The Prime Minister has drawn attention to the fact that only 1.5 crore people in India pay income tax. He is right to complain, since more than that number buy two-wheelers in a year. The two-wheeler population is about 18 crore. The cheapest scooters cost about Rs 50,000, and the more popular models cost over Rs 65,000. It is therefore not unreasonable to expect that someone earning enough to own a scooter or motorbike should be paying income tax. Unfortunately, less than 10 per cent do.
So Narendra Modi is right to complain, but he is the wrong person to be doing it. For, while Modi puts the blame on citizens for the small number paying tax, asking them to pay taxes honestly, he should also be blaming himself or his finance minister of 2019, who in the run-up to the Lok Sabha elections that year exempted from tax all those earning up to Rs 5 lakh. That allowed a reported three-quarters of all taxpayers to get out of the tax net. Pre-election giveaways are par for the course, but Modi should be conscious that it was his choice to slash the number of taxpayers from 6 crore to 1.5 crore.
International comparisons are instructive. In the US, a single person starts paying income tax at an income level of about $12,000 (approx. Rs 8.6 lakh), which closely parallels the level of the poverty line for an individual. Couples filing together must earn twice that before they are obliged to pay tax. Importantly, the tax-paying threshold is about $25,000 (Rs 17.9 lakh) for a four-member family, broadly the same level as the poverty line for such a family. There is logic to these numbers. The implicit principle seems to be that once you are above the poverty line, you should pay tax. That is the picture in the UK as well. While the country has many definitions of poverty, tax kicks in at broadly the level of poverty line income, which is about £12,000 (Rs 11.2 lakh).
Also read: Modi hasn’t done so badly on the economy. But more needs to be done on many fronts
Compare this with India, where the tax-paying threshold is now multiples of the income for a family at the poverty line. It is also twice the level of the household income for an average family of four, at about Rs 2.5 lakh. This figure was in fact the tax threshold until a year ago, before it was doubled to Rs 5 lakh. The primary problem, therefore, is not with the taxpayer; rather, it is with the tax rules that have taken the tax threshold to much too high a level. You would quadruple the number of people paying tax if the tax threshold were to be reverted to its earlier level.
There is an issue with the tax rates as well. India starts with 5 per cent, whereas in Britain the lowest rate of tax is 20 per cent. In the US, it is 10 per cent at the federal level, plus varying rates at state levels. Here, according to the latest rules, you have to reach Rs 10 lakh, or four times the annual income of an average family of four, before you start paying tax at 20 per cent. The fact is that income tax rates in India kick in at too high an income level, and at unusually low rates.
The government’s other failure, it would seem, has been to carry through the cross-checking of tax returns with the spending and saving habits of the individual concerned — like foreign travel, vehicle ownership, and level of electricity consumption. Since the permanent income tax number has to be disclosed for most high-value transactions, effective cross-checking should have been able to catch most tax evaders. While it is indeed true that demonetisation and other measures sharply increased the number filing tax returns, the overall situation today is manifestly disappointing.
The Prime Minister is therefore right in what he said. But it is his government that has added to the problem. And it is in its power to change the situation — if it has the stomach to ignore the inevitable howls of protest from a very vocal middle-class.
By Special Arrangement with Business Standard
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Look at the title and then understand intension behind article.
“It’s actually Modi govt’s fault that only 1.5 crore Indians pay income tax”
more weight is on ‘Modi govt’s fault’ and not on income-tax.
How much money is spent on collection and verification of tax from people earning ~5 lakhs? Please try to share collection cost vs tax collected.
Asset based tax can lead to the following situation where all have to sell their asset to pay their tax. Many are holding asset which does not provide any cash flow ; Agricultural income must be taxable to start with above 1 cr. Many tax planner who are showing their large in come in agriculture will get in. that is more than enough to start. probably modi has many in his back yard might be the hard truth
I got this in whatsapp forward. It appealed to me as common man ; Based on Data from a Chartered Accountants’ Company Secretaries and other professional bodies and groups.
The Finance Minister said during her budget speech that we are largely a Tax ‘non-compliant’ society and presented that only 3.7 Crores are filing ITRs in this poor country of 125 Crore population.
The reply by CAs , CSs, CMAs is given below:-
Madam,
We have 82 Crore Voters out of which,
75% are Agriculturists/Farmers i.e. 61.5 Crores (You exempted them straightaway, but they can also buy cars , bungalows etc. as you quoted.. Your political colleagues, who called themselves agriculturist/farmers, are also enjoying this exemption)
Balance remains, 20.5 Crores
Less:24% BPL Class (Below poverty line)
Means 15 Crore population (who are non-agriculturist and non-BPL).
