Changes are required in Indian Taxation laws – Everything you want to know about income tax in India
POSTED BY ON June 18, 2012 COMMENTS (112)
A lot of people are trying to change our country. The way elections happen, the way schools run, the way govt. uses CBI for its own use, the way the judicial system works, etc. – the whole system needs to be changed!
In the same way, Taxation is one aspect of personal finance which needs some changes too. This is one sensitive topic I want to raise today – “Expenses allowed for Tax Deductions before paying tax”
We all are aware that some deductions are allowed for saving tax – like up to Rs 1 lac through section 80C and many more. However, the taxation law has not considered some of the things which are very relevant in today’s world and should be considered as per logic, but the law does not recognize it.
There is only one parameter for taxation today and that’s “Income”. What about “Expenses“?
Each person is different and the number of family members compared to others is different. Each person’s living expenses are different and their liabilities are different too. Hence, there should be some consideration for this while taxing that person.
Imagine this situation:
There are two people Robert and Ajay. Robert lives in Mumbai earns Rs.12 lac per year in hand, whereas Ajay works in Indore and earns Rs.6 lacs a year. Robert and Ajay both put Rs.1 lac in 80C investments and then have to pay the taxes. Ajay pays tax on 11 lacs, which comes around 1.8 lacs, where as Ajay gives a tax of Rs.30,000. So Roberts pays higher taxes than Ajay.
Now, what about a number of family members in Robert’s House? What about the burden of children education on Robert which is very high in Mumbai- which Ajay might not have?
What about the expensiveness of the city like Mumbai where Robert has to spend a lot of money on fruits for his elder parents- which might not be the case with Ajay? If Robert has 6 family members including parents, 2 children and 1 sister- total of 7 members, then what will happen?
All them need food, clothes, basic necessities which one can’t escape! Should govt not consider these points before applying the tax. Should there be a minimum limit of deduction for all these points? Read these 7 Income tax-saving tips you might now know
Some Deductions allowed but are they realistic?
1. Conveyance Allowance-
Till date its just Rs.800 per month, which I feel is way too low for many people. A lot of people spend on an average 3,000 – 4,000 in commuting and that makes a 30k-40k valid deduction on travel to work.
2. Tuition Fees for Children Education –
Why only tuition fees is allowed for deductions, what about school dress, books, coaching classes, school bus fees, computer for study purpose. Are these not justified these days?
3. Health Expenses –
Only Rs.15,000 worth of medical bills are reimbursed, but are they realistic today? What if I have both parents who are not well and I spend Rs.50,000? What is the basis of limiting to medical expenses which are not in my control.
4. Rent –
Why rent paid is not considered as a valid deduction? What if I don’t have HRA component? What if I am not a salaried class? Why do I pay price for high rentals in our country? What if my rent is high because I live in Bangalore or Mumbai?
5. Grocery –
Food bills are a necessity and I don’t think one should be paying any tax on the amount spent on grocery. If a family has 5 people and their grocery bills are around Rs.8,000, that’s around 1 lac a year, then should this amount be not allowed as a valid deduction?
That’s a necessity of life, I can’t do anything about it.
Watch this video to learn more about Indian Tax System:
Single vs Married?
There should also be a consideration for married people who have just one source of earning. Why families should not be seen as one entity. If there is a family where husband and wife both are earning, but the consumption level is almost what a family with an earning husband and a housewife is there.
There can be a single earning point and multiple consumption points. That should also be accommodated in some manner.
These are all the points which just come to my mind, some of these might be making sense and some might not. Not sure how others think about it?
Can you share your comments on this?
The single biggest complaint I have regarding your suggestions is that you think heavily penalizing the single guy with no depandants and little/no liabilities with high taxes is acceptable. This is extremely stupid because you can’t tax a person based on their lifestyle choice. Its an individual’s choice whether he wants to remain single or not have chilren.
If a person decides to marry and have 5 kids, he should be exempt from paying any tax because he already has too many liabilities? This is like rewarding people for contributing to the overpopulation disease that this country is suffering from. This would also encourage women to stop working and become housewives. Why work if it means paying more tax to government?
Other than this, I think the rest of your points are somewhat fair and can be implemented as long as some standard is followed, otherwise it would complicate things too much. The tax laws are already complex enough, which is the reason why majority of people in India need to take help of CA to file their taxes. The last thing we need to make it even more complex.
Hi Anjan
Thanks for your points . Note that I initiated a conversation with raw points, what you have done is added a new dimention which I didnt think about, so now the whole thing has gone to next level and refined 🙂 . So we are brainstorming . I am not saying that what I said is on rock 🙂
The Indian taxation system is really archaic and fundamentally one that defies all logic. No wonder we have brain drain these days. Honestly, even when we are thinking about staying in the country it is not because of a choice we have. One should consider that the folks that run businesses are able to skip paying taxes. The condition of the roads we travel, the lack of safety for women, lack of clear sanitation facilities everything points in the direction of apathy. So the government tries to steal at every single opportune moment. When a working individual pays taxes and then suddenly loses their job is it not the government who has to shelter/shield that individual at a time when the person has no money? While this is not a finding fault response it surely is a shame that the tax payers have to bear the brunt of all challenges. Expenses not being considered or all sorts of taxes direct or indirect being levied all point in the direction of one thing, if you are salaried you can never run away!
Thanks for sharing your views on this topic Sudheen
Some of your points are good. Regarding cost of living in city compared to living in smaller towns, salary scales at various locations should take this into consideration. And we need a better system for health care expenses especially of senior citizens, family members with special needs etc….concept of tuition fees should be extended to include many of the other factors that you have mentioned. there are so many fundamental problems currently i don;t know if income tax is the place to put things in order.
Thanks for sharing your views on this topic !
