Jagoinvestor
June 18, 2012
Changes are required in Indian Taxation laws – Everything you want to know about income tax in India
A lot of people are trying to change our country. The way elections happen, the way schools run, the way govt. uses CBI for its own use, the way the judicial system works, etc. – the whole system needs to be changed!
In the same way, Taxation is one aspect of personal finance which needs some changes too. This is one sensitive topic I want to raise today – “Expenses allowed for Tax Deductions before paying tax”
We all are aware that some deductions are allowed for saving tax – like up to Rs 1 lac through section 80C and many more. However, the taxation law has not considered some of the things which are very relevant in today’s world and should be considered as per logic, but the law does not recognize it.
There is only one parameter for taxation today and that’s “Income”. What about “Expenses“?
Each person is different and the number of family members compared to others is different. Each person’s living expenses are different and their liabilities are different too. Hence, there should be some consideration for this while taxing that person.
Imagine this situation:
There are two people Robert and Ajay. Robert lives in Mumbai earns Rs.12 lac per year in hand, whereas Ajay works in Indore and earns Rs.6 lacs a year. Robert and Ajay both put Rs.1 lac in 80C investments and then have to pay the taxes. Ajay pays tax on 11 lacs, which comes around 1.8 lacs, where as Ajay gives a tax of Rs.30,000. So Roberts pays higher taxes than Ajay.
Now, what about a number of family members in Robert’s House? What about the burden of children education on Robert which is very high in Mumbai- which Ajay might not have?
What about the expensiveness of the city like Mumbai where Robert has to spend a lot of money on fruits for his elder parents- which might not be the case with Ajay? If Robert has 6 family members including parents, 2 children and 1 sister- total of 7 members, then what will happen?
All them need food, clothes, basic necessities which one can’t escape! Should govt not consider these points before applying the tax. Should there be a minimum limit of deduction for all these points? Read these 7 Income tax-saving tips you might now know
Some Deductions allowed but are they realistic?
1. Conveyance Allowance-
Till date its just Rs.800 per month, which I feel is way too low for many people. A lot of people spend on an average 3,000 – 4,000 in commuting and that makes a 30k-40k valid deduction on travel to work.
2. Tuition Fees for Children Education –
Why only tuition fees is allowed for deductions, what about school dress, books, coaching classes, school bus fees, computer for study purpose. Are these not justified these days?
3. Health Expenses –
Only Rs.15,000 worth of medical bills are reimbursed, but are they realistic today? What if I have both parents who are not well and I spend Rs.50,000? What is the basis of limiting to medical expenses which are not in my control.
4. Rent –
Why rent paid is not considered as a valid deduction? What if I don’t have HRA component? What if I am not a salaried class? Why do I pay price for high rentals in our country? What if my rent is high because I live in Bangalore or Mumbai?
5. Grocery –
Food bills are a necessity and I don’t think one should be paying any tax on the amount spent on grocery. If a family has 5 people and their grocery bills are around Rs.8,000, that’s around 1 lac a year, then should this amount be not allowed as a valid deduction?
That’s a necessity of life, I can’t do anything about it.
Watch this video to learn more about Indian Tax System:
Single vs Married?
There should also be a consideration for married people who have just one source of earning. Why families should not be seen as one entity. If there is a family where husband and wife both are earning, but the consumption level is almost what a family with an earning husband and a housewife is there.
There can be a single earning point and multiple consumption points. That should also be accommodated in some manner.
These are all the points which just come to my mind, some of these might be making sense and some might not. Not sure how others think about it?
Can you share your comments on this?
The single biggest complaint I have regarding your suggestions is that you think heavily penalizing the single guy with no depandants and little/no liabilities with high taxes is acceptable. This is extremely stupid because you can’t tax a person based on their lifestyle choice. Its an individual’s choice whether he wants to remain single or not have chilren.
If a person decides to marry and have 5 kids, he should be exempt from paying any tax because he already has too many liabilities? This is like rewarding people for contributing to the overpopulation disease that this country is suffering from. This would also encourage women to stop working and become housewives. Why work if it means paying more tax to government?
Other than this, I think the rest of your points are somewhat fair and can be implemented as long as some standard is followed, otherwise it would complicate things too much. The tax laws are already complex enough, which is the reason why majority of people in India need to take help of CA to file their taxes. The last thing we need to make it even more complex.
Hi Anjan
Thanks for your points . Note that I initiated a conversation with raw points, what you have done is added a new dimention which I didnt think about, so now the whole thing has gone to next level and refined 🙂 . So we are brainstorming . I am not saying that what I said is on rock 🙂
The Indian taxation system is really archaic and fundamentally one that defies all logic. No wonder we have brain drain these days. Honestly, even when we are thinking about staying in the country it is not because of a choice we have. One should consider that the folks that run businesses are able to skip paying taxes. The condition of the roads we travel, the lack of safety for women, lack of clear sanitation facilities everything points in the direction of apathy. So the government tries to steal at every single opportune moment. When a working individual pays taxes and then suddenly loses their job is it not the government who has to shelter/shield that individual at a time when the person has no money? While this is not a finding fault response it surely is a shame that the tax payers have to bear the brunt of all challenges. Expenses not being considered or all sorts of taxes direct or indirect being levied all point in the direction of one thing, if you are salaried you can never run away!
