G I I T   S o l u t i o n s

                                    Simple  Solutions  for

                                      Complex Problems



        Back to Home Page

Income Tax Rules Simplification

Long back some where I read that governments make such rules that no body is able to comply with those fully. So whenever they are not happy with any person, to punish him they will be able to find many rules which he has not complied with. At least in case of Income Tax Rules it is absolutely true. I do not think there is any person in India who complies with the Income Tax Rules absolutely.

It is time to simplify the Income Tax Rules drastically.

    1. First of all we should keep in mind the amount of Income Tax people will be ready to pay willingly. Second issue is whether that will be sufficient to meet the Govt. requirements.

      i) I think a large majority of the people who earn beyond a limit say Rs.10,000 per month will be readily willing to pay income tax to the tune of 10% of the income in excess of that.
      ii) As service tax is now covering almost all the services and vat tax almost all the items sold/purchased, customs cover all the items imported in the country and excise duty all the items manufactured within the country, the reduction of %age in Income Tax should not matter much as far as the total collection of taxes is concerned.

    2. Then there are certain incomes people do not like to pay taxes on.

      i) Say interest income from bank deposits. For one it is a very small income, secondly it just covers the erosion in the money value due to inflation, thirdly the bank deposits are used by the banks and the govt. for purposes of development and thus need to be encouraged, so interest income from bank deposits should be kept totally free from income tax.
      ii) Another such income is rental income from housing. Building a house costs lots of money. There is always shortage of housing almost every where. Those who can afford build up houses either to live in themselves, in that case question of income from house is not there, or build it to rent it out to supplement their income which will normally help them in old age. As renting a house meets a social purpose of providing accommodation, the rental income from house should be kept out of the taxable income. Even presently if the house is constructed after taking loans, interest paid on loan is deducted from the personís income for tax purposes and even 15% of principal returned is deducted from taxable income. So the similar benefit may be extended to the persons who build houses by spending there own money.
      iii) There are a number of expenses service class people has to incur to earn their salaries. Presently no deduction towards expenditure incurred is allowed except a nominal transport expense. Actually in many cases the transport expense itself is much more than allowed. Those who maintain their own vehicles for commuting may have to incur much more expenditure. So the allowance for transport needs to be revised and also depreciation on the vehicle needs to be allowed.
      iv) Income tax deductions on account of all other heads, except payments to charitable purposes, prime ministers relief fund etc., should be done away with.
      v) All other incomes should be added to the taxable income. The long term gains that is gains on investments made prior to the current financial year may be calculated after taking in account the inflation. All losses should be deducted from the taxable income. Losses should be carried forward only if the net income after deduction of losses falls below the minimum taxable income.
      vi) Taxes and returns must be filed within two months of the close of financial year. Beyond which interest at double the lending rate of interest of SBI may be charged. Payment of Advance tax should be done away with or be optional. Interest at SBIís lending rate of interest should be allowed on advance tax if any paid.