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How high spenders elude tax net?
August, 10th 2006
The income tax authorities have had it with the people like 53-year old Pranesh Thadani (name changed) who lives with his wife and teenage son on Mumbais plush Warden Road. If the department has its way, in some time from now, it will tax him on the basis of what it presumes Thadanis income is and not what he declares it as. The problem is straight forward. Thadani owns a car showroom in Mumbai, makes regular trips with his family to US to visit his married daughter and, like all enlightened consumers, is fond of branded products. The annual tax returns that he files, however, claims his income is just Rs 2.5 lakh. Officers scrutinising his returns know it isnt true. But there is nothing they can do about it. He gets away by showing his personal expenditure as that incurred for running his business. For instance, domestic help is listed as employees of his company, the holidays are put down as business visits and petrol bills on official work are inflated to make up for expensive personal cash purchases. Business expenditure is allowed as a deductible expense and this provision, tax officials say, has been misused to the fullest. Even when an officer disallows some business expenditure, which the officer feels has been made for personal use, the assessee can go up to the appellate authority which will grant him partial relief, said an official. Which is why, a presumptive tax regime is being considered. Here, the income is calculated on the kind of lifestyle that an assessee leads. For instance, the kind of electricity bills he incurs, how much he spends on phone calls, what his petrol bills are like, which part of the city he lives in. On the back of all these, a fixed tax slab will be worked out. Says HP Ranina, a leading tax expert, the idea isnt new to India. For many years, the basis of taxing foreign shipping companies and even domestic transporters was on a presumptive basis. Ranina is among several leading experts in income tax regime, including YP Trivedi, who are pitching for the introduction of a presumptive tax regime in the country. Such efforts, according to sources, may yield results as the issue is also under consideration of the committee rewriting the I-T Act.
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