CHAPTER I11

TREND AND PATTERN OF

PERSONAL INCOME TAXATZON I N INDIA

India had a long history of orderly governments.

Mauryan, Gupta and Mughal periods were important land marks
in Indian administration. Public finance reached an

advanced stage of development as early as 4th century B.C.

Kautilya's Arthashastra is a treatise on public finance and
financial administration. In those days the system was so
simple, because, the ruler was accountable only to himself
or to God. Public finances were influenced by the whims and
fancies of the ruler. Nevertheless, the system was orderly,
taxes were low and expenditure was welfare oriented. Direct
taxes consisted mainly of land revenue (Thavaraj, 1 9 9 2 ) .

During the British era, the superintendence and control

of public revenues were devolved separately in each of the
presidency. The Governor General could use his financial
powers only during war time. But in 1 8 3 3 the Governor
General was vested with additional financial powers. It was
not until 1860 a tax on income was levied in India by
British rulers. Only in 1886 a systematic legislation on
income tax was enacted. The super tax was imposed for the
first time in 1917. But, the Income Tax Act 1922 was
enacted largely based on Government of India Act 1 9 1 9 . It
was in vogue for four decades, though it was amended 29

times to accommodate the recommendations of several Taxation

Enquiry Commissions (Mittal, 1986).

With reference to tax structure, in 1860 when the

systematic taxation on income was first introduced in India

the tax rate was only 2 per cent on income between Rs. 200
to Rs.500 and it was 4 per cent on income above Rs. 500.

Upto Rs.2,000 and a standard rate of 5 pies per rupee was

applicable to all income above Rs.2,OOO. But, in 1916 the

principle of gradation came into force and for incomes in

different brackets, different rates of tax were prescribed.
A super tax was also imposed in 1917 (Mittal, 1986). In
1950-51 the tax rate was 9 pies for income from Rs.1,500 to
*
Rs.5,000 and it was 4 annas beyond Rs. 15,000. The
Marginal tax rate worked out from a minimum of 4.69 per cent

to a maximum of 25 per cent. A super tax was imposed beyond

Rs. 25,000 that ranged from 3 annas to 8 annas and 6 pies

per rupee (Krishna Rao, 1987).

Regarding the exemption limit, it was Rs.200 in 1860

and was gradually raised from time to time to adjust to the

ever moving price situation upward. It was Rs.2,000 from

1922 to 1947 and was raised to Rs.3,600 in 1950-51. The

exemption limit kept rising to Rs. 4,200 upto 1957-58. ~t

-------------------
* One rupee = 16 annas; one anna = 12 pies.
was the then Finance Minister T.T. Krishnamachari who
reduced the exemption limit from Rs. 4 , 2 0 0 to R s . 3 , 0 0 0 . It
remained unaltered at Rs. 3000 until 1965-66.

The Income Tax Act 1961, an exhaustive piece of

legislation on taxation that came into effect on 1st April
1962 was a milestone in the chequered history of income
taxation in India. The political transition from British to
Indian necessitated passing of the Act in 1961. It was also
subjected to several amendments by successive governments at
the centre who had divergent policies and programmes.

For examining the changes in the structure of personal

income taxation, the post 1961 period may be divided on the
principle of stability of the government, by the year 1975;
before which the country had Congress governments
unchallenged, strong and stable. The Janatha government
that came to power in 1977 set a new trend in the political
history of the country, But it a190 marked the beginning of
political instability and short-lived governments at the
centre. Even post Janatha Congress government could not
resume the pre 1977 vigour in the parliament and therefore
surrendered itself to the continuing trend of soft

statecraft.

A glance at the parallel history of the income taxation

and government at the centre brings to light that there has
been a close correlation between political economy and the
tax policies of the government. This relationship can be
established on the basis of tax rate and exemption limit
over the years and it is explained below:

Table 3.1 shows the exemption limits, minimum and

maximum tax rates with surcharge for the period from 1961-62
to 1995-96. In 1961-62 the tax rate was three per cent
minimum and 70 per cent maximum with a surcharge varying
from 5 per cent to 20 per cent beyond Rs. 7,500. In 1971-
72, it reached a record rate of 85 per cent maximum with a
minimum of 10 per cent and also with a surcharge of 10 per
cent for all tax payers. The minimum tax rate was the
highest with 30 per cent, while the maximum of 60 per cent
ruled in 1982-83 and 1983-84. The tax rate was 20 per cent
minimum and 50 per cent maximum in 1990-91 with 8 per cent
surcharge above Rs,75,000. It remains at a comfortable
maximum of 40 per cent without any surcharge in 1995-96.

It may be noted from the table 3.1 that the tax

liability was the highest with 97.75 per cent including
surcharge in 1972-73, 1973-74 and 1974-75 and it is the
lowest with 40 per cent in 1995-96. The jump from 97.75 per
cent in 1974-75 to 77 per cent in the very next year 1975-76
and also with the exemption limit raised from Rs. 5,000 to
Ra. 6,000 clearly indicates that the government during
Mrs. Indira Gandhi's emergency gave an opportunity for the

tax payers for better tax compliance and simultaneously

followed strict enforcement of tax laws that resulted in the

improved collection of personal income tax revenues.

