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.

An Online Income and Income Tax Calculator for Salaried Indian Individuals!

At last I could find a relatively simple, no frill on line tax calculator supposedly made by the Indian Income Tax Department (ITD) for the first time for the use of the income tax payers of India. Unlike their complicated online tax return filing systems created earlier, this one I find simple and efficient.

You may try it for yourself using the link below:

Online Indian Income Tax Calculator for Assessment Years 2010-11 to 2014-15 for all IT payers

This online system is simple to understand and use, at least for those tax payers whose incomes are from straight sources such as salaries and business profits. The calculator can also be used to calculate your taxable income from the gross incomes.

If they had given some help menus for the users to know the relevant provisions of the taxation rules in understandable language, it could have been much appreciable.

Let us hope they would do it soon.

Let us also hope that they would soon do steps to improve upon the tax return filing system that is more user friendly and not create situations such as that I covered in some blogs earlier (Read it here!)

Last not the least, let us also hope that the Indian rulers would create systems that would encourage people to pay taxes honestly instead of scaring the people away from it.

When intelligent and honest youngsters occupy the seats of governance in the future, such things would happen.

Thinking of A Modern Non Pinching Taxation Regime? Transaction Tax Could Be the Answer !

Paying taxes to the government is an unavoidable responsibility of all citizens. Taxes paid by the citizens are used for the common benefit of all people. Hence, taxing the people by the governments cannot be avoided.

There could not be much dispute on this. All right thinking people should agree to this fundamental fact of social responsibility. 

But yet many people are scary and worried about taxation. They are annoyed with the governments for creating problems for them in the name of taxation. Governments world over have been in the practice of terrorizing their peoples with many kinds of regressive taxation and taxation laws. In reality, taxation laws are not essentially made with the sole objective of raising funds for the governments to function, but are also aimed for controlling the people with fear inducing whips of taxation laws laden with many kinds of punishments for the defaulters. Many times it is not enough to pay the taxes, but the citizens are forced to submit of file many kinds of reports, called tax returns, to the tax enforcing authorities and keep answering to various kinds of irritating questions from the latter.

This kind of a situation makes the lives of citizens miserable as they are forced to do complex documentation of accounts of  their incomes and expenditures which goes beyond their normal level of understanding and capabilities. The governments in turn are forced to keep a large work force of tax enforcers who simply add to the complexities are eat away the good portion of the taxes that are being collected by way of salaries and perks to this great work force attached to the taxation administration departments. Imagine the situation when the governments are spending the good amount of the taxes collected as costs for collecting the taxes!

The same tax administration then becomes the policy making authorities and advisers to the government and a complex system of regressive taxation gets perpetuates in the society. The citizens are becoming angry over their elected representatives who become more and more helpless to do any kind of creative reforms as they are more and more dependent on certain administrative organisations which had grown over to unmanageable levels with complex rules and regulations over the years. When expenses of the government increases every year, there is no other way than to tax the people more. When people are taxed more with more and more regulations, productivity of the people goes down and the tax collections decline compelling the governments to adopt more regressive laws with bigger administrative set ups. 

A vicious circle is formed in this process and the elected representatives who get in to the top positions of government becomes helpless to do any thing. The chances of the elected representatives knowing about a complex system of governmental finances are rare as they are representatives of the ordinary citizens. They could be good in criticizing a problematic governmental system with their high pitched voices to the full satisfaction of a good majority of the angry citizens. But when it comes to the question of making those very systems corrected the way they wish, things do not happen that way because they really do not understand the way out. Very often, their zealous attempts add up the complexities because of the lack of knowledge and competency that they and their supporting teams have in varying degrees.

As I have mentioned in some other blogs in these pages earlier, it is not very difficult to understand the difficulty one might face when he tries to remove the knots in an entangled web of strings. If he is an expert and knows the techniques, he could easily do it. Otherwise, he would make more knots and make the web more complex making it difficult for others with some expertise to try for some success. It happens in systems of human organizations as well.

In India, and for that matter in many other countries, the taxation laws are indeed regressive as it stands today. The taxation rates are too high and do not encourage honest tax paying. The tax collection costs are high. The collected taxes do not get evenly or justifiably distributed. The laws talks about only punishments punishments only and not of any incentives to any honest tax payer. High tax payers are treated as anti socials. Wealth generators and entrepreneurs  live under constant fear of the authorities because they could be harassed with the tax administration laws and treated like dreaded criminals.

