Rajan C Mathew's Blogs: Some Ridiculous Income Tax Provisions of ...

Income Tax or IT is a taxation tool in the hands of the Finance Minister of India Union to use against the Indians every year in the month of February during the secretive ceremonial presentation of the Union Budget in the Parliament.

I am not against the government taxing its citizens. After all that is what the governments are for !

But I am a bit confused and surprised at the manner in which it is done year after year.

Decades ago, the IT never used to be a major contributor to the national exchequer. It used to the the indirect taxes such as excise duty, sales tax, customs duty, etc on the goods. Later services used to be introduced in the tax net and now service tax has become a major contributor. Another new taxation thing came up in the recent past is the value added tax or VAT.

When some of the irrational taxation in IT was removed, IT also became a major contributor to the national exchequer in the recent years.

The highest income?tax rate in India for some years has stabilized at about 33 % of the gross taxable income of the individual or the corporate.

Earlier IT rebate was a long list that those with good knowledge of the loop holes of the tax system could use to their convenience to evade tax legally. Income tax consultants thrived on this. Top officials of the government and top executives in some private industries used it well for their advantage.

For example perquisites or perks?of the salaried class were not covered in the income tax. The private sector companies in many instances therefore used to pay their employees more in perks than in?actual salaries.

This came to the notice of the tax officials and they advised the Finance Ministers accordingly and plugged the loop holes totally that now all perks stands taxable.

In this process they introduced some ridiculous provisions that make some of the employees of the Public Sector Undertakings (step children of the government !) in utter disadvantage.

For example, they introduced this concept that if any employee is given any accommodation by the employer then it is deemed as a perk having some value. Regardless of what the employer charges for the housing facility, the government introduced a ridiculous rule to calculate the value of the housing perk.

If the employee stays in any accommodation provided by the employer in a metro city, the value of the housing perk is 30% of the basic salary. This value (not actually paid) is then added to the income of the individual and taxed as income tax.

Now let us see how this works out for three different people employed in Delhi.

First let us take?three types of employees, A?, B and C, ?getting the same basic pay , say Rs.50,000/-

A is a government officer, B is a PSU officer and C is a private company officer.

If they do not avail the quarters provided by their respective employers?both A and B?can get 30% of their salary (Rs.15,000) as House Rent Allowance or HRA and for C it can be any thing as per his company policy. This HRA if availed will be taxed in this case at the maximum rate and effectively they get a net of about 10,000 in hand as net HRA. They might get a rented 2-3 bedroom flat in delhi by paying another 10,000 from their pocket. Or they can think of getting their own flat by taking a loan and the net HRA would help in paying their EMI to some extent. [Considering the cost of a 2 BR flat in Delhi at more than Rs 100,00,000/- it would be just impossible for these people to own a flat in Delhi with their salaried income !)

Now there is a possibility that A who is a government officer could get a decent quarters in Delhi. For B, the chances of getting a quarter from his government owned company depends on which company it is. For C, the company might get him a leased accommodation if it is a reputed one. In all these cases, the type of accommodation and the facilities that these three people get widely vary. If fortunate the government officer might get the most spacious bungalow as his quarters whose market value would be enormous. If not so lucky, both A and B might get some dilapidated substandard quarters some where.

But if they take the accommodation that is provided by the employer, regardless of its quality or facilities, the IT rules value its perquisite value at 30% of their basic pay and thus their gross salary is deemed as risen by Rs.15000/- per month and an IT of 5000/- pm drains out from their net income. Whatever rent their companies take from them the government takes out Rs.5000/- from them as IT per month.

Now for a person who happens to be provided with a decent accommodation, will not cry for this, perhaps. But that is not the case with another of his colleague who is forced to live in a shabby dilapidated quarters. In reality this is the case with most employees.

It is quite possible that the government officers who assist the Finance Minister in preparing the budget proposals live in good government accommodations and are blind to the actual realities elsewhere.

Similar is the case of IT rebate for housing loan interest that is declared from time to time. It does not help any one considering the cost of housing as it stands today.

Education has become the costliest affair now in India as the government has washed it hands from that responsibility.

But it is more of a ridiculous insult when the government offers rebates as high as Rs 250/- or so to a person who spends thousands or lakhs as fees to educate his wards ! It is better that such rebates are not offered at all.

Self employed and business people are offered to reduce depreciation of cars and certain other items from their income while no such facility is available to the employed class. This makes the business people to change their vehicles every 5 years while their salaried fellows with equivalent incomes look on enviously. Perhaps this make some of them look towards other means of earning income by adopting corrupt practices.

There are many such ridiculous things in the Indian income tax rules that keep changing and swinging as per the whims and fancies of the Finance Ministers and their advisers.

I am just waiting to see what is in store this year !

Source: http://rajan-c-mathew.blogspot.com/2013/02/some-ridiculous-income-tax-provisions.html

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