I have filled my return a weak ago.when should I expect to get my refund ?
Isthere any time limt in law?
You should be getting it in few months if you did it online . People are waiting for their tax refunds from years !
I strongly agree on one point.
Our Income is not a single man income. So many people depend on it and the expenses vary unimaginably.
Example :
01 Parents : Their health expenses are in lakhs many times.
02 Children : Their education and marriage (Enormous cost).
03 Wife : She is an innocent women whose contribution to a family is considered as nil. Although we have to declare her property details but no employer is prepared to give any benefit to her.
As for as govts are concerned: They are insensitive power and they are a bunch of some insensitive people out of us who forget that the ditch they are creating is making life hell for their own children.
They (Govt) have become more of a insensitive business house than an entity to serve people.
They sole purpose is to exploit the people at every cost using the neumorous power.
Its it easy to share 30% of what you earn to govt but scold your child to buy even a pizza.
We can scold our child for asking one small chocolate but not govt (devil power).
Lets live with it.
Someone once questioned : Is GOD a govt ?
Thanks for sharing your views on this topic .
Good article.. but Govt won’t think off these real things..
For instance.. Govt calculates our inflation on wholesale prices not on retail prices.. which is wrong!
If Govt thinks in real with real scenarios.. definitely govt will gain as well as public and all.
But this doesn’t happen! in INDIA…
Thanks for sharing your views on this topic
I may be in minority Manish, but I disagree. Any expense can be termed as essential or luxury based on individual perceptions and individual circumstances.
The Income tax actually is an EXPENSE itself (our individual contribution to the national expenses like defense, public utilities, infrastructure, healthcare services etc…) which every citizen must incur (Now whether the govt. uses our money judiciously or not, is another topic and not the point of discussion here). In my opinion Income-tax has to be viewed as an expense just like any other one…. like grocery, tution fee, mobile bill, eat-outs etc. And our share has been designed to be in proportion with our income which is very logical.
The problem is that a large No. of people succeed in evading taxes and hence the ones who can not, end up paying a -higher than required- rate (like the no-medical term insurance premium). The current I/T rate could well be less than half if the govt could recover legitimate taxes from one and all.
We must view I/T as another expense and demand from govt. that recovers it effectively from one and all and utilizes it judiciously. This would be more logical than demanding reduction based on individual expenses.
Saket
Thanks for sharing your views on this .. I have my view and you have yours 🙂 .. Nothing wrong in that .
Manish – I completely agree with your points
But I also feel that adding so many things like No. of Family Members, Location of the Assessee will lead to more complication in the already complicated Income Tax Act
So, the Govt should first try to simplify the Income Tax Act for the Common Man and then slowly make it practical like considering some of the points posted by you above
True .. i just put some points .. not alls points can be implemented 🙂
(1) Remove all paper works, no one needs to file tax return
(2) Remove all deductions, charge small percentage of progressive income tax, on gross salary for salaried people and on gross income for business people.
Basically, the tax code needs to be dramatically simplified and most of the archaic exemptions need to be eliminated. I think the initial version of the DTC, circa 2009, addressed some of these issues by eliminating a lot of the exemptions and dramatically raising the tax slabs. But after Pranab da got involved and the final version of the DTC was concocted, it was/is no different from the existing tax code, except for a nominal increase in tax slabs and a few other cosmetic changes.
So what changes are you suggesting ?
Very true. Laws of economics say that when you subsidize something, you get more of it.
I don’t think putting limits is right either. I have known people telling doctors “I know the bill should be Rs 7000, but I’m fine if you write only Rs. 5000 on the bill, since that’s the limit of my company’s health insurance policy. That way you don’t have to report the income of Rs. 2000.”
Hmm .. so wht is the conclusion you are making here ?
In my opinion a simple Tax Rule may introduce as follows –
1st step: Withdraw all paper currency with replacement of Debit/Credit card depend upon individual networth.
2nd step: Pay Tax @ 2% on quarterly balance of income expenditure a/c.
Impact: All transactions are made transparent to IT dept. Every body enjoy equal
Opportunity to earn as much as he/she can!
Govt. also have enough fund to impliment proper Social Security Measures.
An interesting video on Financial Freedom by Jim Rohn: http://www.youtube.com/watch?v=KdEZD4nrmds
Please comment…
Is it valid in India ? How will India survive without currency notes , What about rural india ?
Manish,
Before 1995, nobody seems to have an idea that in 2012 almost everyone has a mobile connection to communicate! So, introducing Card may be tough for now but not impossible in future. If … if Govt. really wants to curve black money.. improve Tax collection…as well as basic financial literacy to all people living in our country! Use of Card if mandatory then is it not a matter of survival?
Wish for a Financially Independant INDIA!
Thanks,
Chinmoy
Thanks for sharing your views
Very valid topic. The least government should do is to raise the conveyance allowance and 80c deduction annually considering inflationary affects.
Our policy makers are not practical.Being highly paid or getting all kinds of facilities at public cost,then how they can of any amendments.There seems to be no way.
Dr Narendra Deo
Thanks for sharing your views on this
I agree with venetia.
Giving to the country is our responsiblity. How much is for sure the question.
But what is that we get back from our taxes is most important.
For ex. we talk abt deduction on conveyance. Just imagine we have the best, cheap public transport system, made out of our money. For sure, not only we get back our taxes, but our children and underprivilged would also have returns on taxes.
The only thing required is asking the authorities, govt. about our money.
Thanks for sharing your view on this topic
After reading this article about Robert and Ajay , Digvijay Singh quoted – “Indeed, tax rules are communal in nature and plot against minority. I suspect RSS hand in it”.