Less: Non-working wives, unemployed youths, below-taxable income earners, political class (all these are 75%), in a typical indian family only 1 earning member and 5 or 6 are dependent on him.
Balance: 15 -11.25 = 3.75 Crores, is the earning class which can file ITRs and they are already filing ITRs.
So almost no gap as FM is stressing unnecessarily without knowing well her country.
If FM wants more people to come into tax net, then, instead of foolishly resorting to rampant raids, surveys, notices, scrutiny, demonetisations etc., viewed as tax evasion/terrorism and should defy her negative bureaucrats.
Some suggestions are:-
1. Introduce Income Tax on Agricultural Income on big landlords (Say 10 Acres plus), this way, you can add 26% of Agriculturists as tax payers (Politicians are also enjoying this exemption).
2. Instead of introducing 5000/10000 penalties on late filers of IT return,
come out with positive approach and introduce incentives to IT Return filers (learn from Pakistan where IT Assessee gets discount in purchase of Car).
3. Introduce Privilege Card to those paying taxes above certain limit. Privilege Card to entitle assessee with benefits like Priority quota in railway tickets, use of airport lounges, subsidised medical facilities, etc. and let Tax Payers feel proud.
4. Introduce medical insurance/life insurance on basis of average ITR filled, like coverage upto twice of Gross Income in ITR filed for mediclaim and ten times risk cover in case of life insurance.
5. Introduce Pension after 65 Years of age on the basis of tax paid by tax payer during his/her working life.
Let honest taxpayers get certain direct benefits.
As on today, 3.3% of Indian population is filing ITRs as compared to 8% of China. Adding big Agriculturists/Farmers to Income Tax may shoot the figure to more than 10%. It may help you to cool your tax evasion/terrorism mindset and a tax compliant nation.
LET’S SPREAD THIS TO EDUCATE HONEST TAX PAYERS.
You are right. It is all Modi’s fault. I might also add that it is also Modi’s fault that the earth is round and not flat. I also whole-heartedly condemn him for making the sun rise from the east.
What a rubbish article? CG collects indirect taxes from every citizen of the country. FM gives mops to corporate and penalise genuine tax payers like salaries people. How many MP or MLA s spending crores of rupees for election does pay any direct taxes. CG to retrospect…
What a rubbish article? CG collects indirect taxes from every citizen of the country. FM gives mops to corporate and penalise genuine tax payers like salaries people. How many MP or MLA s spending crores of rupees for election does not pay any direct taxes. CG to retrospect…
“It is therefore not unreasonable to expect that someone earning enough to own a scooter or motorbike should be paying income tax. ”
I stopped reading there
WHAT A RUBBISH ARTICLE!
I agree with the author. India has a huge population and even a small contribution by each person makes a massive difference. A tax of 1k a month for someone earning 25k a month will help collect huge tax without affecting the person. At present a person earning a salary of 70k a month pays zero tax. This is unfair as people who earn above 10 lacs are very heavily taxed. The tax slab rises very fast from 0% to 30% in a gap of 5lacs.
difference of what ? broken roads ? unimaginable expenditure to military budgets, broken education system where indians are paid less abroad in ALL fields and maybe in IT. what difference ?? horrible roads even developing countries in eastern europe much lower in gdp than india are better organised.
My salary is 72k per month and I have been paying 8k tax per month. It’s only after getting a home loan for which I started paying EMI and then my tax reduced to 4k per month. Your statement is invalid.
Tax paying people are very less. When you have income only then you can pay tax. Most of population don’t fall under taxable income. A reasonable large base of tax percentage shows the economy has worked properly and income of people has grown.
It’s weak or unhealthy suitation of economy that tax base has not increased. Think economic activities be driven that economic power and wealth acummulated in hands of few. Around 7lakh crore of tax received from only 5% of population.
What situation is apparent is more grieve. Unemployment rate which projected by officials around 7 to 12 % based on random sampling over a small chunk of organised sector( organised sector is 10 to 15 percent) . Imagine 93 % of people are even not in picture. Unemployment figures seem faulty.
Unemployment rate would had been come out more than 90 percent in India.
Lucky are those who are earning enough to pay tax. Around 95 % of population even don’t have regular jobs, are unemployed or overly employed or are dependent. If they had work/job of permanent type they would had been come under taxable income with regular increment in salaries year after year. They even don’t have job security.
Mind your language those who say we are paying taxes. You are most lucky people in this earth and don’t talk about poverty which you people have even not seen /touched.