Thanks for sharing your views on this topic Sudheen
Some of your points are good. Regarding cost of living in city compared to living in smaller towns, salary scales at various locations should take this into consideration. And we need a better system for health care expenses especially of senior citizens, family members with special needs etc….concept of tuition fees should be extended to include many of the other factors that you have mentioned. there are so many fundamental problems currently i don;t know if income tax is the place to put things in order.
Thanks for sharing your views on this topic !
I have filled my return a weak ago.when should I expect to get my refund ?
Isthere any time limt in law?
You should be getting it in few months if you did it online . People are waiting for their tax refunds from years !
I strongly agree on one point.
Our Income is not a single man income. So many people depend on it and the expenses vary unimaginably.
Example :
01 Parents : Their health expenses are in lakhs many times.
02 Children : Their education and marriage (Enormous cost).
03 Wife : She is an innocent women whose contribution to a family is considered as nil. Although we have to declare her property details but no employer is prepared to give any benefit to her.
As for as govts are concerned: They are insensitive power and they are a bunch of some insensitive people out of us who forget that the ditch they are creating is making life hell for their own children.
They (Govt) have become more of a insensitive business house than an entity to serve people.
They sole purpose is to exploit the people at every cost using the neumorous power.
Its it easy to share 30% of what you earn to govt but scold your child to buy even a pizza.
We can scold our child for asking one small chocolate but not govt (devil power).
Lets live with it.
Someone once questioned : Is GOD a govt ?
Thanks for sharing your views on this topic .
Good article.. but Govt won’t think off these real things..
For instance.. Govt calculates our inflation on wholesale prices not on retail prices.. which is wrong!
If Govt thinks in real with real scenarios.. definitely govt will gain as well as public and all.
But this doesn’t happen! in INDIA…
Thanks for sharing your views on this topic
I may be in minority Manish, but I disagree. Any expense can be termed as essential or luxury based on individual perceptions and individual circumstances.
The Income tax actually is an EXPENSE itself (our individual contribution to the national expenses like defense, public utilities, infrastructure, healthcare services etc…) which every citizen must incur (Now whether the govt. uses our money judiciously or not, is another topic and not the point of discussion here). In my opinion Income-tax has to be viewed as an expense just like any other one…. like grocery, tution fee, mobile bill, eat-outs etc. And our share has been designed to be in proportion with our income which is very logical.
The problem is that a large No. of people succeed in evading taxes and hence the ones who can not, end up paying a -higher than required- rate (like the no-medical term insurance premium). The current I/T rate could well be less than half if the govt could recover legitimate taxes from one and all.
We must view I/T as another expense and demand from govt. that recovers it effectively from one and all and utilizes it judiciously. This would be more logical than demanding reduction based on individual expenses.
Saket
Thanks for sharing your views on this .. I have my view and you have yours 🙂 .. Nothing wrong in that .
Manish – I completely agree with your points
But I also feel that adding so many things like No. of Family Members, Location of the Assessee will lead to more complication in the already complicated Income Tax Act
So, the Govt should first try to simplify the Income Tax Act for the Common Man and then slowly make it practical like considering some of the points posted by you above
True .. i just put some points .. not alls points can be implemented 🙂
(1) Remove all paper works, no one needs to file tax return
(2) Remove all deductions, charge small percentage of progressive income tax, on gross salary for salaried people and on gross income for business people.
Basically, the tax code needs to be dramatically simplified and most of the archaic exemptions need to be eliminated. I think the initial version of the DTC, circa 2009, addressed some of these issues by eliminating a lot of the exemptions and dramatically raising the tax slabs. But after Pranab da got involved and the final version of the DTC was concocted, it was/is no different from the existing tax code, except for a nominal increase in tax slabs and a few other cosmetic changes.
So what changes are you suggesting ?
Very true. Laws of economics say that when you subsidize something, you get more of it.
I don’t think putting limits is right either. I have known people telling doctors “I know the bill should be Rs 7000, but I’m fine if you write only Rs. 5000 on the bill, since that’s the limit of my company’s health insurance policy. That way you don’t have to report the income of Rs. 2000.”
Hmm .. so wht is the conclusion you are making here ?
In my opinion a simple Tax Rule may introduce as follows –
1st step: Withdraw all paper currency with replacement of Debit/Credit card depend upon individual networth.
2nd step: Pay Tax @ 2% on quarterly balance of income expenditure a/c.