Out of all regressive tax laws the income tax laws in many countries are draconian and do not exhibit any reflections of human civilization or culture. They surely reflect the legacy of the bloody past of the human race when they existed as warring groups with every man antagonistic to every other.

Modern tax laws such as the service tax laws too are becoming harsh and anti people and non-progressive with more negative qualities than positive attributes. 

Could there be any alternative where in governments could get the money they need and at the same time the money collection efforts do not harass the people in general. Could there be any system where in taxes could be collected without elaborate tax collection machinery? Could there be any system where in complex rules and laws are not required to be applied? Could there be any system where tax collection by the government is not very much felt by the people as pinching and painful?

It is possible in my opinion. But the only requirement in that case should be that the government should not think of using the law for the whimsical benefits of those who are occupying the seats of power and governance. They should not think of using the laws against some one whom they want to settle the scores. They should only think of getting the money needed to run the governmental functions smoothly and efficiently and nothing more than that. They should not have hidden agendas of using the laws for personal benefits or for perpetuation of corruption.

If they are honest in this, then tax laws could be much simpler. Tax collection would be simple and non pinching to the citizens. They also would not need huge establishments for tax administration which directly and indirectly cause peoples money to be wasted unnecessarily. All the more, governments and peoples' representatives that form the governments would less likely be treated as anti-people!

It is not that economists and leaders who are knowledgeable in economics do not understand these things. The Harvard educated economist and political leader in India, Mr Subramanian Swamy has favored the scrapping of income tax. Think tanks of major political parties are now realizing the anger of the people of India against the governmental establishments as reflected by the victory and popularity of the Aam Admi Party (AAP) and are seriously considering sweeping changes in the direct tax laws for gaining people's support to their favor. [Read : Can Income Tax Be Really Abolished in India?] 

As a common citizen who keeps a common sense  interest in the non-academic and theoretical aspects of economics, I do agree with the idea of scrapping the regressive income tax as it prevails in India. If it is done and replaced with some other indirect tax system it would definitely be of advantage to the citizens and the country.

But what type of an indirect tax? Some people have been suggesting expenditure tax. But I would rather suggest some kind of transaction tax for transactions of money done through banks. It could apply to all transactions of money transfer between accounts and could apply to the transactor at a low percentage of say 0.5 % of the amount transacted for any purpose. All transaction tax so collected by the banks should go to the government account periodically. All these accounting of deduction of transaction tax and transferring it to the government account should be responsibility of the banks done automatically through appropriate computer software systems.

This system would be equally applicable to all citizens and it is not so harsh in real terms. For large transactors the amounts would be large but for smaller transactors the amount of transaction tax would be negligible. The more the transactions, the more the tax, just as we have in the stock markets.

Assuming that I have a total income of Rs.1000000 per annum. When I get it I pay a tax of 1000000* 0.005 = Rs.5000. When I consume it by paying others, I pay another Rs.5000 and the government gets Rs.10000/- The more I transact, the more I pay taxes. If I get some interest of Rs.100000, I pay Rs 500 as transaction tax. Imagine the potential of collection of tax by the government and its easiness to implement! It is not going to pinch any one as the transactions are done distributively and the rates of transaction tax is low. When the present income tax is abolished, the whole of the income tax establishment and its maintenance costs could be saved. 

I know that there are those internal experts of the IT administration who might argue in favor of the income tax again by saying that the maintenance cost of income tax administration is much low. They say that it is less than 1%. Even then, is it necessary to harass the citizens in the name of income tax? Or is it prudent only to get the necessary income for the government for its necessary functions?

Of course, the people now associated with the income tax administration may not agree with this and they are very likely to find thousand and one reasons against any such new ideas. It is understandable.

But governments are required to work for the people and not for fulfilling some desires of some of its employees! No doubt, government employees are also citizens of the country. Their jobs need to be protected. But just for that avoiding some better system is not justifiable. Governments of modern civilized worlds should try to transform their functions as real service to its people in letter and spirit and not for ruling the people with their powers in the name of service. And public servants should be service oriented and not oriented dictatorially for each and everything. 

In a society which is a mixture of mature and immature citizens, the percentage of the latter exceeding much above the former, it may not be so easy for government staff to be gentlemanly always. There is a danger of the immature beings taking that gesture as a sign of weakness. Whips do have some pacifying effect on immature beings. But then only mature beings know how to use whips and carrots judiciously!