If income has increased over large base then did demand and would had provide provided boost to economy to increase supply side. To meet the need/demand more industries would had been opened up providing employment. But with accumulation of wealth to small portion lead to no thrust to economy.
Small tax base is not failure of people reluctance but is failure of policies which were created with such forces to create polarity of wealth distribution.
In democracy people authorise their representatives to make decission in such way that there is at least something for everyone.
What bullshit article is this. Blaming the government for giving relief to the middle class. Why not ask the freeloaders of the country to do something for themselves.
Hello Andh bhakkt !
You have to feel ashamed to write like this. You are comparing USA and Europe for the incometax rates. In those countries, all the people will pay incometax. But in our country, only salaried people will pay taxes genuinely, remaining all are not paying as per the actual income. Those countries are giving free education upto 12 th class and giving unemployment allowance. You are asking government to collect taxes from poor people. Shame
The author is right. It is all Modi’s fault. I might also add that it is also Modi’s fault that the earth is round and not flat. I also whole-heartedly condemn him for making the sun rise from the east.
How many were paying income taxbefore 2014 and what is increase in the number of tax payers during 2004 to 2014 ?
In most of the developed countries MLM industry boost their economy because this industry is clear through channel business and pays the Tax in advance. According to the reports and calculations India is very behind in promoting this industry.
After 73 years of independence the rulers of India is closing their eyes towards this industry.
Income tax department is not equipped to assess the real income of professionals like doctors, engineers, builders, lawyers etc who hide their real income.As soon as they acquire a new asset like real estate,luxury cars, gadgets, or undertake costly foreign tours there should be a mechanism to know the source of income and if such income is taxed earlier. But middle class is an easy target and will accept anything with a murmur. Less said about the politicians better. Finally who eats our tax? Does it reach the poor through welfare measures or eaten by middle men and politicians?
nop they dont the gdp per capita is under 3000 usd nothing even a poor country in eastern europe is higher than india.. i am sorry but the smaller the govt the better and less taxes mean people have more throwaway income to spend thereby increasing gdp. United states did not become rich just like that.. in 1950’s taxes on rich were the higest and the middle income and low income were hardly taxed at all hence people had more money to spend. thereby increasing SME’s and more jobs more wealth creation. this govt should target GDP per capita increase not GDP overall increase…
SHEKHAR GUPTA YOU KNOW ALL WHY WHERE AND HOW BUT YOU TOO WANT YOUR DOUBLE BREAD AND BUTTER BUT SHAME MONEY COMES FIRST FOR YOU THAN COUNTRY
Ninan why you anti India compare USA with India look at their system do they have all type of schedule classes where Indian Gov. shell out billions ?
how many Gov. VVIP ARE THERE SEE HERE MORE THAN 5 LAKHS COUNT THEIR PERKS AND FACILITIES WHO IS PAYING YOU AND ME MAY BE NOT YOU
Previous Gov. layed down many perks for them free phone free electricity free house security gas free travelling in plane train free petrol and list is endless AND YES WAIT THIS gOV. WILL STOP OR REDUCE ALL THIS EXPENSES PROVIDED YOU MEDIA STOP CRITICIZING AND BE FAITHFUL TO COUNTRY PLEASE THINK BEFORE YOU WRITE AND IF YOU ARE DUFFER THEN CHECK gOOGLE
This article is incredulous. What a sham of an article and what a terrible prognosis and policy suggestion. It’s so superficial even a comment is a waste of time. But let’s indulge the author shall we? As long as India’s politicians practice welfare, keep our economic shoe laces tied and provide poor public goods, this will continue. Successive Indian Governments are like the Nizam of Hyderabad – A Rich king presiding over a poor populace. When they demolish the welfare state, dismantle sanctuaries of the poor, stop calling the middle class whiners, implement superior governance, then people will queue up to pay taxes. Not like this. Why would anyone pay taxes when it is all being squandered away? How many decades will we pay to carry the baggage of bad governance and the stubbornness of people who don’t want to change and instead choose to live on handouts?
It is the poor farmers and workers who build the edifice for you to enjoy. Arrogance of the parasites have no limits.
You look arrogant, when you call the prime minister of the country just Modi. Does it take a lot to add PM in front? Or it’s something you don’t want to use? Please note, that you have to respect the position, even if you hate the bearer! And lastly, the article is rubbish.
Our useless govt double or triple taxes salaried class, eg TDS on salary, GST on consumed items, foreign travel and remittance to students abroad etc. Why the same govt does not tax rich farmers, politicians and many other religious institutions?
Wosrtever article. Please don’t compare US, UK governance with India they provide all the basic facilities education, health and social security in return of getting tax. But in india if some middle class loose his job he has to sell his house to survive. Govt will not say hey you paid tax I will help you.
