Wednesday, June 4, 2014

Should the Government Consider Abolishing Mandatory IT Return Filing for Salaried Employees and Pensioners?

I am a salaried person in India at present. In another one or two year's time I would become a senior citizen and go home to lead a retired life. I am one of that type of employees in India who is not going to get any monthly pension for my old age living.

Me and my family would have to live the rest of our lives from whatever we could save as post retirement corpus fund and may have to depend on our banks for keeping those funds properly invested so that we might get some returns from it on a regular basis for our old age living.

In some European countries, it is the government's duty to look after its citizens properly. In fact, those governments really work for the people. So the citizens there need not worry too much about their future. Their governments tax them while they earn and the taxes so collected from the individuals are also used for ensuring a better life when the individuals become non-productive. In other words, these progressive governments are made of progressive people and they manage it well by having better social security systems for themselves. 

But in countries like India, things are different. Neither the people, nor the government are broadminded. So, both suffer collectively due to improper and narrow minded policies and administration. While the colonial masters of India have changed for better, the subjects still want to imitate their masters of the previous centuries! In other words, what Indians have gained by being the suffering subjects under the colonial rulers is the colonial mind set for its upper class people and slavish mindset for its lower class people! Instead of trying to correct themselves, Indians still keep blaming the European colonists for all their odds, whenever they vent out their frustrations!

So, the Indian administrative culture still remains more or less similar to what existed before 1947. The new Indian administrative officers who get in to the elite administrative services are trained to feel and behave as if they are the rulers of the rest of the people and not as those entrusted to serve the people in a democratic system of government. 

It is the bureaucrats who draft the rules and regulations for the day to day governance or the bills that the peoples representatives pass to make the laws. While doing this for their political bosses of government, they knowingly or unknowingly follow the legacy of the past. All laws, rules and regulations typically have the same style, wording and intent as they used to be during the British Raj prior to 1947. These drafts go for only cursory changes in the hands of the political law makers. 

Thus rules, regulations and laws remain more or less in the same fashion as that of the past centuries. They keep getting passed and keep getting amended from time to time without ever making any changes for the overall good of the people. If you analyze these rules, regulations and laws, it is not difficult to find that these are made for giving unnecessary powers for the government officials to harass the people in general.

A typical case is the Income Tax administration as being practiced in India. No doubt, the government needs taxes and people have to pay taxes. The Income Tax payers of India comprise of the following categories:

1. Employees of the Central Government
2. Employees of the State Governments
3. Employees of Statutory Organisations and Government funded organizations
4. Employees of Public Sector Companies
5. Employees of Private Sector Companies
6. Employees of Societies and Trusts
7.Employees of Small Companies , Proprietary firms and small business establishments
8. Self employed professionals, such as lawyers, CAs, architects, engineers, doctors, etc
9. Pensioners
10. People who get regular income from rent, bank interests , dividends, etc
11. People who get high occasional profits from property sale, lottery, gambling, gifts, etc 
12. People who get income from royalty, awards, prize, etc
13. Artificial business entities such as companies or corporate bodies. 

Now, the government keep setting some upper income limits below which IT is not payable, from time to time. That means, those who get incomes below this limit in an year need not pay any income tax. The government of late has made mandatory for every one to have an Income Tax Permanent Account Number called PAN to facilitate tax evasion by people who are liable to pay income tax. To open a bank account, PAN is now mandatory. 

It is now possible for the government to know the incomes that the people have from bank interest, dividends, sale of shares, sale of property etc because all these are linked to bank accounts and the individual's PAN.

The IT administrators of India are also trying out massive computerization. However, their ignorance and lack of competency at various functional levels do reflect in the manner in which they keep implementing these. [I had earlier pointed out a serious lacuna when they implemented online IT return filing system for higher income tax payers last year]  

Now, I do not understand why the IT administration is insisting for the return of ITs from individuals when there is no tax liability from the individual side nor there is any claim for tax refunds.