But in my personal opinion, a time has come to experiment with new systems of taxation. There is a need to change to a system which honors honesty and motivate mature people to function as living examples to those who are not so mature. And taxation laws should encourage people to enhance desirable and productive economic activities rather than discouraging. 

Of course, it would not be easy to discard income tax altogether and introduce a new taxation system such as the transaction tax. This has to be done in phases with proper studies conducted before implementation. But such studies should be done honestly by expert groups and not by any one who come up with their reports under duress and pressure, as usually done in such cases.

All the above are opinions and suggestions from an ordinary citizen of India. An aam admi to be more precise! 

And I know very well that there could be only a few other aam admi s (common people) who could understand and agree to what I have opined and no possible supporters from any of those who are in power positions of decision making!  

Because those enjoying power positions never have any time to listen to the aam admi s. Even otherwise, power positions do block the receptive faculties of human bodies!

   

Income Tax e-Filing in India : Did Anyone Foresee These Problems Before Making it Mandatory ?

The finance minister of India and the central board of direct taxation authorities of India have very excellent plans for India at least in the area that is in their command- the direct taxation of the tax payers of India.              The Latest and Inexpensive Redmi 1S Mobile Launched by FlipCart

No one can perhaps find fault with their decision to force e-filing of income tax returns mandatory for those getting more than a few lakhs of rupees per annum as salaried income.

But the only problem is perhaps their ignorance about the poor quality of internet speed and coverage in this country which makes such ambitious plans not go the way they think.

In India, the majority of individual internet users use either old free versions of internet browsers such as Internet explorer version 6 or earlier or free limited versions for house hold use as downloaded from various sites or provided initially by their PC or laptop vendor. Of late, may individual house hold users use other browsers such as Google Chrome, Motzilla Firefox, etc.

In any case there would be only a minority of individual home users who are using genuine certified browser software that they had purchased by paying money. This is also true for many commercial users many of them, including government owned ones, use these browsers which are essentially unlicensed.

Of late, the software companies have come up with latest versions of these softwares with certain inbuilt mechanisms which could give them the idea about the user and know whether a particular user is using a licenced version or not.

For normal internet use they do not create any problem. But, when people use it for official or commercial purposes, these softwares start creating problems.

For example, very few people would be in a position to open the official e-filing site of the Income Tax department of India with their browsers.

If you would like to experience it yourself try opening this link by clicking it:

https://incometaxindiaefiling.gov.in

Many of you won't be able to do it. Some versions of the Internet Explorer (Microsoft) simply do not open it. The Google Chrome would display this message: 'Invalid Server Certification' Return back to safety.

I do not know whether this is a problem due to the browser or it is due to the problem of securtity certification of the server of the Income Tax Department of the government of India. Most likely it could be due to the latter. Because, it is the government departments in India that do not recognize the internet legal aspects and safety norms. There is a likelihood that they are using some software systems that are not with the necessary safety standards.

I and many of my friends could use the Motzilla Firefox to file the return a few weeks earlier. However, now when I try with the same browser for filing the e-return of some other, I find the above said site though opening up initially returns a message which tells that I am using an old version of the browser and I should use instead use some other latest versions ( it specifies the versions and the makes of the softwares) The site simply becomes non cooperative after that.

Another problem which came to my notice is the way the site is designed. If a person has to register for e-filing he or she should have a valid e-mail id. But the funny thing is that this government IT site would not allow any one to enter an e-mail id if it has certain special characters such as the hyphen (-). Ridiculous, is n't it.

While filing the numerous columns in the site for entering data, this site is highly user unfriendly.

It will not allow any one to copy - paste common data. You have to enter data every time with care. If you are not good in data entry into computers you are likely to make gross errors.

The governement of India and the IT department's software designers think that every one in India who get over 5 L salary are employed in the software development companies ! Perhaps, they are right ! That is the general perception in India.

Fortunately, the site provides some relief to the individual tax payers. They can take the help of certified tax filing service providers ! For the time being you may not find the breed of such people in India any where.

