Professional fees, avocations to join financial mainstream, enter tax net

It is not yet a week since demonetisation of large denomination notes was announced. But it is already forcing many professionals and practitioners of different vocations to come into the financial mainstream. Hitherto, a large part of their income – fees for service rendered – whether as a doctor, lawyer, plumber, teacher, carpenter, mason or cook, was largely through cash. Even when many of them had bank accounts, their fees was still received as cash – partly because of the convenience but more to avoid traceability as it was a ‘second’ income. This income, which escaped the taxmen so far, will now have to come into their net.

‘Informal’ education is big business in India – done in a small way by millions. Whether it is training your kids for IIT entrance or for medical school, or even if it is a hobby class such as music or art, there are a number of ‘must-do’ expenses for every parent. Except for a handful of honourable exceptions who accept cheques or bank credits, the major part of those expenses is done through cash. This is seldom accounted by the recipients – and, therefore, never suffers tax.

Ms Shankar, a software professional, said the art teacher for her two young kids had told her to remit her fees in her bank account and handed over her account number for the first time. Many earlier requests to do so to enable electronic transfer of funds conveniently, had been politely rebuffed. Quite similarly, her cook never accepted her offer to credit the monthly amount to her bank directly. She had always insisted on taking her payment in cash – even risking being pick-pocketed in the early part of the month when other households too paid her fees. Now,left with no alternative, she has accepted the offer reluctantly.

Whether demonetisation impoverishes our politicians or not remains to be seen. But, it is certainly going to bring a lot of cash into the banking system and many more people into the tax net. India has just around 4 per cent of its population as IT assessees, meaning those who file their returns and declare their income. The ones who actually pay tax are half that number. Both of that should be up significantly next fiscal.

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