Similar policy has been pursued by the successive
governments at the centre with the twin objectives of
additional mobilisation of income tax and to woo the vote
bank.

The above drastic changes in the tax rate, exemption

limit, socio-economic and political factors might have

contributed to the mobilisation of personal income tax

revenue in India over the years. To examine this

perspective, the analysis of trend and pattern of personal

income taxation is the most appropriate one. On this

background the present chapter identifies the trend and
pattern of personal income taxation in India during 1 9 6 2 - 6 3
*
to 1988-89.

Hethodology

Simple ratios and percentages were employed to examine

the trend and pattern of personal income taxation. Further,

-------------------
* The data pertaining to income tax across different income
ranges are available upto 1988-89. Hence, for the purpose
of comparison across different income ranges, we employed
the data upto 1988-89. However, for identifying the
determinants of personal income tax, we considered the data
upto 1992-93.
the linear growth rate is computed to identify the growth of
personal income tax payers, income as~essed and the tax
payable and it is presented in the following form:

Where,
Y 1 = number of tax payers,

Y2 = income assessed,

Y3 = personal income tax payable,

T = trend, and
u = random error.
1
Linear growth rate = ( B-:- ) 100
Yi

We employed 'z'test statistic to test the null

hypothesis such that there is no significant difference
against the alternative hypothesis that there is a
significant difference in the growth rates (number of tax
payers, income assessed and amount of tax payable) when we
move from political stability to instability. The computed
'z'statistic is presented below:
 ... n .I
+ n2 - 2 d. f .

Where,

GL = growth rate during 1962-1975,

G2 =
growth rate during 1975-1989,

d2L = variance during 1962-1975,

d22 = variance during 1975-1989, and

n*& nz = sample size during the two phases.

Since different tax rates were applicable to different

income ranges and also the super tax was payable beyond a
level of income under the 'slab' system of taxation, the tax
payers were grouped according to the income ranges. They
were classified into as many as 19 groups in 1962-63 and
only into nine groups in 1988-89. For the purpose of
clarity, simplicity and comparability of data the present
study groups the tax payers into four categories based on
their income ranges; viz., those with income of Rs.20,000
and below, those with income from Rs. 20,000 to Rs. 50,000,
those with income of Rs. 50,000 to Rs. 1,00,000 and
others with income above Rs. 1,00,000.
 Consumer price index of 1 9 8 2 - 8 3 is used to adjust the
nominal values of income assessed and the tax payable. In
addition, the time span is divided into two phases ( 1 9 6 2 -

1 9 7 5 and 1 9 7 5 - 1 9 8 9 ) to identify the influence of political

instability on personal income tax collections.

Empirical Results and Discussion

There are three important variables associated with the

personal income taxation - the number of tax payers, income
of the tax payers assessed for the purpose of income
taxation and the amount of tax payable. Hence, the analysis
of trend and pattern of personal income taxation is
classified as follows:

1. Number of personal income tax payers,

2. Income assessed and

3, Amount of tax payable.

1. Number of Tax Payers

Table 3.2 presents the trend of personal income tax

payers in different income ranges. The total number of tax
payers shows an increasing trend from 9 , 6 1 , 8 4 1 in 1962-63 to
20,51,635 in 1 9 7 5 - 7 6 and shows varying trend afterwards, to
the lowest of 8,33,759 in 1 9 8 3 - 8 4 and to the highest of
30,83,306 in 1988- 89. The year 1 9 7 5 - 7 6 has been chosen as
the dividing year in all the discussions in the present
study; because the year paved for a new political system
with an internal emergency affecting severely$the political
and economic propile of the country, The decline in the
number of tax payers from 20,51,635 in 1 9 7 5 - 7 6 to 1 4 , 6 3 , 2 8 6
in 1 9 7 9 - 8 0 was due to policy of liberalisation that started
peeping in with the first non-congress government at the
centre. The liberal policies of taxation left many citizens
untaxed based on their income with raised exemption limits.
The trend further declined in 1 9 8 3 - 8 4 but the situation
improved in 1 9 8 8 - 8 9 . The improvement may be due to natural
growth rate of tax payers with reduced tax rates and less
evasion and also with accelerated economic conditions. In
addition, the percentage of personal income tax payers to
the total population of the country was only 0 . 2 1 in 1 9 6 2 -
63. It gradually rose to 0 . 3 4 per cent in 1 9 7 1 - 7 2 and in
1975-76 it dipped downward 0.12 per cent in 1 9 8 3 - 8 4 and
again rose to 0 . 3 8 per cent in 1 9 8 8 - 8 9 .