This e-filing system has started on an experimental basis last year for those getting over 10 Lakhs per year as salary. That time the system was downloading a predesigned form, filling it up, then coverting it to another form called the xml form (after conversion the individuals cannot see what the said software created as the xml file. There are umpteen examples where the xml so created was with gross errors of which the tax payers came to know only after an year when the Income Tax department started e-mailing them with orders for recovery and the like. Event the functioning of these softwares were not so reliable and were prone to error creation without the person ever knowing it)

Another problem the individuals faced was the total absence of help menu. What help menu being provided are where it is not so required. For serious helps like the meaning of the clauses of the IT rules, there is no help at all. Remember, this is not at all difficult to be provided in the IT site and if so, it would have been a gesture of transparency. But it seems the governement and the IT officials are not interested in transparency.

Last year, the individual after uploading the created xml file was required to print the acknowledgement file (called the IT-V form by the taxmen). But this file would not open if you do not know the in built pass word.

Unless you are very knowledgeable to read and understand the fine legal english language, you are not going to know what is the password required to open it. Incidentally, this password is your date of birth written in ddmmyyyy form without the usual slash (/) Had you accidentally entered a wrong number while entering your return form, your IT-V would never open for getting it printed.

Then, comes the next problem. You should have a high quality laser or inkjet printer for printing your IT-V. Dot matrix printers are a strict no-no. How many persons in India have these high quality printers in their homes and office ? But the government assumes that if you get over 10 L salary you should have these in your office or home ! Many employees of PSUs and government departments and even private employees do not have such facilities in their offices. The government should have done a survey initially or they should have made and order to make these mandatory facilities for all employees getting more than 10 Lakh annual salary !

You should not ask what would happen to those people who work in remote areas, mines and such other places where internet facility and computer peripherals and accessories do not exist for all practical purposes.

Then comes the next problem. Even if you had printed your IT-V as specified, you are required to sign it and post it to the IT departments central e-processing facility at Bangaluru. You should only post it by ordinary post. No courier business ! Whether, the Indian Postal department is efficient to deliver all these signed documents back to Bangaluru from all over India is another question. (We know what had happened with the aadhaar cards !)

Even for this year (AY 2013-14) e-filing for some can be direct online. There are problems and perhaps no one in this country could solve those. You are required to get IT-V printed and posted as was done last year. If your signed form do not reach the central processing people, your IT return would not be taken for processing. You may not get back your refunds.

As far as refunds are concerned, it seems the IT department people had been instructed not to do so. Because now every person is going to get demand notices and not refunds. Demand notices with hefty penal interests and fines for no fault of theirs. Because, now the government has linked your bank accounts with your PAN and all the interest accrual information is known through what is now called the 26-AS form. The banks have taken the 10% from those 3.5 % to 8.5 % interest your balances have gained and have remitted it to the IT department. But that is not the end. Once you have got more than 10 L as salary, you owe another 23 % tax to be given on those peanut interests. If you have not paid it, then the IT is waiting for penalizing you later. The more the delay, the more the government of India is to gain by way of penalties and penal interests.

So, now comes the game plan. A faulty IT return system is in place. Even if you honestly want to pay your taxes and file you returns, you cannot perhaps do it properly. The system would not allow you to do it. And the government's system failure is not admissible as an excuse. Because, after all government is the one who wields the lathi, or the power. In a lathi wielding governmental system, citizens have no rights !

The government is not bothered if you do not have any job tomorrow and you no longer earns the 10 L. The government of India is not bothered whether you worked in a PSU or private sector where there is no pension for surviving your after job life. They would not even allow you to get even the simple 3.5 % interest from your bank account. They will tax it with out any sympathy ! Neither they would think of implementing any practical social security system as that is with the progressive nations of the world.

Because of all these, even those Indians who get more than 10 L a year as salary, much better than lakhs of their other fellow Indians, could not live happily in this country. That is why they are eagerly trying to send their children to become citizens of USA, Canada, Australia and such other progressive nations. Regrettably that is what most of the political leaders of India who are responsible for making ridiculous rules and laws are also doing !

It is like burning your home and running away to take shelter in your neighbour' home !

Is this country ever escape from these kind of ridiculous taxation rules and such other things which make life in India a horror for law abiding citizens ?

You may also like to read these:

1. Some Ridiculous Income Tax Provisions of India !

2. A Modern Non Pinching Taxation Regime- Transaction Tax!

3. Revolutionary Ideas for Financial System and Taxation Improvements in India

4. Some Thoughts on Abolishing the Mandatory IT Return Filing for the Salaried Class 

Some Ridiculous Income Tax Provisions of India !

