The history of Income Tax in modern India dates back to 1860 when the first Income Tax Act was introduced and which remained in force for a period of 5 years. This Act lapsed in 1865. Thereafter Act-II of 1886 was the next landmark. This Act of 1886 was a great improvement on its predecessor. It introduced the definition of agricultural income in the form in which it stands today and the exemption it granted in respect of agricultural income has continued to be a feature of all subsequent legislations. The year 1918 saw the introduction of Act VII of 1918 which recasted the entire tax laws. This Act was designed inter-alia to remedy certain inequalities in the assessment of individual tax payers under the 1886 Act. The Act introduced, for the first time, the scheme of aggregating income from all sources for the purpose of determining the rate of tax.

The Indian Income Tax Act, 1922 which came into being as a result of the recommendations of the All India Income Tax Committee is a milestone in the evolution of Direct Tax Laws in our country. Its importance lies in the fact that the administration of the Income Tax hitherto carried on by the Provincial Governments came to be vested in the Central Government. The Act of 1922, like the Act of 1918, applied to all incomes "accruing or arising", or received in British India, or deemed to be accrued, arisen or received. It marked an important change from the Act of 1918 by establishing the charge in the year of assessment on the income of the previous year instead of merely adopting the previous year's income as a measure of income of the year of assessment. The Act of 1922 made a departure by abandoning the system of specifying the rates of taxation in its own Schedules. It left the rates to be announced by the Finance Acts, a feature which survives to this day. It also enabled loss under one head of income to be set-off against profits under any other head, so that the tax was chargeable only on net income.

The Act of 1922 remained in force till 1961. Meanwhile, in 1956 the Government had referred the Act to the Law Commission in order to recast it on logical lines and to make it simple without changing the basic tax structure. Based on the Law Commission's report, the Income Tax Bill giving effect to its recommendations was submitted in the Lok Sabha in April, 1961. The Bill received the assent of the President on 13th Sept., 1961. The present Income Tax Act is this Act of Sept., 1961.

Central Board of Direct Taxes:

The apex body of the Income Tax Department is the Central Board of Direct Taxes (CBDT) - manned by the officers of the Indian Revenue Service - is the administrative head of the Income Tax Department and functions as a part of the Finance Ministry of the Government of India. It performs various statutory functions. It has the power to assign jurisdiction to the authorities below and to issue orders, instructions and directions to them for the administration of the tax laws. It also enjoys certain powers of delegated legislation and is competent to make rules for carrying out the implementation of the direct tax laws. The CBDT consists of one Chairman and six members.