Worst ever article. Please don’t compare US, UK governance with India they provide all the basic facilities education, health and social security in return of getting tax. But in india if some middle class loose his job he has to sell his house to survive. Govt will not say hey you paid tax I will help you.
Completely agree with you.All govts in India are same.
Why you donot blame 55 yrs of plundering party.
yes as if this new party has brought down moon on earth.. BULLShit they have dont nothing more than screaming vande mataram and jai hind… and no real care about hind…. instead they are eating like fat pig eats and shit.. that what they govt are… lying to everyone that economy is fantastic.. and whenever they talk about the problems, china is blamed and pakistan is blamed.. yes pakistan is taking taxes from india and not investing back in the country.. what a joke. people like you are the fools who wave bjp flags like idiots & dont have a second thought as to why cant you stand up for yourself.
I am a retired person, but still I pay tax on the amount that I get from interest earned from different investment. But what I get. How many politicians pay tax. Income tax should be abolished. Collect expenditure tax, tax on more than one house, more than one car, more than 2 children. Nothing should be given free to politicians. They should pay for accommodation, electricity, traveling. There should not be pension for politicians. Bureocrates should travel in economy class only.
Instead of protesting against CAA, Shaheen Baag should have been protesting to abolish personal Income Tax.
are you idiot ?? where is he tallking about CAA ?? bloody stupid man
Government are misusing our taxes.if you see the structure of allowances given to a politician, you will never agree to pay taxes.I will tell you a thing which is basic, it is out mobile phone, unlimited calling in whole india was for Rs 149 per month and politicians get Rs 30000 per month for two connections.why we pay taxes if our taxes does benifit us.
Of course comparisons are instructive. And everything is the fault of the, “vocal middle class” !!
The high income countries spends in excess of 5% of their GDP on healthcare. India spends less than the average low income country.
Same story with education. We spend abysmally low on education compared to some of the countries whose tax rates experts are fond of comparing ours with. The quality of our education ? Ah lets not go there !
We pay road taxes and drive on roads that represent bomb craters. Of course, it is our fault.
We pay cess for basic sanitation and cleanliness and end up having public places a garbage dumping grounds.
Sure – we should include more individuals in the tax net. And how do we do that ? By squeezing the last drop out of a class that is already being bled dry by a combination of direct and indirect taxes. We won’t talk about rich farmers earning in crores who pay less taxes than a software engineer earning a few lakhs. We wont talk about tax breaks to corporate fat cats, never mind the fact that they are unable to demonstrate any visible growth or employment creation. But we won’t talk about these groups. They are helpless without any power to influence. All the problems are due to the , “vocal middle class”.
Yes, Mr. Ninan, comparisons are very instructive indeed !!
The writer is supporting tax evaders & wants people who have income of 2to 5 lacks to be taxed which is peanut income for middle class what about professionalscommercial rent earners & top businessmen who earning crores how much they are declaring? It is right time to abolish income tax for middle class & catch big tax evaders.
TN Ninan love to preach Modi but hate to support Modi doing the same things suggested by Ninan. This is the usual trick used by people whose job start and end with preaching. All of the previous opinion posts of Ninan just do preaching only to Modi as if he alone has to work and all opposition should pull his legs and then abuse and accuse him.
Taking into account the widespread reach of GST on every citizen who makes any transaction and also the very low poverty line, it looks fair enough if the tax rates are lower here in India. WHy make middle and lower income groups pay IT when they are already contributing handsomely to the economy via GST ?
But as the author says, someone must remind the PM that it is the freebies of the BJP GOvt that has taken many millions out of the tax net. They need not have done this.
So, according to this wise experienced journalist, Rs.5 lakh is too high a level and five percent is too low a level of tax. The remedy is to emulate West, eh? If 20% is fixed for Rs.5 lakhs plus slab, straight away, Rs 1 lakh income is lost. For someone earning Rs.20 lakhs a year or more loss of Rs.1 lakh hurts less, than when compared to someone earning Rs. 5 lakhs. India is following progressive taxation policy – higher the income, more tax you pay. Arm chair advice is always easy to dispense.
