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Why are expenses not allowed for salaried class, whereas the business class enjoys limitless benefit of expenses?

Pooranchand Gupta, Lucknow

The technical reason is that for a businessman profits can be arrived at only if expenses are deducted from sales. For example, cost of raw materials, salary, rent... must all be deducted to find out the true profit earned by him. But, as it happens, people take a foot if given an inch.

Businessmen and professionals take advantage of this leeway often to cook up expenses and convert personal expenses into business expenditure even as their salaried counterparts fret and fume. The salaried class was sought to be mollified with standard deduction, which last year was cruelly wrenched away in the wake of lowering of tax rates. It did not occur to the Finance Minister that such lowering of tax rates benefited the business community as well for whom, however, there was no concomitant pruning of allowable expenses. The salaried class is, small wonder, peeved. It is true in the event that a salaried person with the same income as that of a businessman pays tax through his nose, while the latter thumbs his nose at the taxman.

Producer company

What exactly is a producer company permitted by the Companies Amendment Act 2002?

Sushmita Bagchi, Kolkata

This is an enabling regime to allow cooperatives to morph into companies. Cooperative societies can convert themselves into companies under this regime. Such companies will have the trappings of a private company with the following differences. Members of producer companies will get only one vote no matter how many shares they hold. In other words, one-man one vote is the norm. Second, shares cannot be transferred to non-members, thus reinforcing the view that such companies are similar to private companies. And third, shares cannot be listed on the bourses. But the company itself will breathe easy without the stifling restrictions a society is normally subjected to. Amul is reported to be toying with the idea of converting itself into a producer company from its present status of a cooperative society.

Compensation for displacement

Why should tribals be paid compensation as is happening with the Sardar Sarovar Project?

Madhumita Athreya, New Delhi

You have raised a very sensitive issue. There is a view that if a person is the rightful owner and he is displaced, he deserves compensation. For example, Delhi Metro had to pay compensation to shopkeepers and residents for acquiring the right of way. Implicit in this view is the view that compensation need not be paid to encroachers and occupants of land for generations. The tribals referred to by you belong to this genre. But a welfare state cannot be oblivious to their plight, which is why they are being compensated by the Sardar Sarovar Project authorities. The Narmada Bachao Andolan calls this grossly inadequate besides being inappropriate. This is one of the facets of the classic economy versus ecology tussle.

Tax at flat rate

Why are companies and firms required to pay tax at a flat rate of 30 per cent, whereas that is the maximum marginal rate for individuals?

Srilekha Ragavelu, Vijaywada

Not only are they expected to pay tax at the maximum marginal rate applicable to individuals but, to make matters worse, are also not entitled to any tax-free income. In other words, while individuals do not have to pay tax on the first Rs 1 lakh of their total income, firms and companies have to pay tax on every rupee of their income, howsoever small it may be.

Historically, business houses have been perceived to be endowed with greater capacity to pay tax. Which is why they are subjected to a harsher regime vis-à-vis individuals. But one may contend that by that token high networth individuals (HNIs) too must be taxed the way companies and firms are. There is considerable merit in this but in a milieu of liberalisation any talk of inter se equity between lowly individuals and HNIs would be baulked at.

The law taxes individuals, HNIs or not, at a flat maximum marginal rate only in case they won windfalls such as lottery, contests, game shows and so on. Ironically, capital gains from the stock market, which admittedly has an element of windfall, is left severely alone if it happens to be long-term and handled with kid gloves at the rate of 10 per cent if it happens to be short-term.

(ASK! Send in your querieson accounting, auditing, corporate law and taxation to ask@thehindu.co.in.)

Blog at: htpp//MentorQA.blogspot.com

S. Murlidharan

More Stories on : Income Tax | For the Asking

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