The Perils of Tax Filing: Targeting Salaried Class and Neglecting the Real Evaders: There are reports of notices going out to as many as 22000 taxpayers who had filed their returns for the assessment year 23-24 of which 12000 are salaried persons. Inconsistencies in their returns vis-a-vis form 16 issued by their employers is the trigger.
For others there are multiple triggers including the famed and feared banking software the income tax department has been using of late as well as the Annual Information Report that registrars of properties, bank managers and fund managers among others file. Nobody can quarrel with these methods but aren’t we hell-bent on flogging the dead horses and targeting the sitting ducks?
Truth be told, the salaried persons with no other income except bank interest should not even be called upon to file their returns. And they constitute a good chunk of tax filers. The tax administration has been wasting its amenities in assessing them when already their employers have filed their returns.
Small wonder bulk of the returns filed do not yield extra revenue for the exchequer as the salaried persons pay their full taxes by way of TDS. The other large category of filers are those who file returns to seek refund of tax deducted at source that is not warranted by their income given the fact that they are eligible for section 80C (savings and investments), 80D (health insurance premium) and 80TTB (exemption up to Rs 50,000 reserved for senior citizens’ interest income. So let us not preen on the back of a mushrooming number of returns filed.
It is widely known that tax evasion is widely prevalent in the business circles despite the various presumptive taxation schemes in vogue. To wit, professionals with gross receipts from their professions not exceeding Rs 50 lac during a financial year are deemed to have earned just 50 percent of it and accordingly have to pay tax only on the 50 percent of gross receipts. While there have been quite a few adherents to this scheme, others simply chose to thumb their noses on the back of cash receipts.
Likewise traders haven’t shown much interest in the presumptive tax scheme obtaining for them — 8 percent of their turnover is alone deemed to be their profits which further goes down to a soft 6 percent to the extent their receipts are through the banking channels. Their apathy stems from their reluctance to have any interface with the tax guys for the fear of they resorting to more intrusive methods in future. In other words, they see in such presumptive tax schemes the thin edge of the wedge.
Columbia, a South American nation, not long ago set store by visible signs of wealth like if you own a swanky car, you are deemed to have earned so much income and if you own a posh house, you are deemed to have deemed so much income. Time our tax sleuths took a leaf from Columbia. Why not, for example, compile a list of owners of BMW cars and gun after them? Likewise why not target those with the other visible symbol of wealth — sprawling bungalows or villas. Human beings are primarily narcissists. They may hide their income but love to flaunt their wealth.
BTW did we abolish wealth tax too soon without using it for the purpose it was designed? Wealth tax might not have yielded much revenue ( around Rs 1400 crore was the highest collection ever from this source) but then its objective was to juxtapose one’s wealth with the income disclosed. Wealth tax can also by the way yield significant revenue if it targets all assets unlike what the 1992 Act did—targeting just six so-called non-productive assets.
Income tax department should not be seen to be indulging in pettifogging or using a sledgehammer to swat a fly. We must gun after the big evaders by class like the typical difficult to tax categories like professionals and traders. Let us have a sense of proportion for God’s sake and not sadistically flog the best tax compliers, the salaried class who willy-nilly fall in line thanks to full TDS on salary.
—The author, S Murlidharan, is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed are personal.