Sorry guys for my mischievous comments 🙂
Nice comment 🙂
Agreed with most points mentioned in the artcile on tax deduction avenues. It would also calls for genuinity while allowing these deductions. An increase will surely help gnuine cases but more than that it helps people to evade tax by submitting fake medical bills, fake conveyance bills etc., and thus bringing down over all tax income for the govt.
Single vs married and number of depepndents is one aspect govt must surely look at as progressive movement on tax laws.
Yes agree that there are chances of abuse of these rules if they are implemented like this ,. What are your suggestions in that case which keeps balance between both the aspects
paying tax is one thing, I want to know what happens to it…. look at the state of the country!!! We need to start asking the government for a statement of account. power cuts, water shortages, bad roads, etc….. so what are we paying taxes towards?? Swiss bank accounts?
Thanks for your views on this topic
Good one Manish.. how about indexing the slabs to inflation.. like if 3Lakh – 5 lask is in 10% bracket.. and inflation is at 10% for a year…. I will say from next FY.. it should be atleast 3.3 lakh to 5.3 lakh in 10% taxable bracket….
Indexing a slab is a innovative concept . But then each year you are saying there will be no change in tax slab, which happen currently ,. so the changes which comes each year is in a way indexing the slabs only !
So net net, instead of “Income tax”, u are suggesting a “Savings tax”… And all this will end up disincentivising savings!!!
Hi Manish
Again forced open pandora box!!. But I beg to differ somewhat
1) Why parents are inclined for High Fees Charging Schools. WHat is wrong with other institutions, even Govt. run too. What is needed is ” development” of students, do not perforce everybody to think that only high profile schools are best ones. It is ambience where child is growing up, that is important’ equally important is soothing by parents and et al.
2) Everybody is paying through nose for petrol. but while traviling to office / work place,why can’s they go for “sharing the space” basis.
Of course, Govt. is wasting our money like anything on all counts, so ppl. should ask the so called popular Govts. as to what and how they socio-economic development projects / schemes are framed, implemented, with minimum exchequer’s money.
3) As for medical facilities why altnerative medical lines are not covered under Mediclaim scheme, only ALLOPATHY TREATMENT IS considered. Even Govt.propogates for parallel / alternative medical practices.
Open the discussion, I welcome, critisims, if any,whole-heartedly.
Pankaj
There is no different of opinion . I agree with you .I never said allow maximum deduction . Everything should have a limit on everything and only those things which touch a common man should get deduction . Like in grocery , we can see an average minimum need these days .. like 2k per person for example . So for a family of 3 – it can be 6k per month , for family of 2 it can be 4k , but if a family decides to spend lavishly on food like 6k per month for 1 person , then that can not be considered .
The whole idea of this article is to question the current system and collectively see what all changes makes sense .. I put my views , you put my views .. there are 2 views now 🙂 .. lets find the best combining them … thats all
Hi Manish
Pl. do not take my comment as over-riding your view or contracting what you say, but our social fabric has to be in toto has to be looked at. OUr focus still remains on URBAN AND SEMI-URBAN ppl. who enjoys majority of luxuries of development against rural, and in that context poor urban / semi-urban.
Hi Manish,
I request you to pay attention to this website-http://www.arthakranti.org/ .I bet after knowing about it you will write a complete blog on it.This website suggest complete revival of existing taxation system and proposes a better solution to bring socio-economic balance to our society.
Avinash
jaago.bharatvaasi@gmail.com
While I agree with some points, i also feel that people will misuse certain provisions:
1 – Deductions based on number of dependents. It is present in USA. You have to declare number of dependents including yourself and everyone’s SSN. The deduction is $2,000 per person from Income. We can also do away with the flat Rs 2,00,000 exemption and say that it is Rs 50,000 per dependent (non-earning person) in Family. It will take good amoun of software upgrade for IT dept to cross check PAN number of all family members and esnure that someone else also quotes tham.
2 – Special deduction in costlier cities: No. Just imagine what happens if people from Indore (or other inexpensive cities) flock to Mumbai/Delhi !!
3 – Conveyance, rent, grocery – Yes, there can be exemptions on these. But it has to be kept so low that people almost always spend more than this minimum. In other words it should help poor (or lower middle class) but not encourage them to waste more. To give an example, my friend had rented an apartment to a guy. He was paying Rs 6,000 per month for an year. Next year my friend thought that he should increase the rent. So, to start bargaining, he started at Rs 9,000 per month. To his surprise, the tenent said OK. Later my friend found that his company was paying him rental reimbursement of upto Rs 10,000.
Regards,
Bhushan.
The big problem is that the decision makers( rich & powerful) are benefited by the status quo. Why will they change it?
You can’t expect from the GOVT, base of IT Acts are from 1969. Now we are in 2012. GOVT defines, those who earn Rs.28/- a day are not poor & can live with it.
Catchy title for the article. No one paying taxes, dare to disagree.
When i am paying tax, i truly feel that i am being unnecessarily over taxed taxed.(I may be paying 10% or 30%)
However the reality is to be understood before discussing the topic.
In india 3% of population pays taxes(In US it is >40%). Also average income in India is quite low and big section of the population is near poverty line. Then for generating revenue, the only way left to FM is either to increase tax base or tax rate or both. Another way available is not to keep concessions in line with indicies like inflation etc. Every FM tries to juggle these contrasting item to cook up a dish reasonably palatable to the country so that his government survives for some more time.
Now, we can compare our country with countries where taxation is very progressive. In some countries personal tax rate is less than 15% and in some countries, you can get deuctions for taxes paid. True. The reality here is different as explained above.
Added to this, the mis management which includes improper utilisation including leakages and looting, eats into the already low per capita revenue for expenditure and there we are.
With this back ground, one can discuss the taxation.
It is a fact that the tax concessions are not in line with inflation or expenses like medical and education. This is not new. Basic exemption itself had not kept pace with inflation.
