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Vote on account 2014: Few major tax changes that happened during last decade
February, 11th 2014

By Sudhir Kaushik, co-founder and CFO of

Last decade, we have been witnessing continuous effort by the income tax department to simplify the tax procedures and increase the tax base through voluntary compliance. The intent was good but an unrealistic one. Hence, it has been partly successful. Taxpayer friendly budgets proposals reduced the net tax payment, and electronic processing of tax returns and other requests. For example, electronic processing of refund has reduced the pain of individuals significantly.

Despite the simplification done to a great extent, tax base has not increased even by one percent. The number of tax payers remains less than 4 % of the total population of India. In spite of insignificant growth in the number of tax payers the tax collections has increased by 400%, that is, from Rs 46840 crore in 2004 to approx Rs 2 lakh crore in 2013. The increase in tax collection is partly on inflation and partly it shows the higher income being declared by same taxpayers.

Here are a few major tax changes that happened during the last decade and identify the good, bad and ugly part of it.

Tax rates lowered to increase the tax base The Good: Tax rates were lowered to increase the tax base, assuming more people would declare income. Income, up to Rs 50,000, was exempted in 2004 and now this limit has been increased to Rs 2,00,000. This means basic exemption limit has been increased by 400% in the last decade. Similarly, the maximum tax rate of 30% was applicable on income above Rs 1.50 lakh in 2004 whereas now it is being charged on income above Rs. 10 lakh. Even if we consider the cost inflation index, which has increased by 200% ie from 463 to 939 during the same period, the 30% tax rate should be applicable for income above Rs 3 lakh ie 200% of Rs 1.50 lakh. The net tax payment has been lowered to attract new taxpayers for improving the tax base.

The Bad: There is an old saying - "BHAY BIN PREET NAHI" (There can be no love without fear). In general, there is no fear among the tax evaders of being caught by the income tax department. The black money in the system, as claimed by different organisations, has not shown downward trend. There are 22 crore pieces of information with the income tax department that are supposed to be belonging to tax defaulters. But, ITD has not been able to send tax notices to more than 2 lakh of these defaulters so far, leave apart the tax recovery from new tax payers. At this pace, the tax base cannot be doubled in next 10 years too, which is really bad for Indian economy and honest tax payers.

The Ugly: We all, including the policy makers, know and accept that there is a very big amount of cash in the economy. Why do we do negligible or symbolic efforts for bringing the cash transactions under tax net? Do we have lack of ideas despite having lakhs of professionals and economists in India? Can we assume that the infrastructure is not available to increase the tax base after spending hundreds of crores on automation in the tax department? Can we say the black money holders are influencing or stopping the policy makers and followers? If not then the important and first step remains to bring the tax evaders in the tax net. There is ample proof of increased purchasing power and wealth in the country. More and more foreign companies are coming in India for their future growth. The cost of living has been on the rise continuously. The prices of top contributors to cash economy i.e. property, gold, cars, hotels bills, luxury travel, hospital costly treatments, etc. have seen tremendous growth in last decade.

E-filing of tax return

The good: The taxpayers life became convenient since the introduction of e-filing. Success of e-filing is not entirely on mandatory e-filing, as taxpayers have been e-filing voluntarily as well in big numbers. Central Processing Centre has been doing exceptionally good work since the beginning and made the tax services more transparent and faster. One of the major benefits of e-filing to taxpayers is faster tax refunds that too without any payments or harassment. Tax authorities have also been benefited by e-filing in terms of saving interest payments on refund and manpower. E-filing has helped in creating the positive image for the tax authorities. There are more and more online tax services being introduced on regular intervals resulting in fewer visits to income tax office. Hence, the chances of harassment and extortion will be lesser and that's good news for the honest taxpayers. It can be safely assumed that there would be more efficient and transparent tax department in years to come.

The bad: The posting of signed copy of ITR V to CPC Bangalore makes e-filing partly offline. There are lakhs of taxpayers who have e-filed in previous years but their ITR V has not reached CPC and hence their return has been termed as defective i.e. return not filed. This can lead to tax notice and penalties. This is really bad for taxpayers who filed their return within due date, but forgot to post ITR V or posted defective ITR V.

The ugly: CPC accepts ITR V by ordinary or speed post only which leads to multiple posting of ITR V in number of cases. Registered post, courier or physical submission of ITR V is not accepted. The worst part is not ITD's inability to finde an option to do away with ITR V in the last 7 years.

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