Why Income-tax Should Spare the Bakra—the Salaried Taxpayer
Only one group of people in India cannot escape the clutches of the tax man – the salaried class – because the employer is responsible for deducting tax at source and handing it over to the government. For decades, this group has been the government’s bakra (scapegoat) for collecting income tax (I-T).
 
Businessmen, self-employed professionals and, of course corporates have various ways of dodging taxes, but the salaried man has none, at least as far as his salaried income is concerned.
 
Yet, how much does the government actually collect from this unfortunate group?  Let’s look at the numbers, as laid out in the income tax return statistics 2018-19, all of 87 pages of data.
The key numbers are:
 
Total number of income tax returns = 5.87 crore, of which, salaried taxpayers = 5.53 crore
 
Total income tax collected from all taxpayers, including businesses, corporate, Hindu Undivided Families (HUFs), etc = Rs 8.08 lakh crore.
 
Out of the 5.53 salaried taxpayers, as many as 4.09 crore (74%) have incomes below Rs5 lakh, and another 1.04 crore (19%) have incomes between Rs5 and10 lakh. The number of tax payers with salaries above Rs 10 lakh is only 40 lakh (7%).  
 
How much I-T do the ‘below 5 lakh’ salary people pay?
 
No specific number is given in the I-T department report, but by applying the tax rates one can estimate that it is about Rs6,400 crore, i.e., 0.79% of the total I-T collected.
 
Here we have three-quarters of the salaried taxpayers together paying less than 1% of the total tax! 
 
Let’s move to the next group, the ‘Rs5lakh-Rs10 lakh’ salary folks. They account for 19% of the salaried taxpayers and pay Rs33,000 crore, i.e., 4.1% of the I-T collected.
 
Conclusion: 93% of the salaried taxpayers combine to pay less than 5% of the total income tax collected. The 80-20 rule is exceeded by a good margin!
 
Now the question is: What does it cost the government to collect tax from these two groups? 
 
Again, there is no clear answer. But if you consider that these two groups together account for as many as 5.15 crore out of the total Rs5.87 crore tax returns, or a hefty 88%, it stands to reason that a substantial, if not proportionate, manpower of the I-T dept is engaged in dealing with these 5+ crore returns. Considering that the IT dept has over 50,000 staff, how many of them are doing this work? And what is this work achieving? How much more tax can they squeeze out of the salaried lot who are paying only Rs 40,000 crore, out of the 8+ lakh crore?
 
What if the minimum income tax slab is raised to Rs5 lakh, eliminating the need to scrutinise over 4 crore returns at a minimal cost of Rs 6,400 crore?
 
How many I-T staff will be freed up to chase those countless others who don’t file a return at all? Surely tens of thousands of I-T staff can collect more than Rs6,400 crore from these tax-evaders?
 
What if the minimum income tax slab is raised to Rs7.5 lakh, or even Rs10 lakh? Yes, it will cost the government some Rs40,000 crore, but it will free up perhaps 30 or 40 thousand IT staff.
 
There are plenty of targets for these I-T officers. Take, for example, the matter of the ‘Outward Foreign Direct Investments’ (OFDI), as reported by the tax justice network, an independent international body. In plain English, India loses over 10 billion US dollars a year (Rs75,000 crore) due to corporate tax abuse by MNCs through outward investments, mainly via Mauritius, Singapore and Netherlands. Worth looking into, honourable FM?
 
Incidentally, Rs40,000 crore is not really an astronomical figure. It is:
 
the cost of 24 Rafale fighters, or 
40% of the cost of the 7th Pay Commission, or 
-1/3rd of the increase in bank fraud between March 2019 and March 2020, or
a little over half of the compensation payable for deaths in traffic accidents in 2018.  
 
Rs 40,000 crore doesn’t sound like such a big number, does it? 
 
There would be three other benefits of waiving income tax on salaries up to Rs10 lakh.
 
The first is a massive saving of labour at offices all over India where countless hours are spent in calculating the tax liabilities of over four crore employees, deducting the tax every month and paying it to the government.
 
Employers will cheer at the prospect of saving so much unproductive manpower cost.
 
The second benefit - where will these Rs40,000 crore of waived taxes go? Back into the economy, of course. The five crore people would spend most, if not all, of the money in buying goods and services. This will give the economy a boost, for sure. 
 
The third, and possibly the biggest, benefit is political. Aha, do I hear our netas rousing themselves from their usual deep slumber?
 
If four or five crore Indians are freed from the burden of income tax, they will cheer their throats hoarse and bless the government with all their hearts. At last, someone is thinking about the middle class! 
 
Five crore liberated from income tax means some 12-15 crore votes. Cost to the exchequer – Rs40,000 crore. 
 