For many of these items, what were previously kept were either being maintained or tweeked slightly on a priodic basis(in budgets). If they were to keep pace with current reality, (say making 4000 conveyance allowence exempt and the like), government will be left with next to nothing.
How ever, it is interesting to discuss these ideas.
The observation that “Government will be left with nothing ” is rather naive! It does not envision / imagine the other wings /branches of government that would earn more with a single such move of reduction in tax/etc.: and ignores the fact that primary purpose of a government is to help a civilized life for all people: for instance
1) BMC: by removing road toll tax – we would indirectly cut pollution by at least 4 to 5% as most of the time there is a kilometre long queue to pay rs. 30 (average) at toll booths: imagine the cost of wasted fuel, time of lakhs of vehicles everyday – compare this with the ACTUAL NET MONEY that government actually gets – minus the employees posted at the toll booths – the security, equipment etc. – it wud hardly be rs. 10 per vehicle or much much less.
2) CONVEYANCE: Imagine govt. makes conveyance upto 4,000 per person earning an income at least 4/5 times this amount per month – ( it would be meaningless to grant conveyance for a person of rs. 3,000 when he just earns rs. 9000 per month – it has to be a function of the money earned by the travel
used) : Once this is done – the individual would not hesitate to use public or private transport – effectively he spends more – and would not hesitate to hire
an auto/taxi in emergencies when he is late – so this would indirectly multiply the income tax paid by the transport industry as a whole.
The objective of the Government is to provide employment to as many as possible – and this is a fantastic way of doing this.
3) Abolishment of Sales Tax, VAT and many other extraneous levies made on Real Estate/propery purchases: There is no rational in adding multiple taxes on single item – already the consumer is paying heavy Registration/Stamp Duty on propery purchases: The increase in levies to an impractical level has gone a long way in multiplying black money /paperless transactions all over country.
For instance – at least 20% black cash money is demanded by most builders from purchasers – which has no record on paper: Again – due to black money indirectly cheaters are encouraged – as there is no check by builder on actual amount quoted/demanded from purchaser by the person in office /site: There have been cases where customers have demanded refund of amount paid when they find that the property/quality of flat purchased is below par – the builders office flatly offers ONLY THE WHITE i.e. CHEQUE AMOUNT PAID – nothing more!! There is practically no way a person can get full refund in such cases.
NEXT – due to increase in stamp duty, regsitration, VAT. etc etc etc – a new breed of investors are born: They pay roughly 60% of cost of flat by cash to builders office/sales person – when the building is ready – they get nearly 50 to 100% more than their invested amount – they dont pay any taxes, registration /stamp duty OR ANY OF LEVIES :: these are from corrupt officers, politicians families/ industrialist owners: Again this has only increased the net flat of property for poor middle class buyers – who can afford only white money!
AGAIN this increases have multiplied the time, efforts and paper work *(cost) of each sale/transaction and gives very little to check quality, honesty in each deal.
When government reduces taxes – more and more percent of people find it easier to pay taxes honestly and avoid bothering to evade tax: It is already said that actual tax payers in India are just 14/20% – taking proper measures ( as done in government in early nineties) to reduce/rationalize tax – will go a long way in improving standards of living, working and ultimately it is the government that will reap the benefits of Indirect Taxation.
I wish many of your observations come true.(FM also wishes the same, so that his government and his post are secured for more time). Also i am fully for your proposals, as i benefit immensely.
After that, lets see, what are the items FM has power to do.
1. BMC: True. However, FM wont get anything of this as the revenue is fully BMC’s. This is fully for internal consumption(pun intended). I am fully with you on the reform of toll. But will it hppen?
2. Conveyance : Again i fully agree. However, if i have to fully depend on public transport, the infrastructure needs to be robust. In the absense of that, persons who can aford will use their own transport. Persons who cannot afford are forced into private transport. Infrastructure in cities/towns is a state issue.
3. Abolishment of sales tax VAT on real estate : I cannot agree more. However, here i feel we are going out of the subject of taxation and going into how the system is being hoodwinked. But to make the point, rate of tax or amount of tax is not only reason why someone tries to go black. There are multiple agencies involved and IT dept is only one of them. Proper law enforcement, lack of social stigma are some other factors. In the absense of these, the law remains toothless and will have low conviction rate and encourage people to follow this path.
Finally, “If the governemnt reduces taxes, more and more percent of people come into the ambit and pay taxes”. This is true if more and more join middle and high income groups. Unfortunately, it is not so. There are very few joing HIG and some joining the middle class(true, this % is with reduction of poor, but only nominally). In reality, if rates are reduced, the available revenue becomes less per capita which will lead to lower spending on various schemes. Suffice to say that due to higher percentage of poor(devisor effect) per capital revenue available remain low. If some concreate steps are taken now and poverty is reduced in next 5-10 years to come, then there will be greater chance for these user friendly tax proposals.
Thus, i feel that we need higher revenue to implement better infrasctructure and systems, which can reduce the taxes in the long run. This will make reduction in tax elements less likely.
My point of view may not be fully right. I am also not indicating that FM shouldnot make IT more sensitive and less painful. I feel that FM doesnot have the luxury, will, support for realising this dream. Hope the new politicians to come work on this and improve our lot.
It is nice seeing different perspective. Thanks.
I completely agree with you on all of these pointers. This is the reality in majority of the cases. India is a country where in more than 50% of the cases, there is only a single earning member and has to feed several mouths and meet their necessities. But when you are taxed, no such consideration is taken into account. For the salaried class it’s the worst because all our money is white but if we want to buy a house, one needs to pay a good chunk in cash. On everything there is a VAT or ST and on the other hand we are taxed as well. So we keep paying the govt from all the directions and still we are deprived of basic infrastructure and convenience. All we hear is scams abt how are money is looted by these politicians!
