Rise in income tax payees

FOR a government strapped for resources, individual taxpayers have brought it cheer by accounting for most of the rise in the country’s taxpayer base. The number of individual taxpayers and individual business taxpayers is equal but the former today contributes three times more to the Central Exchequer. Isn’t it time the individual taxpayer is rewarded for his fidelity to the country’s taxation system? Some clues would soon be available about what is in store in the next Union Budget after a government-appointed task force completes its deliberations on reviewing the Income Tax Act and drafting a new direct tax law.

The UPA government’s efforts in this direction proved stillborn. The aborted Bill had proposed annual I-T exemption limit of Rs 2 lakh and 10 per cent tax on income between Rs 2 lakh and Rs 5 lakh, 20 per cent on Rs 5-10 lakh and 30 per cent above Rs 10 lakh. One worry is that like the UPA, the Modi government may have left the humungous task of overhauling direct tax laws to the tail end of its term. Perhaps, it should refrain from shaking up a settled law, especially when the economy is still suffering the aftershocks of demonetisation and GST. Instead of ushering a new tax law in a hurry, the Modi government needs to examine the root cause of noncompliance — the fear of needless tax litigations.

A look at the trend of searches reveals that the heightened activity by the IT Department has yielded a mere Rs 1 crore of undisclosed income on an average. Instead of coercive tactics, the individual still out of the tax net needs to be motivated. Though he contributes 50 per cent of the direct taxes, the individual taxpayer constitutes about 5 per cent of the population mainly because of the regressive nature of the direct taxes regime. The country needs a simpler code with fewer tax breaks and lower rates but as GST has shown, haste leads to complications in implementation. A better idea would be to reward the individual taxpayer for his commitment, beyond a certificate dished out now.