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Salaried Class – The Soft target for Income Tax Collections

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).
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

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

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

Categories: Income Tax

View Comments (37)

  • 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.

  • 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.

    • 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.

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

  • 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.

  • 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

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