CMA Arif Farooqui

As earlier years, this year too salaried class had so much expectation from budget and as earlier years this year too they are disappointed after budget. No new deductions or no enhanced deductions, no rebate, no parity with self-employed/professionals (who are taxed on net income basis).

IT rates halved to 5% on income below Rs 5 Lakhs but benefit from rate cut is reduced by decreasing tax rebate to Rs 2500 from Rs 5000 for taxpayer with income up to Rs 3.50Lakhs which was earlier Rs 5 Lakhs. 10% surcharge is introduced for person having income more than Rs 50 Lakhs. Most affected person by surcharge will be salaried class as few taxpayers other than him will declare income which attract surcharge.

Corporate taxes have been assumed to grow by 8.4%in 2016-17 (vs 12.6% last year), personal income tax collections are expected to grow by 17% in 2016-17 (vs 14% last year). When corporate profitability is low and people are getting low hikes then on what ground government can think to increase personal income tax collections? Answer is just squeeze your cash cow – Salaried class

It felt being salaried class is a PAAP after seeing a businessman who is earning even less than us, live lavish life by paying lesser tax and that too without violating any rules. Survival in today’s corporates world is not easy. Employees have to complete unrealistic targets, scold by bosses, lives with fear of losing job etc. Even as loyalist taxpayer, what benefits he is getting? Should not he get priority over the queue at railway station, hospitals etc.? Government must have some sympathies towards them.

Salaried persons, the most honest person in matter of payment of income tax. Pay up to 35% of their GROSS earning as income tax but instead of getting some relief as loyalist taxpayers they are ignored year after year by government. Every year before finalizing budget, finance minister takes inputs from corporates, bankers etc. Why he not bothers to take inputs from his loyalist taxpayer and try to understand their problems?

The following will demonstrate that there is discrimination against the salaried class.

Expenses Treatment for salaried class Treatment for self-employed / professionals
Taxable Income  Gross Salary (almost) Net income after deducting all expenses
Payment of Tax Monthly basis Quarterly basis
 Transport Allowance Deduction available is Rs 1600 per month. Actual amount incurred is allowed as deduction.
 Lunch / Dinner No deduction Can claim entire amount as business development expense from his income.
 Buying a Car No deduction Can claim entire interest expense as deduction. Further he can also claim depreciation on car and driver’s salary as expenses
Interest on self-occupied house Exempt up to Rs 1.5 lakh per annum. Can claim entire interest amount as well as depreciation on house as expenses provide that use that property for official use too
Training No deduction  Full amount is deductible

This is not the only lacunae. Some of deductions allowed to salaried class have been unchanged for decades.

  1. Education and Hostel Allowances – Exemption limit of education allowance and hostel allowance are Rs 100 and Rs 300 per month respectively. At present these allowances seems as a joke, even in villages there is no school / hostel which has such low fees.
  2. Medical Reimbursements – Exemption limit for reimbursement of medical expenses is Rs 15000 annually for entire family and it was set in 1998. Since then medical costs have risen radically.
  3. Interest on self-occupied house/property –Deduction amount of Rs 1,50,000 was set in 1999. Property rates have zoomed up significantly since then.
  1. Deduction under Section 80CRs 1,50,000 is not matching present days’ inflation. Almost all savings and investments are covered under this section.
  1. Leave Salary – Leave salary is exempted at retirement to maximum of Rs 3,00,000 and it too was fixed in 1998.
  2. Free Food – Value of free food or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal.

Lastly I want to draw attention on this point,

Maximum exemption limit must be increased –In budget speech, FM said, people earning up to Rs 4.50 Lakhs should invest Rs 1.50 under section 80C, they can avoid paying tax for an income up to Rs 4.50 Lakhs. Looking at cost of living, running a family in such a small amount is very difficult and how to save so much. It would be great help if present limit is increase. Most affected person here too is salaried class as other taxpayer got deduction for all expenses and their net income comes lower than Rs 2.50 Lakhs even if they earning more than 10 Lakhs.

