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Tone up the I-T Act
October, 06th 2007

The next Budget is some months away but already the air is rife with expectations, what with the Finance Minister announcing the arrival of a new income-tax code before end-2007. The Companies Bill, 1993 and the Companies Bill, 1997 flattered to deceive. Neither of them was carried to fruition.

Working Draft

The Working Draft of the new I-T Act was put in the public domain during the twilight years of the last century, but no one knows why it was given the quietus. Perhaps it rubbed some people on the wrong side with its path-breaking measures, such as professionals being taxed presumptively on 70 per cent of their receipts with 30 per cent thereof being deemed to be the expenses.

The Budget-making activity has been over the years preceded by extensive consultations with chambers of commerce, lobbies and pressure groups. But such consultations seem to be conspicuously absent this time around in the context of the new I-T code on the anvil.

Maybe, the Finance Minister feels that the presence of too many cooks not only spoils the broth but also mars the prospects of a wholesome law that is fair to everyone. But the ideal of course is extensive consultations without allowing the pressure groups to sway final decisions. Be that as it may.

Why junk IT?

It is not clear why the extant I-T Act, 1961 is sought to be junked. Granted it is a patchwork of amendments, but then a statute like the Constitution cannot remain static. Amendments have to be made from time to time in response to the dictates of time and in the light of new facts and strategies coming to light.

Unless, therefore, the Government has got plans up its sleeves proposing seminal changes in the scheme of income taxation, it would be better advised to continue with the existing law with a few changes to correct the distortions, ambiguities and irrationalities it is marred by.

The salaried class is now feeling the heat of heavy taxation more than ever with no leeway to reduce the burden that is available to the business sector. In all fairness to them, the one-size-fits-all ceiling of Rs 1 lakh under Section 80C must be removed in favour of more liberal and flexible ceiling of one-third of the salary income. This would foster savings besides checking the financial haemorrhage which taxes mean for them.

Presumptive taxation

The extant schemes of presumptive taxation are virtually dormant with few adherents for want of proper enforcement. The one obtaining for retailers is the best one could have bargained for.

A presumption of 5 per cent profit from turnover for retail businesses up to a turnover of Rs 40 lakh is the most benign regime one could think of given the huge margins available. To wit, a turnover of Rs 30 lakh translates into a presumptive profit of Rs 1.5 lakh.

Non-senior male shopkeepers would have to pay Rs 4,000 ignoring education cess as tax. Intrepid males, of course, have the luxury of becoming chivalrous and anointing their better-halves as owners given the fact that non-senior ladies enjoy tax exemption on income up to Rs 1.45 lakh or better still the senior citizens in the family who enjoy nil tax up to Rs 1.95 lakh.

Levity apart, the truth is our tax laws lack the teeth at the elementary level. It is all right to raid the big fish. But it is also necessary to shake up the teeming millions of traders dotting our landscape to send the message across that the Government means business.

Procedural hassles

The procedural law in fact is the nightmare, especially for non-business taxpayers. It is not fair to tom-tom the facility to file returns on the Internet with a simultaneous exhortation to follow up with a visit to the income-tax office to file the signed return if one has not signed the return digitally while filing over the Net.

And the futility of asking the salaried taxpayers to file the return must be stopped unless of course they have income from other sources which they have not declared to their employers or have a claim of refund by reason of the employer having been remiss in deducting tax in excess.

After all, every employer gives all the details to the tax administration of what he has deducted from his employees besides being practically cast into the dual role of assessing officer for his employees.

The increasing tendency to view corporates as a one-stop-tax-collection centre is dangerous. Tax on dividend is collected from them and not from the beneficiaries and tax on fringe benefits enjoyed by employees is collected from them and not from the beneficiaries on the ground that many of these benefits defy precise pigeon-holing that is a sine qua non for reaching out to the beneficiaries.

Stock options, for example, can be easily identified with the employees receiving them. Yet, the employer is required to pay FBT (fringe benefit tax) on this benefit with the liberty to recover the same from the employee. Why not seek out the benefiting employees direct?

In fine, it does appear that the extant law only needs fine-tuning unless a major overhaul is on cards.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)
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