Why is it that the Income Tax department usually targets the Indian salaried class? When it is well known that salaried Indians judiciously pay taxes, should the department not leave them alone? Wilful compliance or tax deducted at source (TDS), whatever may be the reason, it is the salaried class that has contributed handsomely to the country’s tax kitty over the years.
Given this background, it is surprising that the income tax department wants to squeeze more from this small number of taxpayers. Tax evaders do exist even among the salaried class. But the income tax department is barking at the wrong tree in trying to arm-twist this diligent lot of taxpayers, and that is bound to be counter-productive.
The latest advisory on filing of tax returns by salaried class is a case in point given that the disclosures sought may not be in line with the accepted norm of voluntary compliance. Under reporting of income or inflating deductions could attract penalties up to 200 per cent of the tax evaded by salaried individuals. Threats of heavy penalties ranging from 50-200 per cent in the new, one-page income tax return form are regressive in nature and unwarranted.
Even if salaried employees tend to manipulate their income or taken undue tax advantage through perks, should the income tax department bracket them along side scamsters and criminals? It would be necessary to understand what percentage of employees evaded taxes in part or inflate perks. If the in-depth analysis throws up a small number, then targeting them with threats of huge penalties or cumbersome disclosures may not have the desired positive impact.
Given that most data is already with the department through the dedicated tax information network and traces across asset categories, there is no reason why such disclosures have been demanded. Compliance burden should not lead to troubling honest taxpayers. For instance, income from property such as gross rent received, receivable or let-able value and tax paid to local authorities is already with the taxation department in most cases. Interest paid on borrowed capital and income chargeable under house property head already forms part of tax returns being currently filed.
Now, flagging these heads further are separate disclosures that intend to catch those that either misreport or under-report their incomes. What is undesirable is clubbing inflated refund claims with doctored profits of companies that portray losses in crores of rupees to evade taxes under section 270A of the Income Tax Act. In any case, intelligent tax management cannot be equated with tax evasion of a fraudulent variety. Moreover, treatment of perks hitherto enjoyed by central government employees has undergone a sea change after the Seventh Pay Commission recommendations became operative.
Already, income tax accruals were Rs 4,41,255.71 crore in 2017-18 and the annual growth was already about 20 per cent. Over and above, income taxpayers were the ones that contribute to a major chunk of service tax now subsumed under GST and cesses. Under the circumstances, the focus should be on broadening the tax net, pruning the loopholes if any and making compliance easier should yield better results. Further, the income tax department has anyway been undertaking random detailed assessments of taxpayers to minimise misreporting or under-reporting of taxable income. Technology should be deployed most subtly to net fraudsters and tax evaders while leaving out the majority taxpayers from the salaried class.
In fact, the committee headed by Arbind Modi on direct taxes should look into making compliance simpler for most class of taxpayers, especially the salaried class. Threats and tax terrorism may not serve the purpose.