1. Though it is easy to make comparison, on subject of taxpayers’ base with other countries, it is not logical to do so. Further, if number of individual Income Taxpayers is abysmally low, successive governments in the Centre have to be held accountable for this state of affairs. 2. I also believe that tax evasion may be just one of many reasons of the lower number of taxpayers. Better tax compliance can be achieved if all stakeholders- Union Finance ministry, Central Board of Direct Taxes and Income Tax Department (ITD)–come together and show administrative will to ensure that the ITD officials work in a professional and efficient manner. 3. I think the ITD has to make appropriate and intelligent use of modern technology to widen taxpayers’ base. 4. Incidental observations: (a) Even as efforts are made to increase taxpayers and revenue, we must discuss how tax revenue needs to be utilized. Past experience tells us that when government earns more tax revenue, bureaucracy finds way to spend it rather unwisely. (b) It is an open secret that tax-free agricultural income is a very effective vehicle used by politicians, government officials and of course business community to evade tax. No political party has shown courage to tax agricultural income or to close loopholes in our tax law provisions which make tax avoidance/evasion quite easy. (c) My last observation is that to minimize scope for tax evasion and to improve fiscal discipline, particularly of indirect taxes, there should be good coordination between the Central and State governments. Unfortunately, there is very little cooperation today and that leaves scope for tax evasion.
By definition, a government that makes you pay tax at $12,0,00 Rs 72,000 bankrupt. No one can live on Rs.6000 per month and pay tax in
India. The writer is a cuckoo blindly comparing a country that is 132 out of 192 countries in world with the same yardstick.
This exemption is given under Section 87A. Previously, it was up to Rs.3,50,000/-. Now it is extended up to Rs.5 Lakh. Not a great deal. However, the government has to think twice before extending any tax benefit. Whatever is afforded, it is very difficult to withdraw it later. This is bound to cause resentment.
Yes increasing the income tax exemption limit must equalised to an amount worked out by standard formula of four family members
Who has been below poverty lines??
Surprising even rickshawala rehriwala washerman has good savings in their banks
I have seen many times such poor people depositing cash daily
Each one has chunks of agricultural lands in village
Thirdly auch people’ enjoy freebies like free school education meals there books bags uniform free all
By no stretch of imagination such people could be termed as below poverty line
Each one must pay taxes though five percent or lump sum
Government shouldn’t give freebies to anyone
Important field is to tap agriculture
Taking candy from a kid and then blaming the kid for giving away the candy. Shame on you.
Not sure if the US and UK are apt comparisons considering what they give back to citizens in terms of healthcare, education, law and order etc. Additionally Indians pay some of the highest indirect taxes, which kick in irrespective of income. Most importantly India is a low trust country where government distrusts citizens and vice versa. Add to this the complexity, venality and unfairness of the tax system puts off even the most motivated tax payer.
So Mr Ninan, the expert, whose fault it was for 70 years that the number was not even this. Also Modi. Psuedo intellectuals like you have no solutions except complains .
you have given your spin to the modi’ s statement . Modi was not talking about the threshold but for whom who constitute upper class like khan market people. as he speak about only 2200 professionals who declare their income 1 crore or above.
Uk has free healthcare. Better infrastructure. In India none of this is provided and you want to increase the tax . There should be no increase in tax, without benefits to those who are paying. First stop corruption in government and government offices, prove that my existing tax money is being honestly used, rather than being swindled away. Make sure things can get done in govt offices without giving bribe. Then talk about increasing taxes.
Excellent comment to this article that draws fallacious equivalence between India and advanced countries.
I believe that Modi had in mind the tax evading nature of Indians rather than the absolute number of tax payers, though he sought to make his point by referring to the number. Whatever Tinan says is factual but as a strategy, it is not worth wasting time and incurring cost on Income Tax collection. But we need to think out of box on this issue.
We should abolish Income Tax as it stands completely but substitute with an asset tax to be determined based on the average market value of financial and real estate assets of a person in. Government has all the details through Aadhar and PAN cards and knows the value of financial assets like shares, bonds etc and real estate through government rates table. The IT Department can collate the data and send the e-notice and collect taxes with minimal administrative cost. The threshold could be set at say 2 crores and tax could be levied at say, 0.5% of the average total market value of the assets during the year. This will simplify lot of issues and yet government can hope to get lot of revenue with minimal cost and pain to the tax payer.
If Modi could think of demonitization and pull it off politically, why he cannot do this in the name of poor?
If there are only assets and no income, whether Department will collect taxes by selling them. … Many individuals also have Non-performing assets like Banks
I’m a tax payer who pays few lacks as incometax every year. That being said, I strongly disagree with Mr/Mrs TN Ninan. Why the small fish?! What happened to the buyers of ultra luxury/luxury/sadan/hatchback car buyers in India. What is the average income-tax payed by those? If you know the numbers your jaw will drop. Let the country take a fair share of tax in an efficient manner before thinking of sucking the blood out of those who just crossed the poverty level & by the way the poverty line is what? Rs. 27,000 per annum? What The Fork?!