CA. M. Lakshmanan

Whatever said and done everybody will agree that the higher the rate of tax the higher will be the generation of Black Money. We follow the progressive rate of taxation for Income Tax which is the main cause for creation of Black Money. Even in uniform rate of taxation higher the income, higher will be the tax. But in progressive rate of tax higher the income the tax will be very higher. For example if uniform rate of tax @10% is imposed with a basic exemption of Rs. 2,50,000/- for an individual who is less than 60 years of age who earns an income of Rs. 15,00,000/- will have to pay Rs. 1,25,000/-. But in progressive system of tax which is in force now the tax payable will be Rs. 2,80,000/- which is @ 10 % for Income between Rs. 2,50,001 to Rs. 5,00,000, @ 15% for income between Rs. 5,00,001 to Rs. 10,00,000 and @ 30% for income above Rs. 10,00,000. Education Cess and Surcharges add further burden on the assessee. The Cess for education reminds us the good old barter system; you give paddy and I give vegetable. Who is going to prevent the government from setting apart a certain percentage of the tax collected for Education? Is it necessary to collect the same separately in order to spend the same separately for education? It is an open fact that in spite of collecting Cess for Education and Higher Education separately for so many years, there is mushrooming growth of Commercial Private Educational Institutions, which are stated to be run by Charitable Educational Trusts. At any point of time in a democratic country the intellectual who earns more money using his talent and knowledge should not be penalized in the form of higher tax than his counterpart. At one stage the higher rate of tax acts as a deterrent and the person who earns more will be compelled to hide his income or he will not be interested to earn more because chunk of his earning will be taken away by the exchequer as tax. In the long run they may not be interested in doing more business and earning more income since a sizable portion of their income has to be shelled out as tax and it will affect the economic growth of the nation in the long run. The new government at the centre has to take bold decisions such as uniform taxation and it should be seen that the gross revenue does not fall by roping in new assessees. In the past it is a proven fact that revenue had not fallen due to reduction in tax rates.

The government should work hard to increase the number of assessees by strengthening the survey team and plug in loop holes in the present system. There are lots of people who do not come into the system at all because the data collected by the department are not properly analysed and steps are not taken to follow up the evaders. The time spent on existing assessees should be reduced and it should be spent to rope in new assessees. More data should be collected from ‘Sub Registrar’s Office’ for the property transactions and it should be followed up with at most care. Mostly the PAN is given by the seller and the purchaser and it is not known whether they file the return or not. TDS introduced for transactions above Rs. 50 Lakhs should be extended for all transactions above Rs. 1 Lakh. Non-Assessees give Form 60/61 and while these forms land in the I.T Department whether they are followed up by them or not is not known. Like-wise all banks collect either Form 60/61 or Form 15G/H and whether they file them with the Income tax Department is not known. Even if filed whether any action is taken by the department is not known. In these days of advanced computerization all the transactions coming under one PAN should be available by a click of the button. But since all the transactions under one PAN in different Bank Accounts are not integrated one can have deposits in different banks so that he earns less than Rs. 10,000/- as interest from a single bank and can easily evade tax. Again even if it exceeds Rs. 10,000 he simply gives Form 15 G/H to all banks very well knowing that he is giving a false declaration and never comes into the tax bracket. Now the Government is targeting deposits in foreign countries whereas there are lot unaccounted money in Indian Banks itself.

Though Bank Loan is required for many business people no loan should be granted unless he files Income Tax Return.

Declaration of all movable and immovable assets should be made compulsory for all assessees whether they are liable to pay wealth tax or not.

All anonymous donations received by Trusts and Political Parties should be subjected to flat 30% tax.

Like-wise second thought can be given on ‘Dividend Distribution Tax’ also because there is no equity in taxation. The companies pay 17% (Tax @15% + [email protected] 10% EC @ 2% and SHEC @1%) on the income distributed and the same is exempted at the hands of the shareholder since the dividend has suffered tax already in the form of DDT ( Dividend Distribution Tax). But a shareholder who gets Rs. 1 Crore and a shareholder who gets Rs. 10,000 are taxed at the same rate of 17%. Instead the DDT can be treated as TDS and it should be allowed as deduction from the tax payable and further instead of exempting the dividend income totally exemption can be granted up to a limit say Rs.25,000/-.

