An image has been making rounds on social media platforms in which it has been alleged that during 1971-72, when Congress leader Indira Gandhi was the Prime Minister of India if anyone earned Rs 10 lakhs, he or she would end up paying over 9.33 lakhs as taxes. The information started making rounds on social media in 2020 after Congress leader Shashi Tharoor took a jibe at Finance Minister Nirmala Sitharaman and posted Income Tax rates of 1945.
In the replies, Twitter user Ankur Singh had posted the image of 1971-72 tax slabs that are still making rounds on the social media platforms. If his tweet is to be believed, during that period, anyone with an income of over ten lakhs will end up paying 85% tax and 10% surcharge making it 95% in total.
In 2020, Fact Hunt did a detailed analysis of the Tax Slabs in 1971-72. During their investigation, they found that the image was, in fact, true. Then-Prime Minister Indira Gandhi, who was also the finance minister during that period, had announced the personal income tax slab rates during her Union Budget speech on February 28, 1970.
As per the personal income tax slab rates for the Financial year 1970-71 (The assessment Year 1971-72), the income tax rate was 10% for anyone with income between 5,000 to 10,000. The income tax rate increased at the interval of an additional 5,000 in the income, and those who were earning Rs 30,001 to 40,000 were paying 50% of their hard-earned money as taxes. As the income slab went higher, the tax rate stood at 85% of the total income for those who were earning Rs 2 lakh and above.
The important thing to note here was that the government at that time had also imposed a 10% surcharge on the income if the total income exceeded Rs 5,000.
Former Prime Minister of India, Dr Manmohan Singh was the Chief Economic Advisor of Government of India between 1972 to 1976.
The government wanted to project a pro-left image
According to a report in Observer Research Foundation, Congress had split in 1969. At that time, the government wanted to show its pro-left image where wealth creators are generally seen as parasites. The report read, “This was completely in tune with a politics that saw wealth creators as parasites and high income earning and tax-paying citizens as evil and believed in the distribution of wealth without creating it.”
“The intellectual framework for high taxes was set by Finance Minister CD Deshmukh two decades earlier in his February 27, 1953, Union Budget speech, where he set up the Taxation Enquiry Commission under the chairmanship of John Mathai, with six other members, including VKRV Rao, who recommended a maximum marginal rate of 13.5 annas in the rupee or 85 per cent on incomes above Rs. 150,000, which seemed to them “as far as one can go in present circumstances.” But even high taxes weren’t enough,” it further added.
Further, in 1973-74, the highest tax slab for an individual touched sky-high at 97.50%. It is noteworthy that during that period, such high tax rates discouraged the taxpayers from actively participating in nation-building by paying taxes. Corruption and tax theft became a norm, and even today, the government is often seen as evil when it comes to taxes.
It was only after the recommendations of the Tax Reform Committee, 1991 that the tax rates came down and only three tax brackets of 20%, 30% and 40% were introduced in 1992-92. Further, it was reduced to 10%, 20% and 30% in 1997-98.