However, the group-wise number of the tax payers

presents a different view. The low income group which
constituted 92.02 per cent in 1 9 6 2 - 6 3 declined to 1 5 . 5 1 per
cent of the total personal income tax payers in 1 9 8 8 - 8 9 .
This is undoubtedly due to soft treatment of this group by
the successive governments by raising the exemption limit to
cope up with the inflationary situation over the years.
Alternatively, all the other groups were subjected to

compensatory taxation. There has been a consistent increase

from 6.73 per cent to 63.37 per cent in the case of people

with income of Rs. 20,000 to Rs. 50,000. It increased from

one per cent to 17.24 per cent in the case of Rs. 50,000 to
Rs.1,00,000 income range and from 0.25 per cent to 3.88 per

cent in the case of tax payers with income over

Rs. 1,00,000. It may be noted that the tax payers in the

middle income group of Rs. 20,000 to Rs. 1,00,000 put

together, constituted only 7.7 per cent in 1962-63 and their
share in the total rose to 80.61 per cent in 1988-89. This

group of tax payers, which currently bears the major tax

liability, forms service income earners, salaried class
including government employees, in whose case the incidence
of tax evasion is the least and on whom the tax net falls

sure and wide.

Table 3.3 shows the linear growth rate of tax payers

for the year 1962-1989. The linear growth rate of number of

tax payers worked out to be 2.27 per cent during 1962-1989.
But, the linear growth rates of number of tax payers are

2.88 per cent and 3.81 per cent during the periods of
political stability and instability respectively. Further,
the linear growth rate of number of tax payers across
different income ranges also showed mixed performances.
 We formulated a null hypothesis that there is no
significant difference in the growth rate of number of tax

payers against the alternative hypothesis that there is a

significant difference in the growth rate of number of tax

payers across different income ranges during 1 9 6 2 - 1 9 7 5 and

1975-1989. The computed results of 'z'reveal that there is

a significant difference in the growth rate of personal
income tax payers during 1 9 6 2 - 1 9 7 5 and 1 9 7 5 - 1 9 8 9 across all

the income ranges considered in our study. This is due to

changes in political certainty to political uncertainty

which resulted in drastic changes in the taxation policy

during the two phases.

2 . Income Assessed

The trend of income assessed in different income ranges

is presented in table 3.4. In the case of total income

assessed, there has been a continuous increase from
Rs. 92,312 lakh in 1 9 6 2 - 6 3 to Rs. 1 3 , 2 9 , 0 8 9 lakh in 1988-89

except for a decline in the year 1983-84. During the same

year the percentage of income assessed in relation to Gross
Domestic Product declined from 6.2 to 3.36. Income range

wise, the table shows that the first income range of Rs.
20,000 and below which constituted 67.66 per cent of the

total income assessed in 1962-63 declined to just 6.94 per

cent in 1988-89; while the other groups recorded an
increase. Again the second and third groups comprising an
income of Rs. 20,000 to Rs. 1 , 0 0 , 0 0 0 constituted only 27.4

per cent of the total income assessed in 1962-63 and

increased to 7 4 . 3 1 per cent in 1 9 8 8 - 8 9 . This is perhaps due
to effective tax compliance and compensatory taxation on

this group to make the loss right by giving concessions to

the lower income group. The income of the highest income
group with above Rs. 1,00,000 reasonably showed an uptrend

from 4.94 per cent to 18.75 per cent, to the total income
assessed for taxation.

The linear growth rate of the income assessed in

respect of personal income tax payers during 1 9 6 2 - 1 9 8 9 is

presented in table 3.5. The linear growth rate of income

assessed in nominal terms of the tax payer is 8.95 per cent
during the study period. However, the growth rates are only
7.72 per cent and 15.08 per cent during 1 9 6 2 - 1 9 7 5 and 1 9 7 5 -
1 9 8 9 respectively. But in real terms the growth rates of

income assessed of the tax payers are not statistically

significant except in 1 9 7 5 - 1 9 8 9 . In addition, the growth

rate of income assessed in nominal and real terms across

different income ranges showed mixed results.

We formulated a null hypothesis, that there is no

significant difference in the linear growth rate of income

of the t a x payers against the alternative hypothesis that

there is a significant difference in the linear growth rate
of nominal and real income assessed across different income
ranges during 1962-1975 and 1975-1989. It is inferred from
the results of computed 'z' value that there is a

significant difference in the linear growth rate of nominal

and real income assessed across all the income ranges during
the periods of political stability and instability. This is
due to political uncertainty and drastic change in the
taxation policy and liberalisation after 1977.

3 . Tax Payable

Tax liability is solely measured by the income of the

tax payer in the case of personal income taxation. The
personal income tax is rather branded 'selective', since it
falls on the selected few of the total tax payers in the
country, It is noted in the present study that on the
highest side only 0.38 per cent of the total population pays
personal income tax in India. A perusal of the trend of