Thanks for sharing your views on this topic . Any idea’s on how this can be implemented in reality ?
I agree with the fact that expenses should form at least some basis of deduction in total tax payable for all Individuals in India: Anyway Corporates/Firm owners do have almost huge deductions made via Conveyance/ Hotel STay/ Travel / Depreciation etc. that take off a large portion of net payable income tax for corporates / firm owners. Case in point : Vehicle bought for company use ( may be used 80% for individual use by Managers/owners) get 100% depreciation benefit – and the expense is taken from Salaries/Expenses Accounts normally. BUT – the poor Individual – even when he has to compulsorily use Taxis/Autos etc. ( amounting to min. 3/4 k per month in any city) – there is no rebate on this “Expenses made towards earning Money/Salary” – which must be present! Again – a person living in even a 1bhk flat has to shell out min. 1,000 per month as maintenance money – a large portion goes to Municipal levies/taxes : At least this amount must be deductible in total from the annual income tax payable by an invidividual FOR ONLY one residence/flat owned by him.
Corporates/Firms have foreign travel/hotel stay etc. also included in their annual income tax deduction under “expenses” category – which leaves out the poor salary earning individual ! He cannot even afford a cheap vehicle – even if taken on loan with higher rate of interest!
I would strongly propose inclusion of single /first vehicle owned by a Person (individual) for both certain Tax Deduction of the Interest Paid on loan every year ( let that tax be added to total interest on loan per year like Housing Loan) AND a certain part of depreciation of use of vehicle to travel to work place – like 20% per annum? This is only fair and reasonable.
Thanks for sharing your views .. What kind of rules do you suggest, can you frame some points ?
yes:
1) akin to expenses for earning profit in corporates – every individual should get:
a) upto rs. 50 per day for tea/snacks taken while at work
b) upto rs. 200 per day using distance traveled to work place ( form 16 by company/ employers certificate, PAN / passport to prove residence location)
for distance more than 15 km and above,
upto rs. 100 per day for distance below 15km per day from home to work
above will be for working days only ( 6 days a week, excluding holidays /whatever)
2) For essential/first vehicle purchased ( 2 wheeler/4 wheelter) within
6 lakhs (upper limit for cost of new/used vehicle).
for distance from home to work less than 15kms, 2 wheeler depreciation
@20% of full cost of vehicle per annum
for distance greater than equal to 15km , 4 wheeler depreciation @20%
per year as vehicles normal life is upto 4/5 years only.
3) For expenses related to society maintenance, servants, drivers /etc which provide indirect employment / and for physically disabled persons / infirm /old persons :
50% of money paid to domestic servants ranging from 1,000 to maximum
of 15,000 ( where max. will be 10% or 15% for disabled persons annual income)
based on actual declarations/signatures/PAN receipts by payee.
to be deducted from total taxable income.
4) For childrens education – uniforms/ bus fees / tuition fees (including
lab fees, library, other charges levied by schools) – the entire amount
must be deducted with upper limit of 10% of persons gross annual income.
5) Communications instruments ( only one) used for earning salary by
individuals like mobiles/ laptops that is required in the field,
50% of the total amount spent for 1st instance of instrument in given
2 years with max. limit of upto 5% of persons gross annual salary..
Above would be practicable and sensitive to everyones requirements.
Thanks for your suggestions !
Well I think our system is extremely flawed.
In fact what you have mentioned is only the direct tax, which is simply tip of the Iceberg but over last 10 years. government strategy has changed to extract more money through indirect taxes, which means we do not even understand that we are paying taxes to government.That I think is the worst possible kind of tax. Imagine Ambanis & Birlas are paying the same tax as you & me for many items of normal use (hypothetically)
So your suggestion is that a price of the item should be dependent on the buyer. Why should it do so? Give a single instance of this every implemented in any other country or city?
Just because someone earns more, he pays more for the same item? What a logic, sirji?
Exactly my point….
I think taxation should be fair & hence direct taxation is better option than Indirect option.
Take the example of LPG/Diesel. BOTH AMBANI & YOU are paying exactly the same price. why due to reliance on indirect method of taxation….
Our tax base is very small and less than 5%. Of the 5%, most businesses end up filing cooked up data with no checks and balances to stop those.
Unless our tax structure is revamped and base is widened, we can’t mop up enough money if not for the indirect taxes.
If your remove your VAT ans CST, you will end with soap for 10 Rs. but a total taxation of 40%. A small group of 5% of people will be supporting the cost of government to provide for 100 billion people.
Be practical and think logical. Suggest something to increase tax mop up and then demand more deductions.
Boy, have you taken this personally…..
So what you are saying is invisible tax is better than visible tax if we take this idea further then we should make income tax nil & Increase the indirect tax by 50%, imagine the situation. Pl. understand Indirect tax is slow poison, you will very slowly….
On second point when you talk about increasing the tax base you are talking about only direct tax. but the base is all ready 100% for indirect tax- Out of total Budget revenue 43% comes from Indirect taxes & only 18% comes from Non corporate income tax.
Think about it…….
Nothing personal here. Even I pay my tax and I am charged in the middle bracket. I live in a Tier I city with a family where the expenses are more.
You are exactly supporting my view. If we remove our indirect taxes, our tax base will be 10% which is of no good for implementing anything. Until the direct taxation covers the majority of the population, indirect taxes is the way to go.
It will create difference in ppls.
Better way to implement is, keep higher taxes on the things which can be afford by rich only. e.g. high end cars ( not Nano) and bikes ( Not a bajaj scooter 🙂 ), Luxury Watches, apprales, jewellery which defenately not going to afford by middle class earning persons.
