Taxation in Hindu Law

I refer to A.L. Basham, "The Wonder That Was India", London: Sidgwick and Jackson, 1954. The fiscal norms alluded to below are extracted from Sanskrit legal texts and the Arthashastra. These principles were the ideal, not necessarily the reality of public finance in early India. Moreover, the literature is too vast to do justice to the subject in just 200 words. This note is not intended to be comprehensive. The idea is to merely provide a flavor of the concept.

The Smritis reiterate that taxes should never act as a check on trade, industry and individual initiative. They should be fixed in such a manner as to allow a profit to the tax payer. Articles of commerce can not be taxed twice. There can be no increase in taxation without adequate notice. Moreover, a state is only entitled to tax the populace if it affords protection to the citizenry. The ideal tax is likened to "a bee that extracts honey without damaging the flower"! The literature adds, however, that all norms can be jettisoned in times of financial exigency and crisis.

The legal texts uphold a tax that is 1/6th of ones income while the Arthashastra stipulates a 1/4th tax on fertile lands. The land that has just been brought under the plough is not to be taxed immediately. The agricultural tax is to be remitted in times of bad harvest. A tax holiday was the norm for villages investing in irrigation and public works. A defaulter was to be evicted from his land, but only after one year's notice. The tax was to be assessed on total income minus expenditure incurred i.e. on the net profit rather than on asset value. Women, children, students and men of religion were tax exempt. Temples were subject to a reduced tax. The state levied a water tax for irrigation services provided. Essential goods, such as grain, sugar and salt, were to be taxed at 1/12th their value.

There was a tax on livestock, commercial establishments and houses, the revenue of which was allocated for the expenditure of the village council. The state levied a toll tax on roads in exchange for insurance cover for the traveling merchant. The toll tax was 1/5th the value of the commodity. It, otherwise, exacted a 10% tax on merchandise. Merchants importing foreign goods could claim a remission of the trade tax. The intent was to encourage foreign trade.

Nilakantha, a medieval jurist, asserts that land is the private property of the owner and that a ruler's prerogative is confined to the tax on land. I interpret this to mean property rights. However, the literary evidence is mixed. Sukra, another medieval commentator, advices a king to set aside 1/6th of tax revenue for the treasury, expend 1/12th for charity, 1/12th for public works, 1/12th for the civil service and 1/12th for his personal consumption. The rest is to go for defence.

These principles were the ideal, not necessarily the reality of life in early India. Moreover, not everyone had the wealth to be taxed. Should you be more interested in the subject, I recommend U.N. Ghoshal's classic "Contributions to the History of the Hindu Revenue System" published in Calcutta in 1929 and J.J Angharia's "The Nature and Grounds of Political Obligation in the Hindu State" published in London in 1935.