personal income taxation brings many facts to light. Since

different tax rates were applicable to different income
ranges under progressive and slab system of taxation and
also a surcharge was payable beyond a level of income, the
taxation system itself divided the tax papers to form a few
income brackets.
 In the above context, let us have a overall picture of
mobilisation of personal income taxation. The results of
trend of personal income tax in relation to Gross Domestic
Product, Public expenditure, total tax revenue, total direct
tax revenue, total revenue o f the central government, total
tax revenue of the centre and total direct taxes of the
centre are presented in table 3.6 for a comprehensive
analysis during the study period. The table shows that the
personal income tax revenue increased from Rs. 11,835 lakh
in 1962-63 to Rs. 2,45,603 lakh in 1988-89. During the
same year, the per capita personal income tax in nominal
terms showed an increasing trend from Rs. 1,230 to Rs. 7,965
and it showed a declining trend in real terms from Rs.5,591
to Rs.4,659. Though the trend has been continuous in
nominal terms upward, it has had a 'U' trend in real terms
with the lowest point in 1975-76 with Rs.2,923. In relation
to the Gross Domestic Product the percentage of personal
income taxation was 0.795 per cent in 1962-63 and it
constituted 0.622 per cent in 1988-89 with a lowest score of
0.20 per cent in 1983-84. It showed a decline from 3.52 per
cent to 2.12 per cent in relation to public expenditure with
the lowest score of 0.71 per cent in 1983-84. In terms of
total tax revenue it showed a declining trend from 6.35 per
cent to 3.67 per cent with the lowest count in 1983-84 with
1.25 per cent. In terms of direct tax revenue, the personal
income taxation showed varying trend. In addition, the

results indicate that the personal income tax has been

claiming lesser importance over the years in terms of total

population of the country and also in terms of Gross

Domestic Product. Its importance is on the increasing side

only with regard to direct taxes but in the case of total

taxes it has been losing its role gradually.

A look at the central revenue structure reveals

interesting but useful information from the policy

perspective. As shown by table 3.6, the personal income tax

revenue has not been strengthening the financial position of

the centre during the period of the study, since its share
in the total revenue declined from 12.78 per cent in 1962-63

to 9.83 per cent in 1988-89 and its share in total tax

revenue also declined from 17.53 per cent t o 12.67 per cent
during the same period. This shows that the government of

India has been looking for relatively more yielding but less

complaining taxes. This shift has a democratic and

political significance. Nevertheless, the personal income
tax has come handy to the rescue of the central exchequer as
far as the direct tax revenue is concerned as shown in the
table 3.6. In the direct tax revenue of the cenkre, the
personal income tax revenue constituted only 57.48 per cent

in 1962-63 but it showed an upper hand with its share of

70.45 per cent in 1988-89. With the present strong position
among the direct taxes of the centre, personal income
taxation is sure to have its own role in the central
taxation. This warrants the government of India to have a
stable and remunerative policy on the personal income
taxation in the years to come.

In the light of the above discussion on the relative

importance of personal income taxation in the revenue and
tax structure of the economy in general and the government
of India in particular, a further discussion of personal
income tax according to the different income ranges is
worthwhile. Hence, the present study grouped the tax payers
**
subjected to personal income taxation into four categories
according to their income and it is presented below:

A. Below Rs. 20,000

8. Rs. 20,000 - Rs. 50,000

C. Rs. 50,000 - Rs.1,00,000

D. Above Rs. 1,00,000.

In the above context, it is essential to examine the

relative importance of personal income t a x collection across
different income ranges. This will be immensely useful to
know the relative importance of the personal income tax
collection across the selected income ranges. The personal
-------------------
* * For justification of this classification see chapter
one.
income tax payable from 1962-63 to 1988-89 across selected

i ~ ~ ~ o ranges
me are presented in table 3.7. The total
personal income tax payable shows a persistent increase from
Rs. 11,035 lakh to Rs. 2,45,603 lakh during the period. But
this increase has not been uniformly distributed among the
different income ranges. Among the four income ranges in
1962-63, there was near equal distribution with a minimum of
20.9 per cent to 32.52 per cent maximum in the case of first
income bracket and second income bracket respectively. This
trend almost continued till 1983-84. But there has been
sliding trend in the first income bracket after 1975-76 with
29 per cent t o 0.77 per cent in 1988-89. The lower income
bracket tax payers were treated very softly and the
resultant shift has been towards the other three groups.
Various concessions and incentives including the reduction
of tax rates and raising of the exemption limit favoured the
first income bracket with eased income tax liability. The
second group with Rs.20,000 to Rs.50,000 also enjoyed
relative favour from the taxation authorities with their
liability having been reduced from 32.52 per cent to 26.28
per cent during the period. But the third and fourth income

brackets were relatively taxed heavily whose share in the

tax liability rose from 48.30 per cent to 72.94 per cent,
 After examining the relative importance of personal

income tax collection across the selected income ranges, let

us examine the trend and relative importance in terms of
different indicators of each selected income range and it is
presented below:

A. Tax Payable: Income Below Rs. 20,000

This group of tax payers belongs to low income group

among the tax payers. They form the lowest income class in
1988-89 that was subjected to a tax on personal income.
Since the exemption limit was Rs. 18,000 in 1988-89 the
class of tax payers with an income of Rs. 20,000 needed to
pay only Rs. 500 as personal income tax for Rs.2,000 (at the
25 per cent tax rate prevailing in the year), over and above
the exemption limit and on the assumption that they did not
enjoy any other concession or incentive available to the
personal income tax payers. Besides, as shown by the table
3.1, this group of tax payers were left untaxed in 1992 with
the exemption limit raised to Rs. 22,000, and they continue
to fall out the the income tax net since then (with the
exemption limit standing at Rs. 40,000 now).