Govt offer subsidy on diesel is fine considering used for farming. ( Thats y more buying diesel car now) but why on petrol? Better to remove the subsidy.
Also Ask all MLAs to pay for their all official visits/rounding on name of Govt work.
There are many many things but….
If Govt want to do, he will do the next day but we are not seeing any intention of doing ……
Jig
Nice points .. so your point is that taxes indirectly the top ladder is much better way to implement this ! ..
Hmm.. Siddhant
Can you list out few things on which we are paying indirect taxes but not realising ! ?
Nice thought…
Here are 2 cents from my sides
Why we need to pay tax on the amount which we pay as taxes back.Say we have 30k billed expenses per month on grocery,Petrol,Insurance,Medcines,travel,mobile,internet,dishtv etc…
then we end up paying 3k(avg 10%,Petrol we pay 40% tax) as tax to govt (VAT,service tax & all taxes) ie 36k per yr.Why not have that as tax free
I know we have tax slab and actually the seller pass on the cost to us.
Why the 1 lacs 80 cc limit and 15k medical has not increased considering inflation every year.The value of these amounts is much low now considering the time they were introduced.
Suhas
You bring a very interesting point ! .. we pay income tax on the amount spent on those items where we have already paid lot of tax like PETROL ! .. thats something I never thought about ? !
The only difference here is about the direct and Indirect tax. If one considers the total tax any individual pays, it is going to be a mind boggling number. I believe, this blog mainly talks about the direct taxation aspect of taxation. I feel logical that just as any business entity is allowed expenses as deduction, even salaried class should be allowed deduction (which could be in the form of some standard deduction linked to various factors mentioned by Manish in his blog)
If we keep asking deductions for Groceries, Diesel, etc. where will it end?
-Even Jalapenos, Olives, Cheese, Salsa, Tacos is also food. I can then make Pizza and Burritos at home. Do we need deductions for buying those?
-How many of us travel 25-30 Kms for need? We travel because we want homes in posh locations, closer to malls, shopping, etc. I buy a Diesel Swift for 8 lacs and crib that my deductions don’t match my expenditure?
– Why should my son studying in International school paying 1 lac per year be eligible for any deductions? Is it not better to provide a deduction to guy in Government school?
If we start deducting all these, a person earning 10 lacs will end up paying 5K as tax. Then where do we find money to build infrastructure, to execute schemes, etc., We will be walking to a deathly spiral. You blame the govt and govt says I dont have money.
We, Indians, want everything cheap and free and have no social responsibility. Helping your maid with extra 1000 Rs is not the end of social responsibility.
Santy
You have not understood the essence of the article I guess. We are not putting all the points on everyone . We are just pondering over the issue and trying to come up with a balanaced approach which should work for everyone .
I am not saying about unlimited deduction. I am talking about deduction on few things which most of the people are affected with .
Manish
Sorry. The idea proposed in the article will only make it all the more complicated and diluted benefits to non-deserving people. We want more and more exemptions and deductions. Only way to achieve it is by indirect tax.
People will only get the kind of government they deserve. Has anyone ever blogged on the areas where we can improve tax mobilization or structure? How do we increase taxation or bring in more social responsibility? We want populism by asking for more tax breaks.
I agree with Santy, already I feel the Income tax law is too complicated, we should try to make it simple. How about a plain x % tax on low income, y% on high income, no deductions and all, you manage your own budget.
every transations happening in money should be taxed, heavy punishment for people not paying tax, like doctors and businessman. I still donot understand why 90% of people in society should be left of tax bracket.
Govt should think that how do I bring more and more people under tax bracket, this is important because everybody should feel responsible for the country, now only salaried class and soilders.
Untill then we will be third world people who love on subsidy and freebies, time to change guys.
Thanks for sharing your views .. the idea is to discuss the topic .. all the points which I had put is for debate and what came to mind while writing .. agree that indirect taxes are a better way to implement this !
I believe, just to standardize various expenses, there was a Standard deduction allowed for all salaried class. Now even this has been abolished. TDS on Salaries is one easy source of direct tax income for the Government which it can collect without any efforts. The Indian Government has always remained indifferent towards the voes of the Salaried class. Just as government allows all expenses for the businessmen and the professionals, all expenses must be deductible before tax. But who will fight for the Salaried class?
Mehul
Thanks for putting your views.. as you said , business class is allowed deductions .. then why not salaried class ?
I recently got a feedback from my CA that conveyance tax is fully tax exempted if it is used on expenditure for official duties. Hence you have to provide a declaration on stamp paper to your employer that the conveyance allowance is indeed being used for expenditure for performance of official duties. However you are talking about TRANSPORTATION allowance where 800/- pm are tax exempted. Please spare your thoughts on this and help me in differentiating among the two.
As far as I know , rs 800 is automatically tax free each month . I am not aware about the conveyence allowance you are talking about !
Hi Varun,
Conveyance allowance is where either you are using company provided vehicle or else your own vehicle for office use. In this case again based on the company policy limits or based on petrol bills produce deductions will differ. Apart from this, the amount spent on this is deducted from ur taxable salary.
Fuel allowance is exempted to the extend of offical usage, balance is taxable as special allowance only. Normally this was pegged at 80% for official purpose not sure for this year.
I toatlly disagree on selective tax.Where a person stays , how large his family is , should not effect their tax. Are you saying that if a person sacrifices and chooses to stay in a small town, and have one or no children, he should be charged more tax because his expenses are less.We have to choose how we are going to live , how much we budget is our responsibility.If i choose to give my chidlren a foreign education, make them live in big towns….then i should ask the govt for less tax because my expense is more.And the poor peoploe who choose to live a simple life should be charged more tax because their expense is less? …ridicululous….we all have a choice how to handle our expense….we can have bigger family or less,children or no children, luxury or simple life.(infact those who stress our country and enviroment by having more children should be made to pay more tax , sell their kidneys and body organs to make money for same….only then they will understand the trauma they inflict on the country).