The employers of India are mandated to deduct taxes due from their employees and remit it to the government account on a regular basis. All such employers have another identity number called the Tax Account Number or TAN. The employers are also mandated by law to issue an annual salary statement to the employee with the details of the income tax deducted from him or her. In a similar manner, the banks and other financial institutions are mandated to deduct tax at source. 

As such, there is no scope for employees of large organizations to escape from income tax. There salaries, pensions and income from investments are all well documented and accounted and subject to tax deduction at source. If this is so, then why such people are compelled to learn and master the technique of IT return filing and waste their time and efforts to comply with such a wasteful and harassing mandate from the government authorities?

Logically and rationally, it is a wasteful exercise. The only logic is that it gives some weapon to the IT authorities to harass some individuals as they wish with their draconian rules for finding some fault with the IT returns so filed.

Let me give an incident from my own experience. Two years ago, when the IT authorities introduced the online IT return system, I ventured in to filing the returns online myself after spending days in understanding the new system from all sources. [During the IT return filing days in the month of June every year, no other work really take place in the Indian offices as most of the people are busy searching their documents and doing the trials and errors with their office computers for filing the IT returns! As the IT administrators keep changing their rules every year, there is no guarantee that what the people have learnt earlier would be of any use in the succeeding years!]

So I spend time watching my PC monitor and filling the numbers from the printed Form-16 supplied by my employer. The IT return format of the income tax department and the form-16 from the employer 'fortunately' do not match in any manner. So, the individual has to be a professional computer user with expert knowledge about the intentions of the tax authorities to enter the data in the specified fields!

So, finally I felt relieved as I thought as having filled up everything properly and pressed the submit button. Then came the other legal compliance requirements of printing, signing and posting of the declaration. That too was done. [ At least, the IT authorities have too much faith in the Indian Postal Service, even though it does not guarantee delivery of postal communications any more!]

As per my own calculations and as per the tax calculations of my employer, I was not required to pay any income tax. All my tax dues for the year was already deducted at source. In fact I had to get some tax refund. But almost a year later, I got a notice from the IT central processing zone at Bangalore for payment of additional tax with interest which was not actually due any way. It was due to an error that had happened while I entered my digits on the computerized return form.

Now best part of this was that the IT department does not allow any system of online communications or online corrections of such mistakes. All that they authoritatively instruct is to meed some local IT official. It is common knowledge in India that no government official could be met for resolving your problems at one go. That means taking leave from the office for a number of days in search of an invisible official and to dance according to his whims and fancies!

For what purpose, the government wants the IT returns to be filed from the ordinary employees who are the only genuine tax payers of the country? They have nothing to hide. Even if they hide some, it would be so minor or negligible things of least consequences! Why cann't the tax people leave the salaried people (including they themselves) and be satisfied with the tax already deducted at source and forget about the IT return? In reality, this kind of IT return filing overloads the computer networks and the office systems of the tax people for no real benefits to any one. It causes huge loss of productive time by both the tax officials and the individual salaried class people.

In my opinion, unless the people have major tax refunds to be obtained or major additional taxes to be paid due to genuine reasons, Income Tax Returns (ITR) filing should not be mandatory. Non filing of an ITR by any PAN holder whose taxes have been deducted at source should be deemed as equivalent to filing of the ITR. Only those who have to pay additional tax due to extra incomes or those who have to get refunds should be required to file ITRs.

This one decision would make the central government popular and progressive in the eyes of the people. By doing this, the tax officials would get more time to pursue those of the other categories more closely for higher recovery of income tax. 

The salaried class and the pensioners of India would feel relieved and obliged to their political leadership if it could make the taxation bureaucrats  to effect this change in the Indian IT rules. 

At least that is perhaps the simplest gesture that they can do, till they could do away with income tax and get some other easier taxation in its place such as the transaction tax that I suggested some time ago.  

Taxation laws need to be people friendly in any progressive nation and abolishing of the mandatory ITR filing for employees and pensioners is a very simple step that any people friendly government should think of implementing.

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