Table 3.8 reveals the trend results of tax paid by the

class of tax payers whose income is below Rs. 20,000. It:
showed an increasing trend from 1962-63 to 1979-80 and
declined sharply in 1988-89 due to reasons explained above.
The per capita pereonal income tax in nominal terms
increased upto 1983-84, but fell sharply in 1988-89.
However, in real terms it declined from Rs.1270 in 1962-63
to Rs. 221 in 1988-89. Since this group formed volatile
among tax payers with concession extended to them by the
successive governments, their share in the Gross Domestic

Product shrank from 0.17 per cent in 1962-63 to a negligible

level of 0.005 per cent in 1988-89. In terms of public

expenditure their share got reduced from 0.73 per cent to

0.016 per cent during the period of study. Even in terms of

total tax revenue and direct tax revenue their share has

been negligibly minimum with less than 0.2 per cent in 1988-
89.

8. Tax Payable: Income Range of Rs. 20,000 - Rs. 50,000

The second income bracket and their relative importance

are shown in table 3.9. It can be noticed from the table
that the personal income tax revenue collected from this

group of tax payers rose from Rs. 3,767 lakh in 1962-63 to

Rs. 64,547 lakh in 1988-89. In nominal terms, the per
capita personal income tax paid by this group showed an
inverted 'U' trend. The per capita tax paid by this group
was Rs. 5,819 in 1962-63 which rose to Rs. 7,314 in 1975-76
but declined to Rs.3,304 in 1988-89. The rise in the per
capita tax revenue may be associated with better tax
compliance and enforcement of tax laws in the year and
decline later may be due to concession extended even to this
class of tax payers. However, in real terms there has
always been a declining trend from Rs.26,453 in 1962-63 to
Rs.1,932 in 1988-89.

The table also indicates the relative share of personal

income tax paid by the tax payers with an income range of
Rs.20,000 to Rs. 50,000. In terms of Gross Domestic
Product, the share of tax paid by this group declined a

little from 0.25 per cent in 1962-63 to 0.16 per cent in

1988-89. During the same year, in terms of public
expenditure, it declined from 1.1 per cent to 0.56 per

cent. In relation to total tax revenue, its share declined

from 2 per cent in 1962-63 to 0.96 per cent in 1988-89. But
in relation to direct taxes, its share remained almost
constant around 6 per cent, except in 1979-80. This shows
that the group of tax payers in this income range is a
potential group claiming a consistent position in the direct
tax revenue.

C, Tax Payable: I n c o m e R a n g e of Rs. 50,000 - Rs.1,00,000

Table 3.10 presents the relative position of the tax

payers in the income range of Rs. 50,000 to Rs. 1,00,000.

This along with the highest income range group generally

f o r m s t h e more p o t e n t i a l g r o u p f o r t h e p u r p o s e of p e r s o n a l

income t a x a t i o n . The t a b l e shows t h a t t h e y c o n t r i b u t e d R s .

2,632 l a k h t o t h e e x c h e q u e r i n 1962-63 b u t c o n t r i b u t e d a s

much a s R s . 8 4 , 1 9 7 l a k h i n 1988-89. ~ h o u g ht h e t o t a l t a x

revenue mobilised f r o m t h i s g r o u p showed a n increase, it

r e c o r d e d a d e c l i n e i n nominal t e r m s from R s . 27,334 i n 1962-

63 t o Rs. 1 5 , 8 4 1 i n 1988-89. This reveals the fact that

a v e r a g e t a x b u r d e n i s l e s s e v e n among t h i s t a x p a y e r g r o u p .

S t i l l i n t e r e s t i n g i n f o r m a t i o n i s p r e s e n t e d b y t h e real p e r

c a p i t a t a x p a i d by t h i s g r o u p . The c o n c e r n e d c o l u m n i n t h e

t a b l e shows t h a t t h e r e a l p e r c a p i t a t a x h a s come down f r o m

Rs. 1 , 2 4 , 2 4 5 to o n l y Rs. 9 , 2 6 3 b e t w e e n 1962-63 a n d 1988-89.

The s h a r p f a l l i n t h e p e r c a p i t a p e r s o n a l income t a x i n r e a l

terms p r o v e s t h a t t h e real b u r d e n o f t a x e v e n o n t h i s g r o u p

of tax payers has d e c l i n e d o v e r t h e y e a r s .

