The least the Government can do is to call upon businessmen to file returns so that they are not the arbiters of their own tax destiny.
The salaried class, especially the talented segment of it, is closing in on the professionals in the matter of income. It is time professionals and businessmen caught up with the salaried class in the matter of tax compliance.
Every company is required to file its income-tax return no matter whether it had profit or loss. Even a peon is required to file a return if his gross total income (GTI) during the previous year was more than Rs 1 lakh. But not a professional with receipts even in the region of, say, Rs 5 lakh if he has enough expenses to push his GTI below the tax-free threshold. He is the monarch of all he surveys in that unless the law catches up with him in some adversarial proceedings, his word is final as far as authenticity of income computation is concerned.
It has not occurred to the Government that businessmen and professionals, enjoying as they do considerable latitude in the matter of arranging their expenses, should at least be called upon to file their returns mandatorily (no matter what their income is) on a par with the corporate sector so that the tax department has at least some hold on them.
Way back in 1997, the Working Committee on Direct Taxes suggested that professionals should be deemed to have earned a profit of 70 per cent of their fees with 30 per cent being presumed to be legitimate expenses, nothing more nothing less.
If this sounds a trifle harsh, the least the Government can do is to call them upon to file returns so that they are not the arbiters of their own tax destiny. After all, if a salaried person has to file his return even if his tax-oriented savings under Section 80C would ultimately bail him out of the clutches of taxation if his GTI is more than Rs 1 lakh, a fortiori businessmen and professionals should also be compelled to file their returns no matter what their income is if only to give the tax department the upper hand in scrutinising their accounts.
It is a trifle curious that employers are called upon to pay fringe benefit tax (FBT) on a whole lot of expenses on the ground that certain specified percentage of these inure for personal benefit of employees, especially those in the higher echelon. If this is true, it is equally true that self-employed businessmen and professionals too book greater part of their personal expenses blithely as for business. Shouldn't there be an FBT on them also?
Two things to do
The Finance Minister should do two things without delay. First, make filing of return mandatory for everyone in business and not for companies alone, as is the case now. While on the point of mandatory return, let senior citizen businessmen and professionals enjoy exemption on income up to Rs 1.85 lakh by all means, but only by filing a return. The short point is businessmen and professionals irrespective of their age and sex should be called upon to file returns.
Second, extend the FBT scheme to self-employed persons too whether they are constituted as individuals or firms without allowing them the alibi that FBT is not applicable because they don't employ anyone the personal expenses targeted by FBT is more conspicuously present in the income statement of businessmen and professionals.
S. Murlidharan (The author is a Delhi-based chartered accountant.)