Income Taxes - Inputs on Root Causes

The govt should take urgent steps to curb rampant corruption prevailing in I.Tax department. more  

It is about time we introduced a simple single tax on sale of goods, and abolish the tax on income. It will electrify the economy like nothing else. It will weed out the whole issue of corruption and tax evation. Infact it has to happen one day. WHY NOT NOW? more  

Corruption in IT department can be contained if the monopoly of IRS in IT department is controlled. All administrative Chief Commissioners should be replaced by IAS officials and Vigilance officers from IPS or some other service should be posted in IT Dept. If the present FM does this, the next day he can see the improvement in IT department's service. No service (IAS, or IPS or IRS) should not keep any department as their family property. IT department, Customs and Central excise are monopoly departments of IRS and it is one of the money minting business for them. more  

FM’s Rational Approach to Expand Tax Base Should be Supported The Finance Minister has correctly analyzed and well articulated the issues concerning expansion of tax base in India to improve Government Finances. Agriculture contributes 15% of Indian GDP and 60% of its population is dependent on it for its livelihood. Our Constitution does not permit Central Government to impose income tax on agriculture income. Further, very low per capita income in this sector does not offer any scope for generating significant income tax. The taxation policy of the Central Government is to be framed in the light of the structure of the Indian economy and the following distribution of income. • The lowest 30% to 40% of Indian population is living below the poverty line and needs to be provided subsidized food, drinking water, basic health care, education and other community services. • The next 20% of the population on the pyramid is barely able to survive on its own and cannot be subject to income tax. Further, such segment of the population also needs Government support in the area of health care, sanitation, education and essential commodities. However, consumption basket of this segment is subject to indirect taxes by the State and Central Government and subsidies to it are partly neutralized through such taxation. • The next 20% of the population on the pyramid is able to survive on its own and can manage with Government supported education system and healthcare and its consumption basket is subject to indirect taxes by the State and Central Government. However, subjecting such population to income tax would not be cost effective and has the risk of pushing it to the lower levels on the pyramid. • Only 10% of the top income earners of the Indian population can be tapped for levy of direct taxes (income tax and wealth tax). Given the distribution of income in this segment only top 10% to 15% of such segment (1.5% of total population) contributes about 90% of the income tax. • There is little scope for expanding the tax base but enough scope to generate higher revenue through enforcing compliance with tax laws and checking leakages. Policy for Direct Taxes Direct taxes be collected from the top 5% to 7..5% of the population in the following manner: (i) leave enough purchasing power in the hands of a person to maintain a reasonable standard of living; (ii) collection system ensures minimum interaction with the citizen keeping the costs low; (iii) minimize deductions to keep the tax structure simple; (iv) Speedy dispute resolution mechanism; (v) tax rate on the highest income slabs does not encourage evasion; and (vi) enough deterrence to enforce compliance. Tax rates and slabs for rates Present rates are reasonable and comparable with other economies. An intermediate rate of 25% for incomes between 10 and 20 lakh may be considered. Threshold and Deductions • It is not prudent to levy income tax on income below Rs. 300000/- per annum. • The deduction of Rs. 150000/- under Section 80C from income does not result in any significant increase in savings in the economy. • Given the spending behavior of the Indian, the individuals earning higher income any way would save such amount even when no tax deduction is allowed. • The quantum of savings and tax collections in the economy would not be impacted if the tax exemption limit is increased to 3,50,000/- and the deduction under Section 80C is reduced to Rs.75.000/- or Rs. 1,00,000/- per annum. • The deduction under Section 80C with EEE facility should be confined to only subscriptions to General Provident Fund, Employee Provident Fund, Public Provident Fund and National Pension Scheme or any other similar retirement or pension schemes. • The following tax benefits to the salaried class may be continued to reward them for forced tax compliance: o Employer contribution to the provident fund or pension schemes not to be added to the income of the individual. o Deduction on account of house rent or lower perk value for accommodation provided by the employer. o Exemption to meal allowance, gifts and concessional treatment of other perks such as conveyance allowance and perk value of car o Income tax exemption to interest earned on provident fund or pension schemes o Tax exemption to Leave Travel Allowance once in two years • The scheme of taxation of senior citizens may be modified in the following manner: o Threshold for levy of income tax to be higher by Rs. 50000/- o Exemption limit for tax free gratuity be increased from Rs. 10 to 20 Lakh to adjust for the inflation (DA rate during the period has increased to 100%), subject of investment of Rs. 10 lakh in infrastructure bonds or bank deposit. with minimum holding period of five years o Similarly, limit for leave encashment on superannuation be increased from Rs. 3 to 6 Lakh for non-government employees, subject to investment of Rs. 3 lakh in infrastructure bonds or bank deposit with minimum holding period of five years.. o 80C deduction should be discontinued and interest income from infrastructure bonds or bank deposit (to be held for a minimum tenure of 5 years), to the extent of Rs. 50000/- be exempted from income tax. o Higher deduction for health insurance and medical care. • Exemption for disability under Section 80 (U) may be revised from Rs. 50000/- to adjust for extra ordinary increase in inflation during the last five years. • Considering that the top 5% of the population in terms of income has already been subject to income tax and has paid their fair share of taxes, the rates of indirect taxation for their consumption basket should not be higher than the general rate. (For example a person buying a car assembled in India with on road price of 25 lakh needs a pre-tax income of Rs. 36.18 lakh. The total incidence of customs duty on component, excise duty, VAT and road tax works out to Rs. 9 lakh with only Rs. 16 lakh going to the manufacturer and distribution channel.) Such high incidence of taxes on the higher income earners encourages evasion or avoidance. more  

It is only salaried people who pay taxes on total emoluments , perks etc . In place of Income tax GOI should put efforts in direction of minimizing cash transactions , introduction of transaction tax in buying , selling commodities and other necessities . The systems be framed in such a way that people come forward to pay taxes honestly . more