I n r e l a t i o n t o t h e Gross Domestic Product a n d o t h e r

variables, t h i s g r o u p p r o v e d t o be v e r y p o t e n t i a l f o r t h e

purpose of personal income t a x a t i o n . Their share in the

G r o s s D o m e s t i c P r o d u c t w a s 0.18 p e r c e n t i n 1962-63 which

r o s e t o 0 . 2 1 p e r c e n t i n 1988-89. But r e l a t e d t o public

expenditure, their share remained surprisingly constant

around 0.7 p e r c e n t e x c e p t f o r a s h a r p d e c l i n e i n 1983-84 t o

0.42 p e r c e n t . Similarly, t h e i r s h a r e i n d i r e c t t a x revenue

was 4.7 p e r c e n t which f e l l t o 2.6 p e r c e n t i n 1 9 8 3 - 8 4 a n d

again rose to 8.63 per cent in 1 9 8 8 - 8 9 . From the table it
is also noted that the fluctuations in the year 1 9 8 3 - 8 4 may
be due to alternative liberalisation and competitive
concession given to the tax payers of relatively higher
income groups.

D. Tax Payable: Income Above Re. 1 , 0 0 , 0 0 0

Table 3.11 shows the relative importance of income tax

of the highest income group in India. They form the tax
payers with over Rs. 1 , 0 0 , 0 0 0 of income. In 1 9 6 2 - 6 3 , this
group was considered to be the highest income category and
subjected to highest tax rate; but with the successive
liberalisation of tax policies since 1974-75 with upward
moving exemption limit and downward moving tax rate, this
group of tax payers have also been extended relative
benefits, compared to earlier periods.

The table shows that the tax mobilised from this class
of tax payers formed Rs. 2,963 lakh in 1 9 6 2 - 6 3 which rose to
Rs, 94,957 lakh in 1988-89, However, their number is
relatively small compared to the other groups. Therefore,
their per capita tax collection has always been high both in
nominal and real terms. This group of tax payer paid a per
capita tax of Rs. 1,22,589 even in 1 9 6 2 - 6 3 . The trend
persisted till 1983-84 but declined t o Rs. 79,287 in 1 9 8 8 -
89. They paid still more in per capita real terms ( 1 9 8 1 - 8 2
prices) to the tune of R s . 5 , 5 7 , 2 2 2 in 1962-63 which showed
a falling trend continuously and stood at Rs. 46,367 in
1988-89.

Naturally this group which is expected to contribute

more to the central exchequer, did so in terms of Gross
Domestic Product, though their number was relatively
smaller. Their share in the Gross Domestic Product was
0.199 per cent in 1962-63 which rose to 0.24 per cent in
1988-89. In terms of Public expenditure their share remained
at around 0.8 per cent during 1962-63 to 1974-75 and
thereafter declined gradually. Though in terms of total tax
revenue their share is less, they proved their importance in
the direct taxes with an increased claim from 5.3 per cent
in 1962-63 to 9.73 per cent in 1988-89.

In the light of above discussion pertaining to personal

income taxation across the different income ranges, its
linear growth rate is computed and its results are presented
in table 3.12. The results reveal that the linear growth
rates of nominal and real personal income tax during the
study period are 10.3 per cent and 2.59 per cent
respectively. The growth rates of nominal personal income
tax are 9.56 per cent and 1 6 . 7 4 per cent during 1962-1975
and 1975-1989 respectively. During the same years the
growth rates in real terms are 2.63 per cent and 7 . 9 1 per
cent respectively. Similarly, the results of linear growth
rate of nominal and real personal income tax across
different income ranges during the study period showed mixed
results.

We formulated a null hypothesis, that there is no

significance difference in the linear growth rate against
the alternative hypothesis that there is a significant
difference in linear growth rate of nominal and real
personal income tax between 1962-75 and 1 9 7 5 - 8 9 , across
different income ranges. The result reveals that there is a
significant difference in the linear growth rate of nominal
and real personal income tax during the two phases across
all income ranges.

Concluding Remarks

The present chapter examined the trend and pattern of

personal income taxation in India. Simple ratios,
percentages and linear growth rates were computed for
examining the objectives. Further, the whole time span is
divided into two phases 1962-1975 and 1 9 7 5 - 1 9 8 9 t o identify
the influence of change from political stability to
political instability on the mobilisation of personal income
tax.
The analysis of tax rate and exemption limit of
personal kncome tax reveals that the goverment of
Mrs. ~ n d i r aGandhl durlng emergency provided an opportunity

to the tax payers for better tax compliance and

s~multaneouslyfollowed strlct enforcement of tax laws that

resulted in lmproved collection of personal income tax

revenues. Slmllar policy has been pursued by successive

governments at the centre with the twin objectives of

additional mobilisation of Income tax and to woo the vote
bank. c * e eP ~ -t
4-
The total number of tax payers shows an Lnc
trend from 9,61,841 in 1 9 6 2 - 6 3 to 2 0 , 5 1 , 6 3 5 in 1 9 7 5 - 7 6 and
varying trend afterwards, to the lowest of 8 , 3 3 , 7 5 9 in 1983-
8 4 and t o the highest of 3 0 , 8 3 , 3 0 6 in 1 9 8 8 - 8 9 . The decline
in the number of tax payers from 20,51,635 in 1 9 7 5 - 7 6 to
8,33,759 in 1983-84 was due to the p o l ~ c yof liberallsatlon.
It left many cltizens untaxed on the basis of income w ~ t h
revised exemption limits. The improvement in the number of
tax payers after 1 9 8 3 - 8 4 may be due to natural growth of tax
payers and accelerated economic activities. The group of tax
payers which currently bears the major tax liability forms
service Income earners, salaried class and government

employees.