Does the math make sense, neta-ji?
 
(Deserting engineering after a year in a factory, Amitabha Banerjee did an MBA in the US and returned to India. Choosing work-to-live over live-to-work, he joined banking and worked for various banks in India and the Middle East. Post retirement, he returned to his hometown Kolkata and is now spending his golden years travelling the world (until Covid, that is), playing bridge, befriending Netflix & Prime Video and writing in his wife’s travel blog.)
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    COMMENTS

    neuropsychiatrist

    3 weeks ago

    yes. The government should abolish personal income tax.
    A small transaction tax can be added to minimize losses to the govt.

    Nahom

    4 weeks ago

    Salaried class super earners from top to bottom in bribes in Politics, bureaucracy, police, judiciary call for at least minimal tax return checks. Total evaded tax through bribes, Financial Engineering etc far outsrtip loot by MNC. Benu has got it upside down.

    REPLY

    Amitabha Banerjee

    In Reply to Nahom 4 weeks ago

    Dear Nahom, you are absolutely right. Corruption and bribes are financially huge and numerically enormous. I have mentioned the $ 10 Bn MNC tax evasion issue as an example of a case that involves a good-sized amount and relatively very few entities, just to show the opportunities that are available for IT to investigate, instead of spending time on hapless salary earners.

    drsamikbasu

    4 weeks ago

    Debasisda excellent article...I often wonder at the so called financial experts in the finance department who never bother to cut down public money spending...
    Streamlining processes to cut down govt expenditure should be the goal rather than flogging people who really pay taxes on a regular basis..

    komalir

    4 weeks ago

    Sir , please could you discuss/ debate on national business news channel, so that many would come to know OR publish in an national magazine..
    Once again thank you for such an informative article..🙏

    REPLY

    Amitabha Banerjee

    In Reply to komalir 4 weeks ago

    Amitabha Banerjee : Dear Komalir, many decades ago the revered Mr Palkiwala had said that if he was FM he would waive tax for the salaried people who pay only 2% of the total income tax, and chase the tax evaders. So my idea is not new, and those in control do know about it. Unfortunately, I know neither Arnab Basu nor Rajdeep Sardesai, so I don't think I can come anywhere near a TV channel.

    komalir

    4 weeks ago

    Sir, please send this article to Ministry of finance. Hope they are aware and will do something about this..

    Nahom

    4 weeks ago

    10 Billion $ is a small sum to pay to the predators. Alternative could be another Syria or Libya or Vietnam or Afghanisthan here. Salaried serfs have little choice. Enjoy slavery.

    gopalakrishnan.tv

    4 weeks ago

    This is known to all rich politicians ,industrialists, professionals like doctors, lawyers, accountants, businessmen, traders, brokers and middlemen. Even Incone tax officers and IAS officials who frame tax policies know this truth . But the fact remains that politicians and bureaucrats instead of being servants of the people want to be masters enjoying power which is possible only if large majority of people are let of from income tax and a small bit of people are kept under tax net whose votes cannot matter much in the present set up of our democracy. Even if the entire class of salaried class boycotted election nothing happens to be in power. In fact if the salaried class were exempted from tax and other major evaders, fraudsters and looters of our financial system , only were brought under tax net leaving big corporates, rich farmers traders ,highly rich professionals and all sorts of middlemen ,the tax collection can be better than the present tax and the cost of collection also can be brought down considerably. Intend should change and there should be a will to enhance tax collection from all in the country who really make money, enjoy wealth and generate wealth and try to be in power to protect the wealth. If there is a will there is a way to enhance tax collection from those who can really afford.

    REPLY

    Amitabha Banerjee

    In Reply to gopalakrishnan.tv 4 weeks ago

    Amitabha Banerjee : Dear Mr Gopalakrishnan, I entirely agree with you. If a retired banker armed only with Google can find the facts in minutes, surely the top babus and IT bosses know. Also, as you say, things can be better if tax collection is done with the right intent.
    My humble purpose was to inform the vast majority of the Public who do not know the facts. From the comments received, there are indeed many who don't. Will that make any difference? I don't know. But I can write, and so I did !!!

    nayan.chawhan

    4 weeks ago

    Only 34 Lakh Businessmen in India ? doesn't it sound fishy to anyone in IT ? I mean we surely have more Luxury Cars (costing 20 lakhs and above) than number of people filing returns. Why not government do away with all these taxes and just levy 2% transaction tax and removing 100, 500 and 2000 currency notes. Post demonetization, people are well aware of all those online payment instruments with their use. Being a Banker, we both know the number of CTR's and STR's being filed with FIU every year. We just need to act fast and diligently dont you think so ?

