While the US is planning to tax the rich, India’s tax burden falls on the poor
India is a tax haven for the rich as they do not have to pay any tax on their dividend income. But the middle-class citizen has tax deducted at source even on the paltry interest received from savings bank accounts
President Obama of the United States is proposing to levy a tax on people earning over $1 million a year, calling it the "Buffett Rule" as a part of his long-term deficit-reduction programme and to stem the country's escalating national debt.
The "Buffett Rule" is nicknamed after billionaire investor Warren Buffett, because he is said to have made a statement that rich people like him in the US often pay less in tax than those who work for them, due to loopholes in the tax provisions. The present proposal, therefore, is designed to prevent millionaires from taking advantage of lower tax rates on investment earnings than what middle-income taxpayers pay on their wages.
During last year, Warren Buffett's total income was $46 million and his average tax rate was 17.7%, due to his investment income being charged at 15%. His secretary's income was $60,000 on which average tax rate was 30%.
If in the US, the rich are paying a lower tax on their investment income, India is a tax haven for the rich as they do not have to pay any tax on their investment income, because the dividend income is totally tax-free at the hands of the shareholders. As per media repots, the aggregate dividend earned by business houses last year was Rs48,191 crore on which no tax was required to be paid. The Tata Group dominated the business houses on this count and its 29 group companies together paid Rs3,845 crore as dividend to the holding company, on which the holding company did not have to pay any tax.
Here is a list of the top ten individuals whose dividend income runs into crores of rupees, totally tax-free under the existing laws in India.
It is ironical that a common man in India has to pay income-tax even on the paltry amount of interest that he receives on his savings bank account, if his total income crosses the basic exemption limit of Rs1,60,000 per year. And if he places his surplus savings in fixed deposits with commercial banks, the income-tax gets deducted at source from the interest received on these deposits, even before he receives any interest from the bank. On 8th August, Moneylife had written on the agony and suffering undergone by the common man to get TDS (tax deduction at source) certificates from banks and the harassment meted out to him by the tax authorities to get refund of such TDS (See: TDS is not only tedious, it is sheer harassment. Government must make interest from banks free from income-tax).
The paradox of life in India can be best explained by the following examples:
1. The rich and the wealthy do no pay any tax on crores of their investment income, but the poor and the middle class have to pay taxes even on a small amount of interest received from banks on their savings account and fixed deposits.
2. The tax provisions make a distinction between 'earned' income and 'unearned' income. The unearned income on stock market investments including capital gains is either tax-free or taxed at a lower rate. But the common man who earns through his sweat and toil has to pay tax at 30% because it is considered as earned income.
3. The common man has to pay Rs70 per litre for petrol used for running his two-wheelers and small cars, which are run only on petrol, while the rich pay only Rs40 per litre for diesel used by them on their Mercedes vehicles and BMWs, the big luxury cars which run on diesel.
4. While the banks offer car loans to the rich & wealthy at interest rates varying from 10% to 12% p.a., poor students are offered education loans at rates varying from 14% to 16%.
5. As the saying goes, if you borrow a small amount from a bank, you are at the mercy of the bank and if you borrow a few crores from the bank, the bank is at your mercy. This is in fact a reality, because small borrowers are hounded and persecuted if they fail to repay, but large borrowers are given five-star treatment like CDR (Corporate Debt Structuring) facility, moratorium on payment of interest and instalments and of course, lower interest rates including waiver of penal interest charged etc.
6. If big companies are unable to honour their commitments and become virtually bankrupt, technically called 'sick', they are given all the benefits of a five-star hospital and admitted to what is called the BIFR (Board for Industrial and Financial Reconstruction). Once admitted to BIFR, no creditor can file a suit for recovery, nor can banks proceed against them. Because of this luxury of protection from creditors, companies feel comfortable to continue to remain sick indefinitely, though the promoters of many such companies continue to be healthy and flaunt their wealth in unproductive activities. But this facility of protection from the creditors is not available to common people who have their own small businesses, and they have to face the wrath of the banks and other creditors, even if they are genuinely in trouble due to external circumstances.
The common man and the ordinary middle-class citizen of our country is suffering under the burden of rising inflation and due to the apathy of the banks and government institutions, and they have nobody to champion their cause.
It is, therefore, to support their cause and improve their life to some extent, that the Moneylife Foundation (article dated 6th September, see: Moneylife Foundation sends memorandum on TDS to the FM, RBI ) submitted a memorandum to the Hon'ble Finance Minister, requesting him to exempt from tax, all interest paid by commercial banks on savings accounts and fixed deposits—which if conceded, will provide some succour to a large number of middle-class people of our country.
Let us hope that the FM listens to our appeal and provides the
much-needed relief to the people of this country by enacting necessary modifications to the tax laws in the Finance Bill or the Direct Tax Code (DTC) coming up during the current financial year.
(The author is a financial consultant and he writes for Moneylife under the pen name, 'Gurpur')
More in Moneylife
Medha Patkar quits AAP +473 views
TODAY'S TOP STORIES
Moneylife Foundation: Maharashtra CM Fadnavis says financial literacy empowers citizens
Grab a Discount Coupon here
- Did you know LPG consumers get an insurance coverage?
- Harassment of taxpayers: CBDT promises action as PM Modi expresses dissatisfaction
- Over 90% of equity mutual fund schemes have an allocation of above 90% to equity
- Did Angelina Jolie just boost the growth of $1.72 trillion cancer industry?
- Hold on to Your House Carefully; You May Lose It
- Supreme Court strikes down Section 66A of IT Act
- Corporate Espionage and Worse: All Too Common
- QNet: EOW arrests V-Elite leaders Sandeep Kalra and Hitesh Miglani
- History Will Not Be Kind to Dr Manmohan Singh
- The Nirbhaya Documentary - as always, follow the money
- Dena Bank refuses to vacate property; harasses owners
- Are fund houses using direct plans to benefit themselves?
What's your say?
What you said
Thanks for casting your votes! View Previous Polls