A new system of taxation is proposed by a Pune based research group Arthkranti Pratishthan where it has 5 components in its proposal:

  1. Withdrawal of existing Taxation system completely (except Customs i.e. Import Duty)
  2. Every Transaction routed through a bank will attract certain deductions in appropriate percentage as Transaction Tax i.e. Single point tax deducted as source.
  3. Withdrawal of High Denomination Currency.
  4. Cash transactions will not attract any Transaction Tax.
  5. Government should make legal provisions to restrict cash transactions up to a certain limit.

Now, the first proposal of the research group is to remove completely all the existing Central, State or Local taxes, being Income Tax or Service Tax and others except the Customs or Import duties which are used to balance International Trade.

Another proposal is that banks will now deduct taxes at 2% on receiving i.e. credit accounts only. The tax of 2% will be used, say by:

Particulars Percentage of Tax
Central Government 0.7%
State Government 0.6%
Local Government 0.35%
Bank for Expansion 0.2%
Global Use 0.15%

Thus, India can now work for poor countries such as Africa, Bangladesh, etc.

Also, here the thing which can be done is that citizens should be made free of filing Tax Returns, Deposit Challans, etc because the tax is now directly deducted on all credit transactions by Banks.

Next Proposal is on removing High Denomination Currency. This is a much known fact that the high denomination currency is responsible for parallel economy. If say, Government removes all currency notes above Rs. 50, can a terrorist carry so many number of Rs. 50 notes with him or can money laundering be done with so many of notes!! But as per current scenario, YES, it is possible in Rs. 1,000 denomination notes. Also, the per-capita Income in India is Rs. 33,000 which if divided by highest denomination of Rs. 1,000 works out to 33 which is much lower as compared to USA or Japan.

Next proposal is that cash transactions should be made free from this taxation system but the limit for the same should be set up, say Rs. 2,000 instead of current restriction of Rs. 20,000. So, if a person has small transactions such as having of Golgappe or Samose, they are not supposed to pay this tax.

Now, the main question comes. Is our country’s Banking Infrastructure so strong!! The answer is No. In India almost half of the households don’t have bank accounts and even in few of the remote areas of the country even banks are not available.

Also, there come other questions. How will the people be motivated to do all transactions through bank!! Instead they will try doing transactions in cash itself. A 2% tax will mean a lot more pressure on common man though after removal of Income Tax. Even the people who are now benefitted by Exemption Limits of Income Tax will be covered under this tax. Also, how the government will be providing benefits to SEZ and others is the another question.

Though this taxation system will bring much more revenue to the Government, it has got its pros and cons which is being analyzed at present by the Country’s experts. Let’s see how the proposal gets implemented.

(Author ‘Sagar Gupta’ is an innovative leader in delivering corporate advisory & solutions and can be reached at sgr@sgrgupta.com)

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0 Comments

  1. Amal says:

    in India there are 26% illiterate people, how do they do bank transactions? Moreover if we consider banking literacy the percentage may be more than double.

    1. A M DESHMUKH says:

      Dear Amal
      Today the illiterate people are also using the mobile phones smoothly, that too prepaid mobile. Have you seen the advertisement wherein a customers pays the bill of Vegetable wala through mobile and the vegetable wala acknowledges the receipt. Here he is illiterate but still can use the banking through mobile. In the same fashion the illiterate will use it.
      Secondly have you read the 4th and 5th point of the proposal? I request you to do so. The point will be cleared automatically.
      Please also note that 26% people illiteracy is not big…

      One more thing- when ever there is drought or famine- Govt of India always compensate them through cheque. How does the illiterate farmer encash the cheque? the same manner it will go………

  2. Uday says:

    If there is no need of filing of returns and deposit challans Accountants may lose jobs. Many companies keep accountants just to comply with statutory requirements especially in small ones. Please correct me if I’m wrong.

    1. A M Deshmukh says:

      Not to worry
      Nobody will loose job
      Other acts are going to remain same.
      Audit under other acts will remain the same.
      Banks will be opened. All accountants will absorbed.

  3. Danny Boy says:

    What will happen if a person transfers money from one of his accounts to another of his own accounts? If a firm transfers, say, Rs. 2 crore from their current account into their cash credit account, they will end up paying Rs. 2 lakh as taxes. What for?

  4. Sagar Gupta says:

    Thanks Mr. Deshmukh for your response. But my opinion differs from you. This being a subjective issue, I will just say that mere saying that all 18+ should have a bank account doesnt mean strong banking infra. Please refer to stats, more than 50% of indian households doesnot have bank account.

    Also, if the company will be paying 2% tax of all credits, do you think it will not be indirectly passed on to customers though just adding it up in the cost??!! Also, I agree that by withdrawing use of higher denomination currency parallel economy will be restricted but a rational eg should be taken such as cash transaction upto Rs 10,000 or so. How will these tranastions in cash be curbed.

  5. A M DESHMUKH says:

    Q- Even the people who are now benefited by Exemption Limits of Income Tax will be covered under this tax
    Ans – Sirji you are forgetting the benefit of indirect taxes which is completely abolished in Arthkranti proposal. Today all those who are exempted under income tax DO PAY INDIRECT TAXES at full rate. Hope you agree…..

  6. A M DESHMUKH says:

    Q1-the main question comes. Is our country’s Banking Infrastructure so strong?
    Ans:- Govt.. of India has already undertaken the expansion of banking by way increasing the branches by around 1.86 lacs in numbers. RBI recently (08-01-2014) has said that every person above 18 years of age must have bank account. This does mean that RBI has planned for opening branches all over India.

    q2 – How will the people be motivated to do all transactions through bank!! Instead they will try doing transactions in cash itself. A 2% tax will mean a lot more pressure on common man though after removal of Income Tax. Even the people who are now benefitted by Exemption Limits of Income Tax will be covered under this tax. Also, how the government will be providing benefits to SEZ and others is the another question

    ANS- As there is currency compression, ie currency to be as low as Rs50/- or less, naturally the magnitude flow of transaction will go through bank only. No need of extra efforts be taken. How can you stash the cash in Rs50/- currency at home or in pocket for say Rs 1.00 Cr. or even pay the bribe of Rs 100000/- in cash of Rs 50 denomination ?
    The proposal is clear as to excess over Rs.2000/- cash expenditure will not have the legal backing…..
    Please note that 2% is direct + indirect tax and there will be no indirect taxes as well along with direct taxes when Arthkranti proposal is implemented. In fact the tax @2% will be proportionate. More you earn more you pay. Less you earn less you pay. Cannon of equality purely followed….
    As far as SEZ is concerned :- Subsidy can be given separately in the form of incentive.

    Over all proposal is worth workable , practicable and implementable in the opinion of Arthkranti.

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