Income Tax or IT is a taxation tool in the hands of the Finance Minister of India Union to use against the Indians every year in the month of February during the secretive ceremonial presentation of the Union Budget in the Parliament.

I am not against the government taxing its citizens. After all that is what the governments are for !

But I am a bit confused and surprised at the manner in which it is done year after year.

Decades ago, the IT never used to be a major contributor to the national exchequer. It used to the the indirect taxes such as excise duty, sales tax, customs duty, etc on the goods. Later services used to be introduced in the tax net and now service tax has become a major contributor. Another new taxation idea that came up in the recent past is the value added tax or VAT.

When some of the irrational taxation stipulations in IT, for example the high rates as high as 90%,  were removed,  IT also became a major contributor to the national exchequer in the recent years. Perhaps, more and more people started giving the income tax, instead of evading it.

The highest income tax rate in India for some years has stabilized at around 33 % of the  taxable income of the individual or the corporate. The taxable income used to be different from the gross income because the former was deduced after giving some rebates and allowances in the latter.

Earlier IT rebate used to be  a long list. Those with a good knowledge of the loop holes of the tax system could use their knowledge to their convenience to get their tax liability reduced considerably. Income tax consultants thrived on this. Top officials of the government and top executives in some private industries used it well for their advantage.

For example perquisites or perks of the salaried class were not covered in the income tax. The private sector companies in many instances therefore used to pay their employees more in perks than in actual salaries. Cash awards received by individuals were another thing which was not taxed. If a high influential officer gets a cash award of say a few lakh rupees it used to be tax free !

However in recent years most of the perks became taxable. 

In this process tax authorities introduced some ridiculous provisions that make some of the employees of the Public Sector Undertakings (step children of the government !) in utter disadvantage as compared to their elite fellows in government service or private sector service.

For example, they introduced this concept that if any employee is given any accommodation by the employer then it is deemed as a perk having some value. Regardless of what the employer charges for the housing facility, the government introduced a ridiculous rule to calculate the value of the housing perk.

If the employee stays in any accommodation provided by the employer in a metro city, the value of the housing perk is 30% [ In tier two cities it is 20% and in cities of lower population it is 10%] of the basic salary. This value (not actually paid) is then added to the income of the individual and taxed as income tax.

Now let us see how this works out for three different people employed in Delhi.

First let us take three types of employees, A , B and C,  getting the same basic pay , say Rs.50,000/-

A is a government officer, B is a PSU officer and C is a private company officer.

If they do not avail the quarters provided by their respective employers both A and B can get 30% of their salary (Rs.15,000) as House Rent Allowance or HRA and for C it can be any thing as per his company policy. This HRA if availed will be taxed in this case at the maximum rate and effectively they get a net of about 10,000 in hand as net HRA. They might get a rented 2-3 bedroom flat in delhi by paying another 10,000 from their pocket. Or they can think of getting their own flat by taking a loan and the net HRA would help in paying their EMI to some extent. [Considering the cost of a 2 BR flat in Delhi at more than Rs 100,00,000/- it would be just impossible for these people to own a flat in Delhi with their income from salary alone! And that is another point to be noted !)

Now there is a possibility that A who is a government officer could get a decent quarters in Delhi. For B, the chances of getting a quarter from his government owned company depends on which company it is. For C, the company might get him a leased accommodation if it is a reputed one. In all these cases, the type of accommodation and the facilities that these three people get widely vary. If fortunate and well connected, the government officer might get the most spacious bungalow as his residential quarters having a potential market rent that is substantial. If not so lucky, both A and B might get some dilapidated substandard quarters some where.

But if they take the accommodation that is provided by the employer, regardless of its quality or facilities, the IT rules ridiculously stipulate that its perquisite value should be at 30% of their basic pay. Thus their gross salary is deemed as risen by Rs.15000/- per month and an IT of 5000/- per month drains out from their salary income. The government takes out Rs.5000/- from them as IT per month on account of them staying in a dilapidated 'sarkari' quarters !

Now  a person who happens to be provided with a decent well maintained accommodation, will not cry for this, perhaps. But that is not the case with  his colleague who is forced to live in a shabby dilapidated quarters paying the same tax on account of the housing provided by the employer. In reality a good majority of the employers, whether they are government departments, PSUs or private organizations or academic institutions, do not give much importance to maintain their townships and housing facilities that had been built up in the past decades. Any one travelling in India can well distinguish the employee quarters provided by these organizations because of the extreme neglect of these by the respective organizations ! 