Pratap
There is no tax on any expenses right now .. Even if this is implemented , a person who is sacrificing will be paying less tax only
Manish,
the article says you should “differentiate” depending on “circumstances of the person” .. like couple both are working but in soem household only husband is working..so govt should be sympathetic to single earner because only one person is working??? What does this mean..if a wife or woman sweats it out and works , she pays more tax? If someone is unmarried by choice or by misfortune ….they should be taxed more?Thats wrong.A persons right to gain and retain wealth depends on how much sacrifice he makes. how much sweat he sheds and how much hard work he does, how much unpleasant jobs he is willing to do, and how much scarifice he makes in his lifestyle and place he is willing to live.Simply declaring i am in a “circumstance” where i have so many children and family members and live in a big town and have a nice lifestyle ….so all others who have scarificed please pay more money so likes of me can be sustained.Anybody can choose to be this “circumstance” where more money is required. But they dont even though they want to.People plan and conduct their lives so that they do not get into situations where their lifestyle requires more money.maybe they dont get married, dont have children, live in a small town, live a simple. All this sacrifice why?…so govt who is “sensitive” to peoples “requirements” can take whatever money they want from these people ..cause they dont “require” anything? ……WHY should that be deemed as a person “not needing money” so pay more tax? This way everyone will want to have ten children and 20 family dependeants and live in a big town . etc etc …govt will be “sensitive” to their needs and help them with tax.
Pratap,
I think you have misunderstood the article. Article is trying to focus on bringing in balance between income sources and expenses. For example one single man if earns 12L he will be taxed as per the tax brackets because his income is falling in those slabs. Now consider another man who also earns 12L and has 5 dependents. If second case we can see that one income source is shared between 6 people. Now just considering the basic needs (no luxury or unnecessary expenses) we can understand the second person’s income is less than first’s so giving him some exemption is not ethically or economically wrong. If woman and man both working then each will anyway enjoy regular tax exemptions (Tax free slab, Investments, HRA, medical etc) and they have to pay their taxes. What the logic about woman sweating it out and all?
I am not sure what all sacrifices you are talking about but if you are talking about abandoning your wife, parents, kids because you are working and they are not in order to be wealthy then you should be taxed much more than anyone else in this country.
Jokes apart, consider this case and reply to the queries below. One man from a very poor family studies in night schools, works on local shops etc while studying and completes higher education taking loans etc. Now he has a very good paying job.
Don’t you think now she should be left with more money to improve the lifestyle of his family?? Don’t you think such exemptions will reduce the disparity in the society??? You want the guy to pay same tax as yours to achieve what?? Anyways you will pay the tax which you are suppose to so if someone in difficult circumstances is allowed to pay less whats your loss??
No system can be perfect. The points raised here are valid but customizing it depending on city or individual will get highly complicated and error-prone. Most of us are OK with paying our taxes, but “what do we get back in return?”…. this should be addressed. Also, we are paying multiple taxes, at many different levels, some taxes have to be done away.
We want good governance, good infrastructure, affordable healthcare and quality education. We want our tax to be spent in a productive manner.
Shib
Agree that the implementation of these things word by word in tough . But can you point out minimum things which can be implemented ?
Hi Manish,
True lot of these factors can be considered and at the same time financial abuse of such deductions is also very likely possible as pointed by Vasanth.
However, please note that if expenses are higher in Mumbai/Bangalore so are the salaries as compared to anyone living in Indore (for eg.) which compensates for the same in a way.
Single worker or dual worker is a choice within the family which in no way have a right to influence taxation. Else everyone woman would become a house wife 🙂 or these days even men would prefer to stay at home.
Yes, child tuition needs correction and so does the transport allowance. But we should not forget that the government has given much more than these deduction st in the form of reducing the tax (via tax slabs). Aiming to bring DTC will simplify the tax and hence remove complications which enable some/many to abuse the deductions available.
I’ve seen people get into Agriculture and obtain a farmer status to again start another business of buying agri land and converting them into Non-agri and selling them at 10 times (predominant in MH and KA) the price etc. I don’t think providing these many deductions will overall benefit the govt. (which anyways is not able to meet the forecasted deficit & the fuel subsidy pressures).
Personally I would want the Govt. to implement compulsory min. Medical insurance and increase quality public transportation. And levy high taxes on cars (like in Singapore, UK etc). If u can afford then so be it. There were cases registered where rich folks were registering their personal cars as commercial taxis (Audi/Merc etc) because they saved close to 3-4lacs in tax (Rich becoming richer… ) because the tax was a fixed price unlike the case of private cars which is a % of the price of the car.
I would also like to see Govt. migrate more and more public services into shared services like they have done with Passport Service. Just like Telecom sector is maturing and evolving to become more and more competent I am looking forward for the Govt. sector services to become Lean and efficient. Something that now Banking sector is aiming to become.
Regards,
Varun
Yea Varun
Abuse is possible . We are just raising the issues and trying to get more and more viewpoints only 🙂 . thanks for sharing your views !
Dear Friend,
these are very valid points. these rules are in place in almost every developed country. even if you are not resident of that country (on visa); they consider the number of dependents and burdon and then calculate the tax;
however in India.. there is no place of sensitivity and humanity factor- all non sense…
Gaurav
Can you name those countries and the rules , if you knwo them ?
