TAXATION BILL AND ECONOMIC DEVELOPMENT SHOULD BE MUTUAL Vaibhav Bajaj
CA Income Tax Consultant
Abstract - This paper investigates, tax structure vis a viz. rate of economic growth and economic development. This paper reviews the theoretical and empirical evidence to assess whether a consensus arises to how taxation affects the rate of economic growth. It is also witnessed that theoretical models isolate a number of channels through which taxation can effect growth and that these effects may be very substantial, for example time value of money. Based on the primary data collected of 30 taxpayers through questionnaires it is further analyzed that approximately 40% of the salaried taxpayers are unaware about the components in their salary structure, their tax liability, they are mostly unaware of the problems in their salary structure. Interesting thing to note here is out of the tax savings 70% will invest, which ultimately comes to the economy and 20% will save will goes to the bank which again circulate in the economy.
Keywords: Tax, Salary Tax, Economic Growth, Salary structure problems.
1. INTRODUCTION
How much tax you pay on income depends less on how much you earn or more on how much you can conceal – or disclose as non-taxable income. The salary-earning class is the most charged to income tax because 100% of earnings are disclosed is even before the salary reaches to the bank account of the earner.
This article speaks about, flaws in the salary structure and depicts less rewards for the honest!
Taxation is, by and large, the most important source of government revenue in nearly all countries. According to the most recent estimates from the International Centre for Tax and Development, total tax revenues account for more than 80% of total government revenue in about half of the countries in the world – and more than 50% in almost every country.
11India’s net direct tax collections for the financial year 2021-22 surged 60.8% at
:
9,45,276.6 crore as on December 16, 2021 compared to₹5,87,702.9 crore in the corresponding period of 2020-21, an official statement said. The net direct tax collection of
:
9,45,276.6 crore includes corporation income tax (CIT) at:
5,15,870.5 crore and1https://www.hindustantimes.com/business/net- direct-tax-collections-surge-61-to-9-45l-crore-till- dec-16101639765699029.
html#:~:text=India's%20net%20direct%20tax%20coll ections,21%2C%20an%20official%20statement%20s aid.
personal income tax (PIT) including security transaction tax (STT) at
:
4,29,406.1 crore, it said. Net collections are computed after refunds.Personal income tax collection accounts for approximately 25% out of the total collection for taxes.
2. DATA and Analyses
(on the basis of data gathered from Indian Income Tax Portal for period 1st April 2017 to 31st March 2018)
Let’s start with some latest facts and figures. Below mentioned statistical charts for year 2017-18 are, relating to sources of income have been prepared on the basis of values mentioned in e-filed returns and values captured from paper returns and the same may contain data entry errors on the part of the taxpayers/
return filers. Therefore, the accuracy of the statistics is limited by the accuracy of returns.
A. Data 1: All taxpayers – Gross Total Income (AY 2018-19)2
2https://www.incometaxindia.gov.in/Documents/Di rect%20Tax%20Data/IT-Return-Statistics-
Assessment-Year-2018-19.pdf
B. Data 2: All taxpayers – Range of Salary Income (AY 2018-19)3
C. Data 3: Individual – Range of Salary Income (AY 2018-19)
3 3 https://www.incometaxindia.gov.in/Documents/Direct%20Tax%20Data/IT-Return-Statistics-Assessment- Year-2018-19.pdf
2.1 Analyses based on above data Now, as per A and B, out of all Gross total income (hereinafter referred as GTI) of Rs.51,33,084/-, Rs.20,04,469/- is offered to tax from the salaried class for the development of the economy from which no major deductions are allowed. It comes out to be 40% GTI of all taxpayers of the country.
Income tax has a direct effect on individuals and their saving and investment behavior. On the other side, tax revenues should be placed in productive investments. With the spending, the government can promote inclusive growth, equality and efficiency in the economy.
The 2018-19 budget speech noted that an average salary earner pays three times more income tax (Rs.76,306) than a non-salaried taxpayer (Rs.25,753). If non- salary income earners pay even 70% of what the salaried class pays government earnings would go up by Rs.50,000 crore a year. Finance ministers down the years have failed to correct this anomaly, surrendering to a system that penalizes the honest.4
3.2 Analyses based on primary research questionnaire.
3.3 Issue of research:
3.3.1. Do you know how much tax you can save in your salary?
3.3.2. Do you understand meaning of all the components in your salary package?
4 4 https://timesofindia.indiatimes.com/blogs/toi- edit-page/indias-much-abused-taxpayers-you-dont- get-muchbenefit-back-salaried-classes-get-the- short-end-of-the-stick/
3.3.3. Do you understand purpose of all the components in your salary package/ CTC?
3.3.4. Do you know how much tax you are actually liable to pay on your salary?
4.3.5. How will you spend your tax savings?
3.3.6. Do you understand the problems in your salary structure?
4. LITERATURE ON THE TOPIC
Economic development is all the more costly affair for the honest tax payer. Let’s understand it practically. Compensation structure of 70-80% tax payers comprises of the following:
1. Basic pay (taxable as per slab, at least 50% of the total salary, as per wage code 2021)
2. DA (taxable as per slab)
3. HRA (taxable as prescribed, upto 50% of basic pay, as per wage code 2021))
4. Special Allowance (fully taxable) 5. Phone (Reimbursements)
6. Fuel (Reimbursements) 7. Newspaper (Reimbursements) 8. Bonus (fully taxable)
When it comes to computation of income tax on salaries, level of playing field is available between point no. 1 to 8.