The analysis of income assessed in different income

ranges reveals that the second and third groups with an

income of Rs. 20,000 to Rs.

per cent of the total income assessed in 1 9 6 2 - 6 3 but it
increased to 7 4 . 3 1 per cent in 1988-89. This is due to

effective tax compliance and compensatory taxation on this

group to make the loss right by giving concessions to the
lower income group.

With regard to tax liability of personal income tax

payers from 1962-63 to 1988-89, the trend showed a

persistent increase from Rs. 1 1 , 8 3 5 lakh to Rs. 2,45,603

lakh during the period. But this increase has not been
uniformly distributed among the different income ranges of

tax payers. Among the four income ranges in 1 9 6 2 - 6 3 there

was a near equal distribution with a minimum of 20.9 per
cent and to a maximum 32.52 per cent in the case of first
and second income brackets respectively. But in 1 9 8 8 - 8 9 the
lower income bracket tax payers were treated softly with a
reduction of tax rates and raising of exemption limits. The
second group also enjoyed relative favour from the tax
administrators with reduced tax liability. But the third

and fourth income brackets were relatively taxed heavily,

whose share in the total tax liability rose from 48.3 per
cent to 72.94 per cent during the study period.

A perusal of personal income tax in terms of central

government revenue structure divulges that it has not been
strengthening the financial position of the centre during
the period of our study, since its share in the total
revenue of the centre declined from 12.78 per cent 1962-63
to 9.83 per cent in 1988-89 and its share in terms of total.
tax revenue also significantly declined.

However, the share of personal income tax in the total

direct taxes of the central government showed a
considerable improvement over the years. At present
personal income tax occupies a strong position in the direct
taxes of the centre and it will continue to play its major
role in the central taxation, Therefore, it is imperative

for the government of India to have a stable and

remunerative policy on personal income taxation in the years
to come.

Per capita personal income tax in nominal terms

increased from Rs. 1,230 in 1962-63 to Rs.7,965 in 1988-89

and during the same period it showed a decline in real
terms from Rs. 5,591 to Rs. 4,659. Though the trend has
been continuous in nominal terms upward, it has had a 'U'
trend in real terms with the lowest point in 1975-76 with
Rs. 2,923. Further, in relation to other macro economic
variables such as gross domestic product, public expenditure
etc., the personal income taxation has been losing its
importance.
 Income range-wise discussion reveals that the lower
income group has been benefitted by competitive raising of
the exemption limits and the other groups have also been
shown relative hospitality with reduced tax rates, besides
concessions and incentives for savings and productive
investment, over the years. The analysis of the growth
rate of different indicators of personal income tax proves
that there is a significant difference in the growth rate of
number of tax payers, income assessed and the tax payable
during the 1962-1975 and 1975-1989.

REFERENCES

Mittal, Satya Narayan ( 1 9 8 6 1 , C e n t r a l T a x a t i o n o f Income i n

I n d i a s i n c e 1951, B .R. Publishing Corporation, New
Delhi.

Rao, Ch. A. Krishna ( 1 9 8 7 1 , P e r s o n a l Income Taxation i n

I n d i a , Chugh Publications, Allahabad.

Thavaraj. M.J.K. (19921 , F i n a n c i a l A d m i n i s t r a t i o n of India,

Sultan Chand, New Delhi,
 TABLE 3 . 1

EXEMPTION LIMIT, MINIMUM AND MAXIMUM

TAX RATES FROM 1961-62 TO 1995-96
Year gxemption T a r R a t e Surcharge Surcharge Tar Including
Liait --..---------------Percent Applicable Surcharge
Hinimun Marimu~ Minimum Maximum
Percent Percent Percent Percent

1964-65 3,000 6 75 0 - 24.167 Nil 0-10000

12.5 10-25000
15.0 25-75000 6.00 93.125
17.5 75-100000
24.161 )100000

A1 1 5,50 82,50

All 11.00 93,50

1975-76 6,000 12 70 10 All 13.20 77.00

1976-77 8,000 17 70 10 All 18.17 77.00

1977-78 8,000 15 60 10 All 16.50 66.00

Table 3.1 contd,

----------------------------------------------------------------------------------*------------

1978-79 & 10,000' 15 60 15 All 17,25 69.00

1979-80
1980-81 10,00Of 15 60 20 All 18.00 72.00
1981-82 12,0OOk* 15 60 10 All 16.50 66.00

1986-8?& 18,000 25 50 NIL IIL 25.00 50.00

1987-88

1994-95 35,000 20 40 NIL RIL 20.00 40,OO

1995-96 40,000 20 40 NIL AIL 20.00 40.00

--------------------------------"------------------
Source: Budgets of Union Government for different years.

Rote: If exceeds Rs. 10,000 tax i s payable frob Rs.8,ODD.

