The author is Reader in Economics, Banaras Hindu University, Varanasi (India) and currently an academic visitor to the London School of Economics. He wishes to express a deep sense of gratitude to Professor A. B. Atkinson, Professor of Economics at the London School of Economics, for his valuable comments and suggestions.

¹ Bhargava, R. N., The Theory and Working of Union Finance in India (1971), p. 7.Google Scholar

² No Harassment Tax is the amount of ‘on money’ or illegal money that the taxpayers generally pay to the tax officials for not being harassed in their tax assessments and getting things done in a smooth manner. Harassment may take several forms such as calling taxpayers to tax offices repeatedly and not completing the assessment on one pretext or the other, frequent adjournments, arbitrary rejection of accounts, making unnecessary additions to profits or income and thus compelling the taxpayers to go in appeal, non-granting of instalments in payment of taxes, etc. All these considerably increase the compliance costs for the taxpayers. In order to minimize such costs in the form of inconveniences, taxpayers generally prefer to pay some ‘on money’ so that their assesments may be completed expeditiously and in the right manner. In such cases, the officials also do not generally work against the law but they grant certain conveniences to the taxpayers. Such ‘on money’ does not depend on the quantum of tax payments involved but differs from case to case depending upon the nature of the tax official and the status which the taxpayer enjoys in the society.

³ Economic Administration Commission Report (EACR), no. 26, para. 4.Google Scholar

⁴ Report of the Taxation Enquiry Commission (1953–1954), vol. II, p. 189.Google Scholar

⁵ Kaldor, N., Indian Tax Reform (1956), p. 105.Google Scholar

⁶ C. B. R. Bulletin, vol. II, June Quarter 1956—Assessment, Notes and Articles, pp. 22–4.Google Scholar

⁷ Direct Taxes Enquiry Committee Final Report (1971) [DTECFR], p. 8.Google Scholar

⁸ Government of India, Ministry of Finance, Aspects of Black Economy in India (Report of a Study by National Institute of Public Finance and Policy), March 1985.Google Scholar

⁹ In the financial year (April-March) 1973–74, tne highest rate of income tax on incomes beyond Rs 200,000 was 85 per cent. In addition, 15 per cent surcharge on income tax was also to be paid. As such, the marginal rate of tax (income tax plus surcharge) in such cases was 97.75 per cent.

¹⁰ Vakil, C. N. and Brahmananda, P. R., Planning for a Shortage Economy—The Indian Experiment (1952), p. 1.Google Scholar

¹¹ Borker, V. V., Income Tax Reform in India (1971), p. 88.Google Scholar

¹² Jain, Anil Kumar, ‘A Note on the Concept of Income Under Indian Income Tax’, Public Finance, vol. 30, no. 1 (1975), p. 90.Google Scholar

¹³ For centuries, the Hindu Joint Family, called the Hindu Undivided Family (HUF) under the Indian Income Tax Act, has been the constituent atom of the social order in India. It is essentially an involuntary association of members of a family and under the Hindu Law, the properties and income of such a family are treated as that of one unit so long as the family continues undivided. The joint family fund has a common nucleus and belongs to all members in their joint capacity. Every member of the family has a right to use the family property irrespective of his interest in the joint family property. The earning members regard themselves as partners of a common concern and this ensures greater love and affection amongst family members. Each member works according to his capacity but gets according to his need. The entire family income is pooled together and is used to meet the expenses of the joint family. To preserve its age-old institution, the HUF has been treated as a distinct and separate taxable entity in India under every Income-tax Act since the Act of 1886.

¹⁴ Jain, Anil Kumar, ‘Tax Avoidance Through Hindu Undivided Family in India’, Public Finance, vol. 29, no. 1, 1974, pp. 121–30.Google Scholar

¹⁵ DTECFR 1971, p. 75.Google Scholar

¹⁶ Report of the Committee on Taxation of Agricultural Wealth and Income (1972), p. 97.Google Scholar

¹⁷ Gulati, I. S. and Gulati, K. S., The Undivided Hindu Family—A Study of its Tax Privileges (1962).Google Scholar

¹⁸ DTECFR, pp. 74–5.Google Scholar

¹⁹ Jain, Anil Kumar, Taxation of Income in India (1975), ch. 10.Google Scholar

²⁰ Lakdawala, D. T., ‘Value Added Tax’, The Indian Economic Journal (10-12 1976), p. 201.Google Scholar

²¹ Board of Inland Revenue (U.K.), 125th Report (1983), p. 40.Google Scholar

²² Public Accounts Committee (1975–1976), Fifth Lok Sabha, 186th Report, p. 84.Google Scholar

²³ Government of India, Aspects of Black Economy in India, ch. 12.

²⁴ Jain, , Taxation of Income in India, pp. 66–7.Google Scholar

²⁵ Under the Voluntary Disclosure Scheme, the taxpayers are generally granted immunity from penalty and prosecution if they declare their undisclosed incomes or wealth within the stipulated date. They have to pay only the rate of tax announced under the Scheme and the tax officials do not ask for the details regarding the sources of such disclosed income or wealth. Thus, such schemes provide an opportunity for tax evaders to convert their black income or wealth into white income or wealth.

²⁶ where Yo = present value of bonds; Yt = maturity value; r = rate of interest and t = time period.

²⁷ Report of the Working Group of Administrative Reforms Commission on Central Direct Taxes Administration, 1968, p. 19.Google Scholar

²⁸ Jain, Anil Kumar, ‘Simplifying the Direct Taxes’, Taxation, vol. 76, no. 3 (03 1985). pp. 165–72.Google Scholar

²⁹ Estimates Committee (1981–82), 29th Report (Seventh Lok Sabha), Direct Taxes-Part II (April 1982), p. 82.Google Scholar

³⁰ Ibid.

³¹ Estimates Committee (1980–81), 9th Report (Seventh Lok Sabha), Income Tax Department (April, 1981), p. 89.Google Scholar

³² Jain, Anil Kumar, ‘Income Tax: Vigorous Prosecution Policy Needed’, The Economic Times, vol. XXI, no. 169 (21 08 1981).Google Scholar

³³ Estate duty has been abolished in India by the Finance Act, 1985 in respect of estates passing on deaths occurring on or after 16 March 1985.

³⁴ Government of India, Ministry of Finance, Annual Report (1984–1985), p. 98.Google Scholar

³⁵ EACR, no. 26, para. 26.Google Scholar

³⁶ Kaldor, , Indian Tax Reform, p. 115.Google Scholar

³⁷ Board of Inland Revenue (U.K.), 119th Report (1976), p. 17.Google Scholar

³⁸ DTECFR, p. 68.Google Scholar