High pitched assessments should be discouraged and in such cases if such high demands are reduced drastically the expenses incurred by the assessee in the form of appeal fees and legal expenses should be compensated from the first appeal itself. After the latest high pitched assessments by the Department, there is one school of thought among foreign investors that the Indian Income Tax system is too complicated and there are more than two interpretations for the same section/rule, which is deterrent for large scale FDI.

People at the helm of affairs should evolve a system, wherein compliance should be made easy; the system should be full proof so that creating of Black Money is stopped forever. To be more specific there should be no necessity to create Money, which breeds corruption, black marketing, drug trafficking etc.,

If the system become simple and full proof and creation of black money is not needed, millions of productive and intellectual man hours wasted in tax planning, appeals at various forums etc., can be saved and spent for productive purposes. Let us hope that India can reach such a position in the near future.

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  1. SANJAY GUPTA says:

    sir, ur suggestions are welcome. I think the blackmoney is a money not declared and taxed to Income Tax. If income tax is abolished and the economy of the country is made dependent to Indirect Tax, then the problem of blackmoney will be erradicated. Indirect tax is more or less a kind of Expenditure tax. Indirect tax alongwith bank transaction tax will be better solution to erradicate blackmoney.

  2. vinod kumar gupta says:

    Your suggestion on the existence tax system is absolutely correct. The department should devote his time and energy for hunting new assesse instead of torturing tax paying assesse. The current system of tax base required a lot of improvement. Thanks for article.

  3. CA NILESH says:

    Respected Sir,

    Your thought is absolutely right , It is need to implement above suggestion it is required to change the present taxation scenario and grow up country growth

  4. S PRAKASH says:

    Right article at right time “Budget time”. Till date the department is not taking any firm steps to increase the tax base, instead they are trying to kill the GOLDEN egg yielding chicken i.e. the prompt tax payers.Tax payers are paying tax, if it is scrutiny for years together at least they can add a few rupee, instead if they widen the tax base by introducing the new assessees the revenue will increase.CPC is working to the exception of the assessees, it is creating more and more problems in the form of demand in NIL cases.The officers are not even following the jurisdictional high court orders and squarely rejecting the arguments with out application of mind.The SR value by the sub registrar for registration of property is only a guide line, market value will be 4 to 5 times higher than the SR value and even though the officers know that they will stick on to registered value and not worried about the extra money the seller receives. The educational institutions are not just educational institutions and they are earning in several crores but take shelter u/s 10 so also the political parties.compliance is more complicated and hence the voluentery filing of returns are being reduced. The best example for the same is demand out standing, if the answer is given even though the right details the CPC will send a mail to the assesses, as to who has uploaded the details and to confirm the same.Why all these if the information and bank challan number and date is tallying. In the same way the refunds are not issued in time and the officers are not bothered about the way in which the office is working. the ASK has become useless and is not serving the purpose for which it has been created.Remove the certification concepts for individual and partnership firms.The country knows when the high pitched assessments orders are passed in ordinary course.

  5. Yagnasubramanian says:


    Well thought out article. The solutions are already available. Problem lies in the implementation. I feel the same way about the so called high pitched assessments.Demands are mechanically raised without bothering to gauge whether there exists money which has escaped the tax net.We come across additions of 1 crore plus where the total property worth may not fetch that much.

    Regarding Dividend distribution tax – it is a harsh truth.Obviously it is designed to protect high net worth individuals.

    One point I wish to make is that in indirect taxes also- service tax in particular, there are many people who are daunted by the sheer complication in procedures. As a result they are hesitant to enter the service tax net.

    Lastly, tax compliance is a matter of culture.Indians have not been traditionally evolved with a tax compliance culture.This is a paradox.In areas like fine arts, India was culturally miles ahead while other country people were in barbaric state.

    With 4 or 5 different tax systems in the U.S [ even the State levies Income tax there]- people still comply and it is certainly not out of fear.


  6. HONEY says:


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October 2021