Rationalise Income Tax Rates to augment income and for better Compliance

Every time in the Budget, the exchequer, in the name of simplification, complicates the Income Tax Act to a very large extent that an ordinary assessee, even if a salary earner, is not able to file his Return of Income on his own and hence he has to seek the help of a Chartered Accountant or a Tax Practitioner. In the past few years, the income tax rates were very much disturbed, in the sense that two new regimes were put to use, i.e., Old Tax Regime (OTR) with exemptions and savings, without marginal relief, investments, etc., and the New Tax Regime (NTR) without exemptions and savings, with marginal relief. One may wonder what the marginal relief is due to having the higher non-taxable basic exemption limit, viz., Rs. 5 Lakhs, and prescribing income tax rates from lower limits, viz., Rs. 2.5 lakhs. Added to this is rebate under section 87A, according to which the entire tax payable, viz., Rs. 12,500, is allowed as rebate for income up to Rs. 5 Lakhs in OTR and Rs. 25,000 for income up to Rs. 7 lakhs in NTR. Additional Surcharge, which is payable at higher limits, compels the assessees to offer less income, if they can, to avoid the Surcharge.

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. Instead, a ‘Uniform Rate of Taxation’ can be implemented wherein there will be one rate only for the entire income that exceeds the basic limit. Even in a 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 much higher. For example, if uniform rate of tax @10% is imposed with a basic exemption of Rs. 2,50,000/-, an individual who is less than 60 years of age and who earns an income of Rs. 15,00,000/- will have to pay Rs. 1,25,000/-. But in the progressive system of tax which is in force now, the tax payable in OTR will be Rs. 2,62,500/- which is @ 5 % for income between Rs. 2,50,001 to Rs. 5,00,000, @ 20% for income between Rs. 5,00,001 to Rs. 10,00,000 and @ 30% for income above Rs. 10,00,000 and in NTR will be Rs. 1,87,500/- which is @ 5% for income between Rs. 3,00,001 to Rs. 6,00,000, @ 10% for income between Rs. 6,00,001 to Rs. 9,00,000, @ 15% for income between Rs. 9,00,001 to Rs. 12,00,000 and @ 20% for income between Rs. 12,00,001 to Rs. 15,00,000. For the senior citizens between 60 and 80 years of age the basic exemption limit can be fixed at Rs. 5,00,00 and for super senior citizens above 80 years of age the basic exemption limit can be fixed at Rs. 8,00,000.

It is not understood why the government is bent upon promoting NTR at the cost of the OTR by giving higher reliefs and rebates. The followers of OTR are suffering because they are not able to come out of it suddenly because of long-standing committed savings such as payment of premiums for Life Insurance Policies, repayment of Housing Loans etc. To give relief to the taxpayers, this NTR should be withdrawn by understanding the genuine difficulties undergone by the assessees.

Education Cess and Surcharges add further burden on the assessee. The Cess for education reminds us of 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 a 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 in earning more because a 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 plugging in loopholes 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 is not properly analyzed 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 utmost 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. Likewise, 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.

Bank Loans are granted to many non-assesses. 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 a flat 60% tax.

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 NFAC, there is one school of thought among foreign investors that the Indian Income Tax system is too complicated and not stable. Further, there are more than two interpretations for the same section/rule, which is a 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 foolproof so that the creation 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 becomes simple and foolproof and the 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.

If these issues are addressed in the forthcoming Budget, a congenial atmosphere will be created which is the need of the hour for the effective functioning of the Income Tax Department and for the cordial relationship between the assessees and the officials.