Conclusion:

Salaried class needs to be taxed in a similar manner in which self-employed / professionals are taxed, that is all expenses should be allowed as deduction, only net income should be taxed and all exemptions should be done away with or substantially hike the caps for all allowances just by taking into account the inflation aspect or standard deduction must be back.

Efforts of government should be to increase the tax net and not milk the cow in their hands. Only 1.5% (1.90Crore) Indians pay income tax and more than half of this, pay less Rs 1,000. Over the years, number of income tax payers has fallen even though tax revenue has risen. Any shortfall in income tax collection should be made up by taxing people who are paying zero taxes and leading lavish lifestyles including rich farmers and politicians. is it justifiable that a rich farmer and politicians who has bungalows, SUVs servants etc. does not pay income tax but a salaried person who earns just Rs 25,000 pm and reach his office going through all the torture of public transport, pay income tax?

Read my another article on salaried person’s expectation from budget

http://taxguru.in/income-tax/salaried-person-expectation-budget.html

Sources: Income Tax Return Statistics (A/Y 2014-15), NSSO 68th Round, Times of India

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37 responses to “Salaried Class – The Soft target for Income Tax Collections”

  1. Arif Farooqui says:

    Friends thanks for appreciating my article. I think salary class has to start a signature campaign then only any thing positive they may expect from next budget otherwise they have to still survive on education allowance of Rs 100 per month. They have to relished their strengths and become United vote bank as farmer

  2. Apurva says:

    Really good points.Common salaried people are not even thinking about it, thanks for making it realize.
    FM need to think on it and should consider it in budget.

  3. Apurva says:

    Nice article sir.. Its really true. common people are not even thinking about this. We are just keeping blind faith on government .

  4. Neeta Lonari says:

    Govt. has shown shown concern by reducing tax liability from 10% to 5%. but to be realistic this is just show off of the govt. and no advantage to salaried person. This pain of the common man will never be realized.

    • Arif Farooqui says:

      Friends thanks for appreciating my article. I think salary class has to start a signature campaign then only any thing positive they may expect from next budget otherwise they have to still survive on education allowance of Rs 100 per month. They have to relished their strengths and become United vote bank as farmers.

  5. mr vikas bivalkar says:

    YES article is good.puts sides of salaried class.what i liked most is your mention of years of application of respective provisions.inflation costs are not considered even after 10-20 years and amounts allowed as deduction are lagging far behind than actuals.jokes are created by govt.himself for such unattended revisions in amounts. as a ex bank employee i mention that nationalised banks had closing allowance for clerical and sub staff cadre of rs.2.50(rs two and paise fifty)till 2015 if i am not wrong.can you imagin that half a cup of tea will come inthat in todays time. but inspite of united big established labour unions such nonsense exists.than how to blame govt. who is not directly in touch with every citizen and their needs? still thanks for article and hope this is read by finance minister and particularly our sensitive human heart-prime minister who dared to start atal pension yojana for non-pension class garib /poor people.

  6. SOMRAJAN says:

    Exemption of Interest incurred on self occupied property is Rs.2.00 lacs presently, not Rs.1.50 lac as mentioned in the article.
    Rebate under section 87-A, has a bad effect on senior citizens, whose taxable income is upto Rs.5.00 lac. The govt. should re-consider this.

  7. SR Nagula says:

    Nicely written.Keep it up.

  8. MAYANK BAXi says:

    Dear Mr Arif,

    Wonderfully articulated article on SALARIED segment. It was so lucid in language and easy to understand without unnecessary adjectives,that i could not skip any single line till the last and immediately started putting my remark.

    It has influenced me to an extent that i kept on reading each of the comments too.

    YES, Unfortunately as appeared in some of the earlier comment VISION is lacking in planning and understanding the grass root difficulties by the finance minister sitting in an arm chair and the Government.

    BUt still i hope and confident that our visionary and understanding Prime Minister will certainly understand if represented by some concrete foot.

    Again YES, Wealthy farmers run guzzlers, Generation of politicians drive Lamborghini(es), Bugaati , Feraries and koenigsegg……..would never know the cost of EARNING……..

    Other side of the coin is Professional generate employment, feed few families and are also responsible from PIN to PILLAR of their entire dwellings and industries or business .