" If eaceeds Rs, 12,000 tar is payable from Rs.8,000,
 TABLE 3 . 2

TREND OF PERSONAL INCOME T A X PAYERS

IN DIFFERENT INCOME RANGES
Year Rs. 0-20,000 Re, 20,000 t o Rs.50,000 to Above Rs, All Percentage of
50,000 100,000 100,000 Rangee population

Note: "Figures i n parenthesis indicate percentage of t o t a l

number of t a x payers.
 TABLE 3 . 3

LINEAR GROWTH RATE OF NUMBER OF PERSONAL INCOME

TAX PAYERS
.....................................................................................
Year---) 1962-89 1962-75 1915-89 Inference of
Incone range '2' s t a t i s t i c
.....................................................................................
R8.D-20,000 -2.41' 5.113* -9.8If I

I
I
Rs.20,000 t o 11.89' 9.5' la.iak I

50,000 : There i s signi-

: ficant difference
Rs.50,OOD t o 15.09' 6.52' 24.96' ) i n the growth r a t e
100,000 : of personal income
: t a t payers during
Ra,100,000 14.13' 5.5*" 24-95' ! 1962-75 and 1975-89.

Note: * Significant a t one per cent level,

'"Significant a t five per cent leve1,and
* * b i q n i ficant a t ten per cent level,
 TABLE 3 . 4

TREND OF INCOME ASSESSED IN DIFFERENT INCOME RANGES

---------------------------*-------------------------------------------------------------

Year Rs. 0-20,000 Rs. 20,000 to Rs.50,000 to Above Rs. All Percent of
50,000 100,000 100,000 Ranges Incomeassessed
to GDP
..........................................................................................
1962-63 62456 18898 6391 4561 92312 6.20
(67.66) (20.47) 16.93) 14.94) (100)

Note: Figures in parenthesis indicate percentage of total incoee aesessed in a y e a r .

 TABLE 3.5
LINEAR GROWTH RATE OF INCOME ASSESSED
---------L-"------_-------------*---.-----------------------------------------------------

Year -) 1962-89 1962-15 1975-89 Inference of

--..------------- -------------- ---------------- ' z' s t a t i s t i c
Income range Roninal Real Nominal Real Nominal Real
..........................................................................................
R840-201000 1.1 -4.84' 7,53' 0.26 -3.76c12.19' 1

R8.20,000 t o 12.37t 5.21' 8.8* 2.04 19.92* l2.4lt :

50,000 : There i s significant
I difference in growth
Rs.50,OOO t o 15.31' 9.54V6.22' 0.04 25.37* 20.31' ) rate of income aaaes-
100,000 : sed both in nosinal
1 and real terms during
Above 1 1962-75 and 1975-89.
Rs,100,000 13.91' 6.49' 7.25* 0.89 24.89' 18.46* 1

All Ranges 8.95' 0,83 ?.72* 0.66 15.08' 5.7" !

-----*--------------------------"------------"---------------------------------------

Note: "Significant a t one per cent level,

" Significant a t five per cent leve1,and
fif significant a t ten per cent level.
 TABLE 3 . 6

TREND OF PERSONAL INCOME TAX IN ALL INCOME RANGES

Year Personal Per Capita Tax % of % of % of % of % of % of % of

Income Tax Nominal Real GDP PE TTR DTR Central Central Central
(Rs.in l a k h ) ( i n rupees Tota 1 Tax Direct
Revenue Revenue Taxes

Note: GDP - Gross Domestic Product,

PE - Public Expenditure,
TTR - Total Tax Revenue,and
DTR - D i r e c t Tax Revenue.
 -4'-
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 TABLE 3.10
TREND OF PERSONAL INCOME TAX IN THE INCOME
RANGE OF Rs. 5 0 , 0 0 0 t o Rs.1,00,000.

Year Personal Per Capita Tax % of % of % of % of

Income Tax Nominal Real GDP Public Total Total
(Rs.in l a k h ) ( in rupees ) Expendi- Tax Direct
ture Revenue Taxes
 TABLE 3.12

LINEAR GROWTH RATE OF PERSONAL INCOME TAX PAYABLE

.....................................................................................
Year -) 1962-89 1962-75 1975-89
---------------- -"----"------- ---------------- Inference of
Income range Nominal Real Nominal Real Wo~inal Real 'z' s t a t i s t i c
-------------------------------------------------------------------------------------
Rs.0-20,000 -0.368 - 4 . 5 9 V 1 . 0 7 ' 4.21"13.68' -18,53' 1

Rs.0,000 to 9.610' 2.34' 9.92' 2.99'" 13.6* 4.6qkk 1 There i s signi-

50,000 I ficant difference
: i n grouth rate of
Rs.50,000 t o 13.67U.85' 7-55' 0.71 22,56' 16,26* ) income tax payable
100,000 I i n nominal and real
: terms during 1962-75
Above : and 1975-84.
Rs.l00,000 11.82' 3.69' 8.65V.8 21.6tt 13.73"
b

All Ranges 10.3 2-59' 9.56* 2,63'" 16.74' 1,91t :

Rote: * Significant a t one per cent level,

" "gnificant a t five per cent level, and
**' significant a t ten per cent level.