In simple words, these components can be adjusted utilize the income in best possible manner.
House rent allowance (HRA), in most of the instances HRA is provided to the tax payer who are living in their owned premises. But due to lack of awareness of the taxpayer or rigidness of the employer, benefit is lost). In such cases employer should take a step forward and educate employees, restructure their compensation package as per the need in specific cases.
Phone, Fuel, Newspaper and other reimbursements such components should be managed and the all documents in relation to expenses incurred for official duty must be put on record of optimum development of economy.
Ultimately, what taxpayers get in return has to be provided for education of the children as, public education the not up to skill, has to spent for medical bills and healthcare and for old age and job less- as there is no social security.
More the take home salary more will be the income available at the disposal of the taxpayer, which will ultimately circulated in the economy.
5The reason why majority income taxpayers are especially from the salaried class, because there are too many exemption and deduction for the
5 https://timesofindia.indiatimes.com/blogs/toi- edit-page/indias-much-abused-taxpayers-you-dont- get-muchbenefit-back-salaried-classes-get-the- short-end-of-the-stick/
taxpayers of other class and salary income is first at the disposal of employer for tax compliance purposes.
Agriculturists, enjoy tax free income, Establishments under special economic zones enjoy benefits deduction and exemptions. This leads to rampant leakages – an RTI query revealed that in 2012 over 8 lakh individuals declared agriculture income running into crores and paid zero tax on it. Several government panels have advocated taxing agriculture income, but clarity without courage is wasted wisdom.
Various professionals – among the most profitable and fast-growing professions – are exempt from service tax.
Then there are MPs who enjoy privileges no taxpayer does – they decide their own salary, and tax on their income is not deducted at source. Much of their income is in the form of tax-free perks – 34 free flights a year with companion, free limitless first class train travel, free healthcare, rent-free house, Rs 20,000 monthly pension. None of this is to be grudged if MPs were to ensure that their paymasters – the taxpayers – are getting the basic services they are paying taxes for. But that is hardly the case.
One possible reason income taxpayers are uncared for is that they don’t matter as voters. Only 7% of Indian voters pay income tax. In Norway, 100%
and in the US 70% voters are income taxpayers. Last year’s, and Nirmala Sitharaman’s first, Economic Survey did some sweet talk. Stating that “perceptions of fairness suffer when the employee class is forced to contribute disproportionately to income taxes while the class of self- employed gets away paying minimal taxes,” it proposed a few remedial baby steps. They included providing special conveniences to income taxpayers, like faster lanes at immigration counters and quicker passport issuance.
4.1. New Wage Code, 2022
6Here Labour laws also play a vital role for defining of compensation structure.
Labour laws in India are traditionally governed by multiple Central government and state government legislations. With a view to harmonies and consolidate such multiple labour legislations, 29 existing
6 https://labour.gov.in/ebook/wage/index.html
Central laws have been amalgamated into four labour codes. These codes regulate (i) Wages (ii) Social Security (iii) Occupational Safety, Health and Working Conditions and (iv) Industrial Relations.
The new definition now has three parts to it - an inclusion part, specified exclusions and conditions which limit the quantum of exclusions. The new definition is an inclusive definition and is extremely wide in its coverage. Practically, it could include almost all components of the compensation mix of an organization.
There is an exhaustive list of components which are specifically excluded under the definition. The specified exclusions, however, shall not exceed 50 per cent of all remuneration, and in the event of exceeding, such excess amount shall be deemed as remuneration and will be considered as "wages". In case an employee is given remuneration in kind the value of such remuneration up to 15
%per cent of total wages payable to him shall also be deemed to form part of wages of such employee. It is yet to be notified.
4.2 How your Tax can be Optimized Remuneration should be paid in the form of basic salary, allowance and perquisites tactfully. Tax payable can be reduced substantially if salary is divided into different exempted or partially exempted allowances and perquisites which are taxable at concessional rate. The optimization can be achieved depending upon the requirement of each employee taking into consideration present take home pay and future benefits of different items in salary structure. There is no hard rule till date, basic salary can be reduced and portion of allowances and perquisites can be increased to reduce the tax bill.
Following allowance can be given:
1. Education allowance 2. Uniform allowance 3. Research allowance
Following perquisites can be given:
1. Rent free accommodation 2. Tea, coffee, snacks 3. Computer for office use 4. Staff welfare, etc.
4.3 Rulings
7Supreme Court has decided in case of Gestetner Duplicators (P) Ltd. V. CIT, that commission, payable as per terms of contract of employment at a fixed percentage of the turnover forms part of salary defined U/R2(h) of Part A of the Fourth Schedule. Consequently, tax incidence on HRA, gratuity and commuted pension will be lesser.
5. 8CONCLUSION
This article identifies tax policy that both speeds recovery from the current economic crisis and contributes to long- run growth. This is a challenge because short-term recovery requires increases in demand while long-term growth requires increases in supply. As short-term tax concessions can be hard to reverse, this implies that policies to alleviate the crisis could compromise long-run growth. The analysis makes use of recent evidence on the impact of tax structure on economic growth to identify which growth‐ enhancing tax changes can also aid recovery, taking account of the need to protect those on low incomes.
REFERENCES
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7 (1979) 1 Taxman 1/117ITR1
8https://journalofeconomicstructures.springeropen.
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