    I believe entire population is ready to Pay tax which should be used for betterment of the society by the transparent government for which all of us required is VIRTUE called HONESTY.

    Let us hope the dawn of the new era begin soon.
    I would also like to mention that i fall in the HIGHEST TAX PAID SALARIED SEGMENT.

  9. ramji yahoo says:

    shall we perceive it in another way, Govt wants more entrepreneurs . Salaried class was developed to enable Britishers to govern the country peacefully. After Independence India needs entrepreneurs .

    • Ravisankar says:

      It is not correct. After all entrepreneurs too need employees in large numbers who form important part in the success of the entrepreneur.

  10. Prasanna says:

    The salaried employees will be paid what is left out after all tax deductions.
    Business man will pay taxes on what is leftover. Iike some examples provided by you.
    Govt has to give some relief/social status for tax payers.
    Hope if digital cash is implemented successfully then tax payers will increase and tax burden will reduce.
    Support for digital cash for all expenses.

  11. Prof.(Dr.) S. Chatterjee says:

    What about the super senior persons? They have exemption upto 5 lacs. So their case has been left untouched. Something should have been done for these persons with their huge medical expenses.

  12. anvesh says:

    I liked it very much….Keep writing us like this arif

  13. VSRao says:

    All salaried employees must represent Finance Minister through e mail regarding the above issues

    • Ravisankar says:

      What the various employee’s associations/organisations are doing in this regard for the employees? They do not talk even about the standard deduction withdrawn long back.

  14. Girish Kamat says:

    This is very true. Salary class should get all the deduction for expenditure for household similar to business. Also depreciation for capital expenditure. Due to inflation, income in hand of salary class is reducing at fast speed.
    Finance Minister talked a lot about tax compliance, but did not take any action to achieve the same.

  15. Leela Pillai says:

    You are right Mr. Arif. Govt. does not know the hardship of employees working in private sector. First of all no security and secondly, when they retire, they get hardly anything and no pension also. How will they survive? After paying taxes and other monthly expenses, there is nothing to invest for future. How many private employees get an annual salary of Rs. 4.5 lakhs?

    Govt. only knows of salary structure of government employees who have all the benefits throughout their employment and after retirement also.

  16. Sunil says:

    This is real picture and mody wants pay more taxes on only salaries people who pay 100% taxes on monthly basis without any facilities paid by government to public. How government expected to avoid block money in market.

    Child Education cost – Min 1 lac pa
    Transport cost to Child – Rs 25000 pa
    Medical expenses – Req 50000/- pa
    Meals Allowance – Rs 200/- per day
    Transport Cost – Rs 2500/- PM req
    Exemption limits to be increase for Gratutiry, Leave Encashment, NPS,EPF, OSF etc due to all the savings are long term savings for his retirement.

  17. varahalu aryasomayajula says:

    salaried people taken a loan from their savings;i.e/ fixed deposit, interest paid to bank.interest earned on deposit is paid to bank. but accounts shows interest earned.tax deducted on interest but employees getting zero.,it is capital loss or what?how to solve this problem.pl.kindly help to salaried people.

  18. i would like to draw some lines on this article as below:-
    Salaried class may be charged income tax on more higher rates defined in this Budget but only would like to know that when this salaried class lost his job because of certain reasons like partial disability or permanent disability , will Govt. of India provide the monthly income to this person who use to pay Tax while he was earning the SALARY ?? will Govt. of India provide education expenses to his childrens ?? will he be paid all Mdical Expenses of his family and parents ?? if yes, let all salaried class pay 20% tax on first 5 lakh and 30% on more than 5 lakh

  19. R Sasidharan says:

    well said, Arif. These politicians will not touch any businessman or zamindars because these politicians themselves are in these categories. All the good words like ‘imaandaar tax payer’, etc.. are nothing but just words. All these parties and netas are of the same class… shameless…

  20. PEETHAMBARAN says:

    During demonetization it was proposed for BTT instead of IT. Then these disparities would have been solved to certain extent. Again they ignored the salaried people as mentioned in the article. In private jobs the employer can throw out an employee any time and he has no job security. What the government is doing for who lost their jobs. When they are salaried, the tax is being deducted promptly and deposited.

