‘Filing return a must to get rebate benefit’

During the last two years, we have had 15 per cent and 18 per cent growth respectively. Current fiscal, we are targeting 20 per cent and, next year, 15 per cent. If you are talking about buoyancy, you have a GDP growth — in nominal terms, around 11 per cent that includes inflation plus real GDP growth.

Worldwide, if you are talking about buoyancy, it should be around 1.01 or 1.1 compared to GDP growth in nominal terms. During the last three years and the next year, the buoyancy is around 1.5, 1.8 and, now, even 2. So this is the kind of buoyancy we are showing in direct tax and how has this buoyancy come about? Not by increasing the rates; in fact, the income-tax rates have been brought down.

During the last one and a half years, in several commodities, taxes were reduced. The initial tax rate was also lesser than the pre-GST rate. Now, after introduction of GST, the major rate reductions were done at least four times during the last one and half years and the total amount involved was around ₹90,000 crore annually. Despite this, last year, the average monthly collection was ₹89,000 crore. This fiscal, it is ₹94,000-95,000 crore and, in January, it was ₹1,02,500 crore. So, the revenue trends are increasing.

The proposal says that anyone with taxable income of up to ₹5 lakh will pay no tax, because whatever the tax amount, that much rebate will be given to the tax payer, so that his total liability becomes zero. This is inclusive of cess that is 4 per cent. As per the current system, if the taxable income is between ₹2.5 lakh and ₹5 lakh, the tax would be up to ₹12,500 and if you add 4 per cent cess, the total tax amount will be up to ₹13,000. Now, this amount will be given as rebate, so that his tax liability becomes zero.

This is about taxable income. But, if you consider the gross income, it could be even higher than ₹5 lakh; it could be ₹6 lakh, ₹7 lakh, ₹8 lakh. As your gross income is higher, you also have the capacity to invest in Section 80 (C) instruments such as provident fund, certain specified savings schemes and life insurance. One can get the benefit of that, because if your income is higher, you can invest a corresponding amount.

Now let us say that somebody’s earns ₹8 lakh per annum. He invests ₹1.5 lakh under 80 (C). If he is salaried, he can take a deduction of ₹50,000 under Standard Deduction. Then there are certain 80 (D) benefits like pension scheme and insurance scheme. If he has purchased a house and taken a house loan, then he gets a rebate on interest on house loan up to ₹2 lakh. So if you consider all these deductions, in many cases, even if the gross income is more than ₹5 lakh, by careful tax planning, and making these investments and taking these deductions, if the taxable income is brought below ₹5 lakh, he does not have to pay no tax.

Let’s say there is a youth who has freshly joined a workplace, then his income would be close to the ₹5 lakh per annum slab and he can take benefit of these options and not pay any tax. Similarly with pensioners or senior citizens, if they are only dependent on their pensions and if the pension is in the range of ₹5 lakh or ₹6 lakh.

I don’t see any difficulty. The question is not of who is going to implement it. It is a simple calculation; from your gross taxable income, the tax payer has to make those investments or take those deductions and, after these measures, if his income is below ₹ 5 lakh, he doesn’t have to pay any tax.

Returns will have to be filed because TDS may have been deducted. Basically, in order to get the benefit, one has to file the return and then get the rebate. But it happens instantaneously; not that first you pay the tax and then you get the rebate.

In the earlier system, if somebody’s return was picked up for verification or scrutiny, it was the officer’s discretion to choosing which one to scrutinise. Now this discretion has been done away with. The number of returns that are being picked up for scrutiny are also being reduced — only 0.54 per cent of the total returns filed are picked up for scrutiny.

Besides, there are sophisticated computer algorithms to select only those cases where there are very strong reasons to believe that the tax amount shown in the return is not correct. There is no human involvement. So there is no subjectivity and that system is already in place.

Today, once your return gets picked up for scrutiny through the computerised algorithm, then the tax payer has to be physically present before the assessing officer and present all his documents to get his accounts verified and returns scrutinised.

According to the Budget proposal, during the next two years, a system will be developed wherein the returns selected for scrutiny will also be scrutinised not through physical interactions between the tax payer and the officer, but through an anonymised back-office — faceless scrutiny.

And only in cases where even after the faceless scrutiny there are still some doubts, which need to be ascertained, then the matter will be referred for further examination to the field officer.

Formalisation and digitisation of the economy along with reasonable taxation rate. This will not only increase your tax base, but give better tax collections without increasing the tax rate to meet the objective of good tax-to-GDP ratio as well as the tax buoyancy ratio.

The bottom line is increasing the tax rate is not the only option to meet these results. The same can be achieved by increasing your tax base, having simplification, better compliance, as well as better formalisation and information exchange.

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