Anomalies in Personal Taxation


By

Roji George
Senior Lecturer-Finance
School of Management, Karunya University
Coimbatore

Reji George
Associate Member, Institute of Cost & Works Accountants of India
Asst. Manager-Finance, Hindustan Insecticides Ltd., Ernakulam Unit

A Kumuda
Reader
Dept. of Business Management, PSGR Krisnammal College for women
Coimbatore
 


Tax is a compulsory extraction of money by public authorities, which is imposed by Law. It is said that, death and taxes are the only things certain in life. Whether a person makes money or not Sherlok is sure to demand his portion. Always Portia cannot be with individual to help them.

Canons of taxation are the characteristics and features of a good tax system which the state is expected to follow while imposing tax on public or corporate. Canons are first proposed by Adam Smith and later by Charles F Bastable. These are canon of Equity, Economy, Convenience, Certainty, Neutrality, Elasticity, Productivity, Simplicity Diversity and Expediency.

Apart from the canons of taxation, the taxman /state should consider taxable capacity of the people the ability of the people to pay taxes without adversely affecting or worsening their standard of living and efficiency. Taxation Enquiry Commission of India (1954) has also stressed to consider the taxable capacity of individual while formulating taxation policies. The Chelliah Committee (a committee appointed by Union Government for reforms in Taxation policies- 1993) comments that India's taxation policies should be based on three cardinal principles- the principle of equity, the principle of benefits and the principle of ability.

Are we following these canons in India? Principle of equity and the principle of ability, are they adhered? It is found that, there are so many anomalies in our taxation system. These are because of the political movements or pressure and populistic approach of rulers. Once adopted, the next government is not interested to scrap the same due to fear on vote banks even though it charges exchequer. Some anomalies which are coming under personal taxation are narrated below.

1. Discrimination to Salaried People

In salary income, the salaried person is not eligible for any deduction of expenses which he/ she spends with related to the performance of official duty. But a businessperson and a professional are eligible for deduction of such expenses. For example a medical practitioner or a chartered accountant is eligible for deduction of expenses like cost of books purchased for professional purpose, expenditure incurred to increase professional knowledge etc. But a salaried person even if he is a teacher is not allowed for a deduction of expenditure, which he spent for enhancing knowledge. Same way a professional's membership fee which he paid to a professional body is an allowed deduction while a management graduate's association fee is not an allowed deduction. A doctor or chartered accountant is allowed to claim motorcar expenses along with deprecation benefits, because, it is assumed that a vehicle is required for them considering their status in the society. But a salaried person, what ever position he holds this exemption cannot be claimed. Compensating all these, it was stated long back that, salaried person is eligible for standard deduction which was unfortunately removed from the assessment year 2005-06 onwards.

2. Special consideration for women

With effect from the assessment year 2001-02 onwards, under section 88C a women who is resident in India, is allowed a rebate of actual tax or Rs. 5000/- per annum which ever is less. (It is modified as income up to Rs. 1,25,000 p. a. in 2005-0 budget and to Rs. 1,45,000 in the new budget). What benefits the economy gets by this concession? Is it justified when a country has numerous numbers of educated and unemployed people including women? This issue has to be analysed in another angle too. In Indian context, most of the cases, if a woman is employed, her spouse also will be an earning member. So their family is in a comfortable position due to the combined income compare to family of single male earning. Which family has to be given concession, if the taxation system follows canon of equity proposed by Adam Smith?

3. Relief to Senior citizen

Senior citizens are to be respected and honored and services rendered by them have to be acknowledged. But when they are given a concession, they are humiliated. Under section 88, senior citizen (an individual who has attained the age of 65 years) is exempted from tax if his income is upto Rs. 1,50,000/- p. a..(Enhanced to Rs. 1,95,000 PA in the present budget) In simple calculation, if a senior citizen's income is upto Rs. 16,250 per month, he is not required to pay tax by claiming this section. (These benefits are apart from medical exemption, railway benefits etc which are offered by Government). If a person after attaining 65, is able to make a monthly income of Rs. 16,250 /- , must have amazed wealth at his good age. These people must be representing either self-employed people or was a member of an organized sector. What about their counterparts in the unorganized sector? When one third of our population is living in poverty and per capita income is only about Rs.20, 000/- per annum, should we give concessions to rich people by virtue of their seniorship? Musgrave and Musgrave, authorities in public finance had commented that everyone has to pay his or her fair share to exchequer.

4. Rebate on children education fee

In the Finance act 2003, then finance minister introduced a new rebate, which is continuing now, in which a parent can claim the tuition fee paid to school for his children education for rebate under section 88. (presently section 80C). The purpose of the same was to give a financial relief to parents and give an indirect support to education section. But this helps only the people who are having children studying at school class. This provision discriminates people who has children and who does not have. Children education is a personal expenditure and our taxation system is based on personal income not on personal expenditure. There are countries, which charge extra tax if a family has more than one child. But unfortunately in India, where population has crossed hundred million, give concessions to people who have more children and do not give any concession who do not have any children. It is anticipated and expected in the society that children provide security in future. So childless parents need more security and so give more concession, not the parents who have children. The canon of Expediency is not followed in India.

It may be concluded that, Indian taxation system does not follow either the canons or the principles. Our polticians must have the courage and fortitude to impose a systematic, transparent and equitable taxation system. As our Prime Minister, Manmohan Singh said, much more professionalism is required in politics. This will definitely help to increase the revenue of governments and will eradicate all anomalies, which exist not only in personal taxation but also in other taxation areas.
 


Roji George
Senior Lecturer-Finance
School of Management, Karunya University
Coimbatore

Reji George
Associate Member, Institute of Cost & Works Accountants of India
Asst. Manager-Finance, Hindustan Insecticides Ltd., Ernakulam Unit

A Kumuda
Reader
Dept. of Business Management, PSGR Krisnammal College for women
Coimbatore
 

Source: E-mail April 12, 2007

       

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