It is quite possible that the government officers who assist the Finance Minister in preparing the budget proposals live in good government accommodations and are blind to the actual realities elsewhere !

Thus a person who opts for HRA gets Rs 15000/- per month in hand extra while the one who lives in a shabby accommodation provided by his employer gets poorer by Rs.5000/- per month. The disparity widens as all these calculations are done on the persons basic salary with no consideration whatsoever to the facility provided.

The best approach in this would be that all employers should give HRA to their employees and the employees should be allowed to choose the accommodation either rented or their own. The employers should offer the quarters by declaring their rents.

There are many more such ridiculous rules and stipulations that need to be rationalized.

For example the IT rebate for housing loan interest that is declared from time to time does not help any one considering the cost of housing as it stands today.

Education has become the costliest affair now in India as the government has washed it hands from that responsibility.

But it is more of a ridiculous insult when the government offers rebates to the tune of few hundred rupees to a person who spends thousands or lakhs as fees to educate his wards ! It is better that such rebates are not offered at all !

Self employed and business people are allowed to deduct depreciation of their cars and certain other items from their income while no such facility is available to the employed class. This makes the business people to change their vehicles every 5 years while their salaried fellows with equivalent incomes look on enviously with no such IT bonanza for them . Perhaps this makes some of them look towards other means of earning income by adopting corrupt practices !

There are many such ridiculous things in the Indian income tax rules that keep changing and swinging as per the whims and fancies of the Finance Ministers and their advisers.

I am just waiting to see what is in store this year !

Read also this:

Income Tax e-Filing in India : Did Anyone Foresee These Problems Before Making it Mandatory?

[View the linked list of all Blogs of the Author Here ! ]

Indian Budget: Killing the Goose that lays Golden Eggs!

There is a likelihood that some of you might have heard of the folklore about the foolish man who killed his magic goose which provided him a golden egg every day. His greed for amassing wealth as quickly as possible compelled him to take the decision of killing his goose to take out all the golden eggs from its belly all at once !

While watching the news channels that beamed this years budget proposals made by the Hon'ble Finance Minister of India Union, some how the above said story came to my mind.

I am not an economist or expert in the economic nitty-gritties of a massively populated and complex country like India.

The minister and his team of experts know better than me about running the country's finances.

No doubt about that.

Yet, common men like me are compelled to think otherwise.

Are the so-called financial experts administering the country trying to kill its economy and its people by their tax administration and taxation policies?

I do not say that citizens should not be taxed. But taxation should not be such a way that it forces the very sources to get dried up and initiates negative growth.


It is the common man with some income who is the fundamental element that keeps the country in shape. The common people are the base for the country's existence, its markets , its richness and its governmental system.

The government in any case takes a cut of its own on every rupee that is transacted in each and every money exchange or transactions by various kinds of indirect taxes. Every goods and services have an indirect tax component embedded in them. As long as people buy goods and services, the government makes money as taxes, even when the business men do not make a profit.

Take for example the airline ticket charges. Even if the airline is ready to take you free, the government will not allow them to do it. A few thousand rupees per hour of flying per seat is mandated to be paid to the government as various kinds of taxes.


If this is the ground reality, if the government wants to enlarge its coffers, what should it do?

Should it cut the source of money or encourage the people to have more transactions ?

If you are thinking like the man who killed his goose, you would rather opt for the first choice !

That is taking away the money of the common man by taxing him at the source of his income by the so-called income tax !

Is it prudent to think of cutting the income of a person who is finding it hard to adjust his own personal budget ?

Some amount of money is required for meeting his essential expenditure of his house hold. That means he or she would spend that much money almost compulsorily. There is not much choice for saving any from that. The person is not likely to have any substantial sum of money with him at any time.

He earns some money and he keeps spending it for his needs.

And what he spends is directly going into the market economy of the country with the government benefiting first by way of indirect taxation. Indirect taxes like excise duties, sales tax, service tax and the like totalling 10 percent or more goes to the government in every transactions involving goods and services.

The money gives out by an individual for purchasing goods and services goes into the hands of service providers who in turn uses the money to source their inputs. This way financial transactions keep taking place.


