone of India’s economic framework.
India is preparing to transition to the New Income Tax Bill, 2025, which is expected to replace the Income Tax Act, 1961 from April 1, 2026.
Income Tax Day also serves as a moment to reflect on the evolving legal framework that supports taxpayer rights and responsibilities. The new bill aims to simplify compliance, reduce litigation, and modernise the tax code without altering existing tax slabs or rates.
Snapshot of India’s Tax Landscape
India follows a progressive tax system, where tax rates increase with income. The system is built on Adam Smith’s four canons of taxation:
- Canon of Equality
- Canon of Certainty
- Canon of Convenience
- Canon of Economy
These principles ensure fairness, predictability, ease, and efficiency in tax collection.
Income tax is levied on various sources of income, broadly defined under Section 2(24) of the Income Tax Act:
- Income from Salary: This includes all payments from an employer to an employee, such as basic pay, allowances, commissions, and retirement benefits.
- Income from House Property: Rental income from residential or commercial properties is taxable.
- Income from Business or Profession: Profits from business or professional activities are taxable after deducting expenses.
- Income from Capital Gains: Profits from selling capital assets like property or jewellery are taxable. These gains can be long-term or short-term.
- Income from Other Sources: This includes income not covered by the other categories, such as savings interest, family pension, gifts, lottery winnings, and investment returns.
The number of people who file income tax returns (ITRs) in India has been steadily rising. As per statistics from the government:
- In FY2013–14, about 3.79 crore ITRs were filed.
- By FY2023–24, this number crossed seven crores, nearly double in a decade.
A variety of measures have been implemented to simplify the filing process and broaden the tax base, including:
- New tax regimes (optional lower slabs without exemptions)
- Pre-filled ITR forms
- Faceless e-assessments
- Faster refunds
- AI-driven warnings for tax evasion
In recent years, India’s personal income tax (PIT) receipts have grown steadily and significantly:
- ₹5.75 lakh crore in FY 2020-21
- ₹7.10 lakh crore in FY 2021-22
- ₹9.67 lakh crore in FY 2022-23
- ₹12.01 lakh crore (provisional) in FY 2023-24
This reflects a maturing tax ecosystem that rewards transparency and compliance.
The Digital Age of Taxation
India’s digital transformation of tax administration has become a model for other countries to follow.
Some key tech-led initiatives include:
- e-Verification of returns
- AIS (Annual Information Statement) for complete tax data transparency
- TDS reconciliation via Form 26AS
- Real-time alerts on high-value transactions
These tools empower taxpayers and enhance government oversight.
Importance of Income Tax Day
The Income Tax Day has become significant in the current economic climate for a number of reasons:
Recognising what taxpayers do
Taxpayers pay for important services including healthcare, education, defence, infrastructure, and social welfare. The point of honouring Income Tax Day is to publicly thank the professionals, businesses, and salaried workers for the money they give to the government.
Encouraging people to follow the rules
Income Tax Day is also a good time to remember the importance of paying your taxes on time. It reminds us that every penny that is openly declared helps the country move forward.
Focusing on changes and new ideas
India’s tax system has changed a lot in the last several years. For example, it is now more open about data, is digitalised, has faceless assessments, and it is easier to file tax returns. Income Tax Day is not just about history—it’s about honouring the present and shaping the future. Paying taxes is not a burden; it’s a contribution to a stronger, fairer India.
As India moves toward a $5 trillion GDP, the role of taxpayers and the systems that support them will only grow. Let this day be a celebration of truth, transparency, and trust—the pillars of inclusive progress.