Family allowance benefit levels vary in different ways. Several countries provide a uniform rate per child,
regardless of the number of children in the family (Australia, Spain, Norway, and Sweden) while in other
countries (Italy, Belgium, France, Germany, and Luxembourg), benefits increase with each additional child or are
larger for later children (such as the 3rd, 4th or 5th child). In still others, such as the United Kingdom, the benefit is
higher for the first child while in France, a family is only eligible for the allowance after the second child is born
— USA
http://www.childpolicyintl.org/issuebrief/issuebrief4.pdf
– AUS
http://www.centrelink.gov.au/internet/internet.nsf/payments/ftb_a_eligible.htm
Canada is one of them, they definitely give a deduction for spouse and children(though I am not very sure about children)
Divyesh.
US as well..
You can claim deduction for your spouse and children if they are dependent on you.
Hmm .. so this exist in US .. the thing is their system is already so organised that its possible to implement it there.. who do you do this in India !
I don’t think its a great point to discuss. It will make tax more complicated again, and lot of loopholes will get created..
Sanjay
thats why this is just a discussion and trying to get more and more ideas on what people think? Do you think the current taxation system is simple and fair ? No changes required ?
To all these questions, in my view a good & viable answer is given by Arthakranti… Their proposal in brief is given with 5 points:
1. Existing Taxation System should be (except customs i.e. import duties) completely withdrawn.
2. Every Transaction routed through a bank should attract certain deduction in appropriate percentage as Transaction Tax, i.e. Single point tax should be deducted at source (say 2 %):
a.This deduction should be effected on receiving / credit accounts only
b.This deducted amount should be credited to different Government levels like
Central, State and Local (say 0.7%, 0.6%, 0.35% respectively)
c.Transacting Bank should also be given its share in this amount as the bank has
a key role to perform (say 0.35%)
3. high-denomination currency valued above Rs. 50 should be withdrawn to curb black money.
4. No Transaction Tax should be levied on cash transactions
5. Government should make legal provisions to restrict cash transactions up to a certain limit (say Rs. 2000)
Pl go through the website mentione below, for more details about the proposal:
http://www.arthakranti.org/home
Thanks for pointing out to that .. I think these points are very powerful if implemented
Yes, this is really powerful. The Arthakranti volunteers in my vicinity are really pushing it hard since long time (more than 2-3 yrs) to govt. On 1st August, they have arranged “Samarpan Yatra”, where they will gather at Aurangabad & thereon groups (1000+) will move to Delhi, Ralegan Siddhi, Bengaluru & Haridwar to bring awareness in people. They are also trying hard to have all the four mentors – Anna Hazare, Baba Ramdev, Sri Sri Ravishankar & APJ Abdul Kalam come together pushing it harder at govt. I wish & hope that we will see this implemented soon 🙂
Yes, There is surely a need for change in the taxation system. All bills provided as a proof for claiming any such benefits are verified by the companies and VAT and bill no. etc will be there in records in case somebody claims something stupid so need not worry much on that front. Secondly our taxed money anyways goes into politician’s pockets or corrupt projects…:)
Thakns for sharing your views on this topic !
Nice thoughts. Question is what is the objective. Are we all going to crib and then forget?
Amit
The idea is to just discuss at the moment .. Its a debate article and see how people think about it
Good points, some of which exist in the American taxation system.
Is it ? Can you give more information on this ?
Got it Manish, Good debate though. I will try to come back to it soon, have lots to crib.
Manish it’s a nice though. As Pavan mentioned the same exists in US.
In US one files an employee withholding allowance certificate called as W4. Based on which the federal taxes are deducted. If you are married and have kids then you pay less tax as compared to a single person or even a married person with no kids.
Great … nice to hear that .. would be good to learn about how it works from you . Can you shoot me an email with 3-4 para explaining this to me in a little more detail . Or send me some links on this ?
In US taxes are not calculated the way it is in India. US doesn’t have one centralized tax rather they have Federal tax, state tax, city tax (or county tax) and there are states who even have school tax. But based on my experience with US taxation I would say there is lot which Indian taxation system can take.
Coming back to W4 when a person joins a Job he fills an employee withholding allowance certificate (W4) which tells the employer his tax filing status (married/single/head of house) and the number of exemptions one want to apply to his wages. http://www.irs.gov/pub/irs-pdf/fw4.pdf?portlet=103 is the link to the latest W4 form.
Based on the W4 employer calculates taxes. So for the same amount of earning a single with no exempt pays more tax as compared to a married person. For example a married person with no exempt earning $800 pays $79 as tax while some one who is married with three exempt earning the same $800 will pay $46 as tax. So clearly it shows that even if two persons are having same amount of earning they pay different taxes based on their status. You can use the following link provided by US federal government for tax calculation based on exemption http://www.irs.gov/individuals/page/0,,id=14806,00.html
Through your article you are trying to raise a debate on the same.
Thanks for lot for this info 🙂
Impressive thoughts!
But there are lots of cons in this (Considering Indian mentality :))
1) Commuting cost will drastically go up in Cities. A statement “You can declare and save tax na”
2)Atleast tuition fees is bit low in outskirts these days but this tax rebate will increase the tuition fees across the country.
3) No Indian will Live in a rented house which is less than 25K even in a remote village 🙂
4) Grocery bills for a family will cross 4-5 lakhs . People might claim they eat 10 times a day 🙂
According to me, Government has no intention to reduce taxes, and that’s the reason, tax breaks are not properly allocated. Everyone knows that the deduction provided is with lots of reservations and which makes it unrealistic.
What kind of reservations are you talking about , can you elaborate on that ?
Reserveations means conditions which are imposed. Like in HRA .. Lower of Actuals, or 40%/50% or 10% basic.. i think so.. Or any other allowance which are provided like conveyance as you mentioned in your post. Some allowances are on actual basis and some are fixed. I am talking about reservations in sense of conditions. God knows the condition of such logic!
Thanks for sharing your views .. but the idea is not to 100% allow deductions .. there has to be limit on everything 🙂