Income Tax – A Myopic View

Today was Budget day…Million of Salaried Indians were glued to TV, Websites etc just to know if any changes proposed in Income Tax Slabs…A Carot is given to this unfortunate lot (Salaried Class)..Now u must be wondering why this class is unfortunate, reason being for Salaried class Income Tax is mandatorily deducted at source (TDS). To understand better let me share some facts

India has population of 117 Cr, Only 3 Cr people pay tax in india and majority falls between tax bracket of 3 Lac to 5 Lac (Income bracket). As per some estimates approx 26% people are BPL (Below Poverty Line) in India and  14% people earn less then taxable income so we are left with approx 70 Cr people..Assuming average family size of 5 and 1 earning member…3 Cr people who are paying tax are taking care of 15 Cr people…Now we are left with 55 Cr people…Again assuming 1 member feeding total 5 members so which implies 11 Cr people in India are falling under Tax bracket but not paying Tax.

Question arises who are these people

1. Farmers/Agriculturist: India’s 40% people are dependent on farming sector i.e. approx 47 Cr…Effectively out of 55Cr non tax paying population, 47 Cr are directly or indirectly linked to farming…Now we understand that this community barely meet their ends but its not true for 100% of community…Approx 30% Farming community is rich, atleast Govt. can tax the Big Fishes…The biggest question is why govt is not taxing them, Answer is very simple Politics.

2. Rest 8 Cr are linked to Business and other activites where Govt either does not have any control or very minimal control to impose tax regulation. To give e.g. how many of us take proper tax invoice from next door Kirana shop  answer is none or minimal..As per rule he has to give tax invoice for all transactions which is not happening so indirectly we all are responsible for this situation.

Now only class on which Govt has full control is salaried class where Tax can be deducted at source that is why this class in unfortunate becoz this class cannot escape tax net.

In real sense, these 3 Cr tax payers are carrying the burden of rest 114 Cr population..Which is one of the prime reason for very high Fiscal Deficit..If everyone start paying Income Tax honestly then there is no reason, Govt has to struggle for funds..

Another biggest disadvantage for salaried class is that they are paying double tax…Suppose a person A fall in 30% tax bracket so out of 100 Rs he earned, he paid 30 Rs tax (For simplicity, i am excluding cess)…He is left with 70 Rs and pls note salary is already taxed. Now he decides to buy a TV & other items for his family which cost 61 Rs and he has to pay VAT @ 14% to buy these so he need to shell out 9 Rs VAT…

Now lets do total calculation, he has earned 100 Rs and he paid tax twice i.e. 30 Rs + 9 Rs  = 39 Rs..So his net tax is 39% not 30 Rs becoz he paid double tax…Effectively its double whammy for salaried class becoz of double taxation…In many countries it is avoided by allowing tax payer to claim deduction on taxes paid from already taxed salary.

To wipe off fiscal deficit, Govt shud think ways of increasing Tax Net by bringing all the people earning above minimum threshold  in Tax net and also take steps to avoid double taxation so that tax payer community (Mostly middle class) can sigh relief.

Copyright © Nitin Bhatia. All Rights Reserved.