Personal Finance

Showing posts with label income tax. Show all posts

Sunday, 27 March 2016

Crorepati Farmers: Tax Them Please!

This year's (2016) budget has been termed as a pro-rural budget which has an ambitious plan of doubling the farmer's income by year 2022. Almost everybody would agree that these steps were long due in a country where agriculture is one of the most important industries. Today, India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and fisheries accounted for 13.7% of the GDP (gross domestic product) in 2013 and about 50% of the workforce.

And also let's not forget the plight of the farmers where

Farmers are committing suicide as they are not able to recover even their initial investments and plunging into debt.
Forced to deal with the 'middle man'.
End up receiving meager (leaking) subsidies.

It is an established fact that farmers in India are in poor condition with very low income. Going by that fact, it was very much surprising to know that we also have a section of farmers who are earning in Crores and not paying any taxes.

Agricultural income is tax exempt

In India agricultural income is exempt from tax and it is not even added to your taxable income if you have income from other sources. Some people are taking advantage of this exemption.

CBDT (Central Board of Direct Taxes) enquiry

Drawing reference from the PIL in Patna high court CBDT has asked its officials to verify the genuineness of agricultural income claims exceeding Rs 1 crore made by taxpayers in their income-tax (I-T) returns.

As per TOI report, tax exemption on agricultural income, as declared by taxpayers in their IT returns filed up to November 2014 in the financial year 2013-14 was Rs. 9,338 crore.

Source : http://timesofindia.indiatimes.com/business/india-business/As-crorepati-farmers-mushroom-tax-officials-go-digging-for-evasion/articleshow/51377186.cms

News Nation has made even higher claims -

"The channel got hold of an RTI reply which throws light on the dark world of corruption and fraud in agriculture sector. In 2011-12 nearly 6.50 lakh farmers earned Rs 2 thousand lakh crore (approx) which was much more than the annual GDP of the entire country."

Source : http://www.newsnation.in/article/121125-news-nation-disclosure-on-blackmoney-kharabpati-farmers-take-agriculture-route-t.html

This information gives rise to a very vallid question

Is it a good policy to keep all agricultural income as tax free?
What is the problem in applying the income tax slabs as applicable to other sectors, be applicable to agricultural income too?

If a person has multiple sources of income, one being Agricultural Income, then that person has an undue advantage as all of that agricultural income will be tax free. It is not a far-fetched notion but a very realistic scenario. Now-a-days with the vast changes and improvements across all industries and sectors in India, we see many people moving to the cities from villages and pursuing the career of their choice. And most of them still hold-on to their agricultural lands with income being generated from it. Does it make sense to let them have all that income as tax-free?

Contrast it to a person who is living in the city and having a day job and he/ she also works part time in the evening to get some extra income. He/ She is supposed to pay tax on the total income whether it has single or multiple sources. Is that not being unfair?

It can be argued that agriculture is fraught with uncertainties and should be handled differently, with maybe, some special concessions. As in India, the famers depend mostly on the Monsoons. But the uncertainty is evident in every Sector. May not be one dependent on the Nature.
Let's say a middle class salaried person buys a house availing a loan of 35Lakhs from a Bank and he/ she loses the job in next 6 months. So, this job is also an uncertainty. Nobody can take his/ her job for granted or secure it forever.

Same holds true for a Business too. A business is always on an uncertain footing. You don't make profits (or losses) all the time that you are in a business. Yet, businessmen are supposed to pay taxes.
In fact any govt. Trying to do anything for the businessmen will be demonized and hounded as a pro-business, pro-rich Government. It will, for sure, have to suffer the unending taunts and tags from not only the Opposition but from almost everyone else too.

So, would it not be a rational move to bring rich farmers in the tax ambit too. Instead of making it totally tax-free, the Govt. can maybe create separate slabs for Agricultural income. Like, let's say up to 7.5 lakhs is tax free if it is completely from agricultural income and the rest is taxable.

That's all for this topic Crorepati Farmers: Tax Them Please!. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Tax Related Articles page

Monday, 13 April 2015

EEE EET ETE explained

There are 3 ways Govt. taxes the monies invested by public at various stages of investment.
When the money is invested it goes through three stages, which are -

Contribution to an investment scheme.
Accumulation of interest.
Withdrawal stage, when the lump sum amount (sum of money invested and accrued interest) is withdrawn.

How does EEE relate to these stages?

EEE stands for Exempt, Exempt, Exempt which means -

First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
Second Exempt means the accrued interest will not be added to the total income and will not be taxed. Thus in case of second exempt interest earned is not taxed.
Third exempt means the income from the investment, at the time it is withdrawn, would be tax free.

As of now EPF, PPF, SSY, Life Insurance Policies, ELSS comes under EEE.

How does ETE relate to these stages?

ETE stands for Exempt, Taxed, Exempt which means -

First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
Taxed means the accrued interest will be taxed.
Third exempt means the income from the investment, at the time it is withdrawn, would be tax free.

Some of the investments which can be categorized under ETE would be Tax Saver FDs, NSC.

How does EET relate to these stages?

EET stands for Exempt, Exempt, Taxed which means -

First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
Second Exempt means the accrued interest will not be added to the total income and will not be taxed. Thus in case of second exempt interest earned is not taxed.
Taxed means the income from the investment (Principal + Accrued Interest), at the time it is withdrawn, would be taxed.

Some of the investments which can be categorized under EET would be National Pension Scheme(NPS), Pension Plans.

There are other similar terms too like TTE (Fixed deposits), TEE (Stocks and Equity Funds if kept for more than 3 years).