Impact: All transactions are made transparent to IT dept. Every body enjoy equal
Opportunity to earn as much as he/she can!
Govt. also have enough fund to impliment proper Social Security Measures.
An interesting video on Financial Freedom by Jim Rohn: http://www.youtube.com/watch?v=KdEZD4nrmds
Please comment…
Is it valid in India ? How will India survive without currency notes , What about rural india ?
Manish,
Before 1995, nobody seems to have an idea that in 2012 almost everyone has a mobile connection to communicate! So, introducing Card may be tough for now but not impossible in future. If … if Govt. really wants to curve black money.. improve Tax collection…as well as basic financial literacy to all people living in our country! Use of Card if mandatory then is it not a matter of survival?
Wish for a Financially Independant INDIA!
Thanks,
Chinmoy
Thanks for sharing your views
Very valid topic. The least government should do is to raise the conveyance allowance and 80c deduction annually considering inflationary affects.
Our policy makers are not practical.Being highly paid or getting all kinds of facilities at public cost,then how they can of any amendments.There seems to be no way.
Dr Narendra Deo
Thanks for sharing your views on this
I agree with venetia.
Giving to the country is our responsiblity. How much is for sure the question.
But what is that we get back from our taxes is most important.
For ex. we talk abt deduction on conveyance. Just imagine we have the best, cheap public transport system, made out of our money. For sure, not only we get back our taxes, but our children and underprivilged would also have returns on taxes.
The only thing required is asking the authorities, govt. about our money.
Thanks for sharing your view on this topic
After reading this article about Robert and Ajay , Digvijay Singh quoted – “Indeed, tax rules are communal in nature and plot against minority. I suspect RSS hand in it”.
Sorry guys for my mischievous comments 🙂
Nice comment 🙂
Agreed with most points mentioned in the artcile on tax deduction avenues. It would also calls for genuinity while allowing these deductions. An increase will surely help gnuine cases but more than that it helps people to evade tax by submitting fake medical bills, fake conveyance bills etc., and thus bringing down over all tax income for the govt.
Single vs married and number of depepndents is one aspect govt must surely look at as progressive movement on tax laws.
Yes agree that there are chances of abuse of these rules if they are implemented like this ,. What are your suggestions in that case which keeps balance between both the aspects
paying tax is one thing, I want to know what happens to it…. look at the state of the country!!! We need to start asking the government for a statement of account. power cuts, water shortages, bad roads, etc….. so what are we paying taxes towards?? Swiss bank accounts?
Thanks for your views on this topic
Good one Manish.. how about indexing the slabs to inflation.. like if 3Lakh – 5 lask is in 10% bracket.. and inflation is at 10% for a year…. I will say from next FY.. it should be atleast 3.3 lakh to 5.3 lakh in 10% taxable bracket….
Indexing a slab is a innovative concept . But then each year you are saying there will be no change in tax slab, which happen currently ,. so the changes which comes each year is in a way indexing the slabs only !
So net net, instead of “Income tax”, u are suggesting a “Savings tax”… And all this will end up disincentivising savings!!!
Hi Manish
Again forced open pandora box!!. But I beg to differ somewhat
1) Why parents are inclined for High Fees Charging Schools. WHat is wrong with other institutions, even Govt. run too. What is needed is ” development” of students, do not perforce everybody to think that only high profile schools are best ones. It is ambience where child is growing up, that is important’ equally important is soothing by parents and et al.
2) Everybody is paying through nose for petrol. but while traviling to office / work place,why can’s they go for “sharing the space” basis.
Of course, Govt. is wasting our money like anything on all counts, so ppl. should ask the so called popular Govts. as to what and how they socio-economic development projects / schemes are framed, implemented, with minimum exchequer’s money.
3) As for medical facilities why altnerative medical lines are not covered under Mediclaim scheme, only ALLOPATHY TREATMENT IS considered. Even Govt.propogates for parallel / alternative medical practices.
Open the discussion, I welcome, critisims, if any,whole-heartedly.
Pankaj
There is no different of opinion . I agree with you .I never said allow maximum deduction . Everything should have a limit on everything and only those things which touch a common man should get deduction . Like in grocery , we can see an average minimum need these days .. like 2k per person for example . So for a family of 3 – it can be 6k per month , for family of 2 it can be 4k , but if a family decides to spend lavishly on food like 6k per month for 1 person , then that can not be considered .
The whole idea of this article is to question the current system and collectively see what all changes makes sense .. I put my views , you put my views .. there are 2 views now 🙂 .. lets find the best combining them … thats all
Hi Manish
Pl. do not take my comment as over-riding your view or contracting what you say, but our social fabric has to be in toto has to be looked at. OUr focus still remains on URBAN AND SEMI-URBAN ppl. who enjoys majority of luxuries of development against rural, and in that context poor urban / semi-urban.