    Digging well where the mud is wet is the policy of any party governs the country. Salaried people are not at all taken into consideration while making the budget. People suffered a lot due to demonetization and salaried people totally supported the move because they thought would get a fair and proper consideration from the government.

    TOTALLY DISAPPOINTED THE SALARIED PEOPLE ESPECIALLY WHO WORKS IN PRIVATE ORGANISATIONS.

  21. Panchanan says:

    Nicely written and explained. But the Salaried persons have nowhere to go. Government is not making any effort to catch the business class or professionals and pressurizing only the salary class. First the MPs, MLAs, Political Leaders should come under tax

  22. Dilip Chavan says:

    Your observation is more realistic and true. But find out solution? How to bring this issue before govt. as salaries persons are became doll in the hands of Employer and they do not have any rights? This issue is known by every Salary earned employee. But they do not gt any platform to raised their issue? Please suggest any way?

  23. DEEPAK DANG says:

    The Salaried class or anyone who has to disclose full income & his exp. if not allowed is partiality. Please allow standard deduction to them & culcate culture of taxation law.

  24. Pravir Kumar says:

    very good article , an eye opener for salaried class, we are being target since inception of Income Tax Act.

  25. Chandrakant Patil says:

    Very good article. Facts are stated correctly. In fact, in my opinion Various Trade Unions needs to concentrate on this, to bring the facts in the notice of Govt., before budget. Saving in Tax, is as good as increase in salary.

  26. Dr SHAILESH KUMAR says:

    THANKS Mr Farooqui for this informative and justified article.
    To understand this issue it is vital to know from where it all starts.With all due respects Our finance minister is an arm chair politician who got into this job by backdoor entry through Rajya Sabha nomination ; after having lost the lok sabha elections by huge margin of votes.Also he never has been known to be a grass root leader. His only ability which i saw is that he is extremely articulate in talking , which may be coming from his being a successful lawyer at the highest court. To put all this in perspective we come across a ‘not knowing grass root problems person ‘, ‘ a non-visionary’ and hence an average performer who can only talk his way out to victory.
    Mr.Farooqui India needs a visionary finance minister and not an average juggler of data whose only ability is talking his way out.
    This govt has become arrogant.First,they give meager hike in 7th pay comm-lowest in country’s history. Consider this- THIS govt.wants a soldier to die for the country at paltry minimum pay of Rs.18,000/-. This is outrageously shameful. Secondly, they are unscrupulous enough to delay the payment of allowances.Probably this is the first govt.not to implement pay comm report completely in even 21 months time !!! The salaried class has had enough now, just wait and watch 2019-this govt’s arrogance will be thrown to dust.

  27. MUKESH KUMAR SHARMA says:

    Yes, it is true that salaried person is honest tax payer and government should provide them some preference in some field like education,railway, hospital, sports etc. Or issue him some type of identity so that he can feel proud.

  28. sankar says:

    I am fully agree with your views. Government needs to rethink the tax structure.

  29. Rahul Tak says:

    True & correct status of salaries employee described by Arif Farooqui.

    Govt. need to think up on budget again…

  30. Sachin Labhane says:

    very true CMA Arif Farooqui
    nicely written
    we salaried people always ignored by the govt.

    Thanks

  31. Sharad M says:

    If you include the other taxes like Indirect taxes (central+state), property tax,etc. the total tax burden is 50-65% of the total earnings. The Govt will continue to pick only the low hanging fruits as it is controlled by Babus who do not want to make efforts to lighten the tax burden of the salaried class.

  32. PANKAJ SIBAL says:

    More coverage of salaried / professionals /business community must be done by implementing wide exercise by TDS Commissioner of Income Tax to bring in more tax payer. This needs to be checked each year, so that more revenue is generated and ultimately wide burden of taxes on already suffering tax payee class is reduced cosiderably.

  33. SSRAO says:

    Finance Minister should be a salaried employee rather than politician. Then only he can feel pain.
    But whatever we express it is going to be in vain as we are in the system of politics.

  34. Girish says:

    Very true…Finance ministry should take it into consideration

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