That's all for this topic EEE EET ETE explained. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Tax Related Articles page

Monday, 6 April 2015

How Many Indians Pay Income Tax

India being a developing country is supposed to have a low Income Tax paying population but it would still be surprising to read that only about 3% of Indian population pay Income tax, which comes to 35 million tax payers (3.5 crore). In that too majority of the tax payers fall under 2.5 - 5 Lakhs slab. Just as comparison in USA around 45 percent of the population pays taxes.

Update : Income tax department has released the data for AY 2015-2016. As per the data there were 4.07 crore returns filed by individuals in AY 2015-2016 (FY 2014-2015). Number of returns filed in AY 2014-2015 was 3.65 crore.

But the disappointing fact is that out of 4.07 crore tax returns filed about 2.06 crore people actually paid any tax. Rest of the 2.01 crore filed the return but paid zero tax.

Of that 2.06 crore who did pay tax, around 1.85 crore were in the lowest tax slab and paid an average Rs. 24,000 as income tax in AY 2015-2016 meaning a collection of Rs. 44615 crore from these 1.85 crore people.

Out of the total returns filed, only 9690 paid income tax of more than INR 1 crore. Total income tax collection from these 9690 tax payers was 22,984 crore.

There was only one individual who paid more than 100 crore in taxes, tax collection from that individual was 238 Crore.

Reference : https://www.incometaxindia.gov.in/Documents/Direct%20Tax%20Data/Income-Tax-Statistics-IT-Return-AY-2015-16.pdf

As per the last census average household size in India is 4.8 person per house hold. If we take it as 5 and assume there is only one earning member per household then these 3.5 crore tax payer people take care of 17.5 crore population. Moreover according to Rangarajan committe below poverty line population in India is estimated at 363 million (36.3 crore) in 2011-12 This means 29.5% of the India population lives below the poverty line.
If we add these numbers (Population which is coming from the household where one of the member is paying taxes and the population which is below poverty line thus unable to even take care of their daily bread forget taxes)

17,50,00,000 + 36,30,00,000 = 53,80,00,000 (53.8 crore)

Now if we take the population of India as 125 crore (1,25,00,00,000 or 1.25 billion), number of people left -

1,25,00,00,000 - 53,80,00,000 = 71,20,00,000 (71.2 crore)

If we go by 5 people per houshold that will mean 14.24 crore households which are not paying any income tax.

If we take another 30% population whose income is less than the taxable income that will leave out another 21.36 crore people. Still there are 49.84 crore people left coming to around 10 crore household. Which means roughly there are around 10 crore households who should pay taxes but not doing so.

It's anybody's guess that most of these people who are not paying any taxes are -

Rich farmers - Agriculture income is exempted from tax in India. Though many of the small farmers may be having a hand to mouth existence but there are rich farmers too who should be taxed.

Crorepati farmers: tax them please!

Business owners - According to RBI data, cash still accounts for 90 per cent of all monetary transactions in India. So it is easy for the business owners to manipulate their taxable income by dealing in cash and under invoicing or not giving invoice at all.

Self Employed Professionals - This can be explained through an example -
Let's take an example of two chartered accountants A & B residing in the same apartment. A works in a financial institution and B has his own practice in the same commercial complex. Both of them drive to office. They both spend around Rs 12,000 on petrol bills. While A gets tax benefit of only Rs 1600 (Conveyance limit has been increased from Rs. 800 to Rs. 1600) B can claim the entire amount as a deduction from his income. Same for food bills self employed can claim the whole amount as business expenses. So self employed person can claim a lot of expenses as business expenses and pay almost nil tax.

Deviation in the number of Income Tax payers

Data about the number of income tax payers also show the inequality in the earnings and how the wealth is concentrated among very few, it also shows how people are not disclosing their true income. We have to go through some data to see that -

Details of number of income tax payers in the tax slabs

Details of number of income tax payers in the tax slabs of Rs. 0-5 lakh, Rs. 5-10 lakh, Rs. 10-20 lakh and beyond Rs. 20 lakh, as furnished by the Ministry in their written submission are given as under :

Slab	Number (in lakhs)	Percentage of taxpayers
0-5 lakhs	288.44	89.0%
5-10 lakhs	17.88	5.5%
10-20 lakh	13.78	4.3%
>20 lakh	4.06	1.3%

This data shows how much inequality there is among the tax payers. Only 1.3 percent of the tax payers have taxable income above Rs. 20 Lakhs, whereas, 89 percent of the tax payers have taxable income not more than Rs. 5 Lakhs.

Amount of tax collected as per tax slabs

Details regarding amount of tax collected under the existing rates and percentage of tax collected in each of the said slabs as furnished by the Ministry are given as under :

Slab	Tax Collected (Rs. in crores)	Percentage of tax collected
0-5 lakhs	15,010	10.1%
5-10 lakhs	21,976	14.8%
10-20 lakh	17,858	12.1%
>20 lakh	93,229	63.0%

Again notice the deviation 89 percent of tax payers are paying 10.1 percent of the taxes where as 1.3 percent of tax payers pay 63 percent of the taxes.

Going by the data it can be seen that GOI need to increase the tax base rather than increasing the income tax or service tax (Which is increased to 14% in this year's budget (2015)). Any increase in service tax hits the salaried class more as they end up paying more in double taxation.

Readers are welcome to present their thoughts

** Source for this post is Standing commitee on finance(2011-12) report (49).

That's all for this topic How Many Indians Pay Income Tax. If you have any doubt or any suggestions to make please drop a comment. Thanks!

Related Topics

You may also like -

>>>Go to Tax Related Articles page