If the same amount changes hand 10 times an year, the government gets an amount equal to the original amount as indirect taxes. If the number of transactions increase, the major beneficiary is the government. The government will have more to spend on priorities of its own, making further boost to the economy by enhancing the opportunities of income to the individual citizens. The cycle of progress proceeds in positive trend in this case.

Thus governments that are run by wise and intelligent people would create a situation wherein the above said positive economic trend is maintained.

Such a government would have main economic priorities with an objective of enhancing individual incomes at the lower levels and creating more opportunities for people to come into the income generation bracket.

In simple terms, this means their priorities would be to create more and more employment and to see that the lower level incomes of citizens are raised progressively so that they can afford more and more goods and services.

Once this is ensured, the government need not worry much about its sources of income for meeting the expenses for providing a better administration.

Hence a wise thinking government would never think of taxing its ordinary citizens by the so-called income tax which essentially cuts down the source of money which supports the country's market for goods and services.

It would perhaps consider to impose direct income tax only when there is a probability of excess  income beyond the capacity of the individual to spend for his needs on goods and services. This excess is likely to be kept idle without any possible transactions in the year or later. An individual who makes an income much more than he needs to maintain his lifestyle would have such an 'idle' excess income which accumulates in his bank account. This excess income accumulation in more and more individuals would cause some individuals to spend loosely creating unjustified price rise in certain kinds of goods, services or assets. There is not much harm if the government tries to cut some of that idle income of an individual by income tax. Essentially, this is the purpose of income tax. It should not be used as the primary means of income generation by the government, if the government is wise !

Now let us see how much money a typical middle class Indian nuclear family needs to sustain their lives in their middle class way of living.

If the head of the family has an income more than this, there is the likelihood of an idle income for this person and he or she could be a probable candidate for 'income taxation'.

By the phrase 'typical middle class Indian nuclear family' I mean a family consisting of a husband and a wife with not more than two dependant children, living in an urban area, with one of the adult member having a regular income from some kind of economic activity.

Now let us examine what could be the most realistic monthly expenditure this Indian family unit would have on a conservative and realistic approach.

For this analysis, I take the first quarter of 2012 as my base and the expenses as given are typically applicable on an average for such a family.

The members of this family are careful with their income and expenses and are responsible citizens with no vices or bad habits to drain out their incomes.

All expenses are on a monthly average basis and the numbers are in Indian Rupees (INR).

The following gives the monthly expense account for this Indian family:

1. Rice (30 kg ) :              1000

2. Wheat flour (20 kg) :    600

3. Pulses (4 kg) :              350

4. Vegetables :                 600

5. Milk (1.5 L):                1400

6. Cooking Oil (4L):        400 

7. Spices/salt etc:            200

8. Misc eatables:            1200

9. News Paper  :              200
10. Domestic fuel :          450

11. Electricity :               600

12. Local transport :      2000
13. House rent (2 BR):  5500

14. Telephone/Mobile:    600

15. DTH/Cable TV :        350

16. Education Expenses: 2000

17. Clothing (prorata) :   2000

18. Health Insurance:      2000

19. EMI for loans:         15000 

20. Vacation travel:        2500
21. Other services:         3000

       Total ---------         41250 ; Say, 40000 per month or just $ 800 per month.

This amounts to nearly INR 500,000 or less than $ 10,000 annually.

In my simple common sense, India government should not consider taxing any of its citizens having an income less than this amount by way of income tax.

Any income above this may be deemed as the surplus or taxable income which could be taxed in a few slabs at the rate in the range 10-70 %.

The above should be applicable only for individuals.

Since corporates are entities who are engines for economic growth, their incomes should be taxed at a lower rate, allowing them to sustain and grow.

These are just suggestions from a common man.

Past history tells that those in authority and position do not listen to the voices of the common man while they enjoy such positions and powers.

Any way whether to kill the golden goose or not is up to its owner !

[When color TV and telephones were common things in most parts of the world, for Indians they were super luxuries before 1980 !  Indian leaders controlling the goverment used to consider electronic goods as a luxury and never allowed these things to be brought to India even from abroad.

Bringing any kind of electronic consumer goods to India was treated as a sin and an offense of the highest order. With this mind set they kept the country away from contemporary progress for over three decades. Things changed when the old leadership got changed.

If this is any lesson, people should think of supporting young leaders for getting effective and radical changes in the government policies in accordance with the common man's thoughts. Progressive financial management thoughts and policies can only come from younger brains ! A UP like wave is needed for the whole of India !]