    REPLY

    Amitabha Banerjee

    In Reply to nayan.chawhan 4 weeks ago

    Amitabha Banerjee : Dear Mr Chawhan, all I can say is "None so blind as one who will not see". The information is there, but nobody seems to act on it. RBI collects 241 returns, but what happens to them is anyone's guess. Most probably they are filed unread, CTRs and STRs being among them.
    Yes, transaction tax instead of income tax makes sense, because it penalises expenditure and encourages savings. But it will work only if all transactions are taxed and the tax paid to the Government. Can there be an effective mechanism to track all transactions in such a way as to prevent "black" transactions?

    Rupesh Chatterjee

    4 weeks ago

    "Conclusion: 93% of the salaried tax-payers combine to pay less than 5% of the total income tax collected."

    This department could possibly win the nobel prize for wasting majority of its 50, 000 strong workforce time on doing the most inefficient tax collection process on this entire planet.

    Is our FM even aware of these statistics?

    REPLY

    Amitabha Banerjee

    In Reply to Rupesh Chatterjee 4 weeks ago

    Amitabha Banerjee : Well, Rupesh, I am not sure that the FM is aware of these numbers, considering that the IT Annual Report is 87 pages, and the numbers are arranged in such a way that the bit you quoted is not immediately apparent. I doubt that the IT guys would have done an Executive Summary of the report for the FM which brings out this data - they would look like perfect fools !!

    I

    Rupesh Chatterjee

    In Reply to Amitabha Banerjee 4 weeks ago

    Amitabha Ji,

    What would it take to bring this statistics to the kind attention of our honorable PM & FM?

    I know our honourable leaders are intelligent enough to understand the cost to benefit factor behind this unproductive tax collection activity undertaken year after year. A massive burden on the entire tax collection department for something that does not yeild any significant revenue in the large scale of things.

    I wish this article comes to the notice of our honourable PM & FM and the current tax filing burden for millions of salaried tax payers and the department gets liberated for good.

    SenSage

    4 weeks ago

    Hi Benu,

    Nice to see your taking up burning issues to create an awareness in the middleclass.

    Just to add to your data the number of tax payers from the poorest of the poor minorities is 6 lakhs.

    I remember Palkhiwala's words who once said that if he were to be the finance minister he would exempt all salaried class and give relief of tax burden who contribute only 2% of tax revenues and would be running after the capitalists with the stick.



    REPLY

    Amitabha Banerjee

    In Reply to SenSage 4 weeks ago

    Hi Shabbir, yes, my feeble effort at creating awareness. Unfortunately, the middle class does not contribute to politicians - it only pays taxes. Difficult to get any politician interested in their welfare.

    Kamal Garg

    4 weeks ago

    I perfectly agree. It is high time that salaried class (at least people who draw less than 10 lakhs per annum) should be spared from the income tax burden because it is this class which pay the highest of taxes and get nothing in return. It is common knowledge in India that a businessman deducts/pays all his family running expenses from the business firm's accounts (legitimately in the name of paying for directors, etc and illegitimately, we know it all) and on the balance income pays only upto 20-30% of the income as tax whereas a salaried class person has to pay full tax on full income. This injustice has to end sooner than later.

    REPLY

    Amitabha Banerjee

    In Reply to Kamal Garg 4 weeks ago

    Amitabha Banerjee : Dear Mr Kamal Garg, the problem is that the "middle class" is an amorphous mass which doesn't even know how it is being bled. It belongs to no caste, no religion, no particular state, and hence doesn't interest any politician because it is not a vote bank. Unless a lot of people protest, things will not change, and the start is by knowing the numbers.

    gbrhyd

    4 weeks ago

    Yes. It is the middle class which feeds the government, where as govt feeds low class and upper class. Middle class people are the real victims (bakras).

    REPLY

    Amitabha Banerjee

    In Reply to gbrhyd 4 weeks ago

    Amitabha Banerjee : Dear gbrhyd, I only wish the middle class would know what is going on. That is the this article is meant to achieve. I hope it does.

    shankar_1979

    4 weeks ago

    Great article sir. Simple to read and understand. While we know a little about the salaried class being scrutinized and red-taped for a meager tax revenue, this is the first time I am reading about the actual cost of maintaining this charade. However, your suggestion to raise the minimum tax is a bit too effective. No bureaucrat will allow such simple fixes.

    REPLY

    Amitabha Banerjee

    In Reply to shankar_1979 4 weeks ago

    Amitabha Banerjee : Dear Mr Shankar, yes - I know the proposal is simplistic and perhaps impractical, but the purpose of the article is to point out the futility of taxing salaried earners, apart from the unfairness of it.

    deoa1948

    4 weeks ago

    Another painful issue is frequent ReKYC of saving bank account, especially for the senior citizens and in the period of restrictions
    On movement due to the pandemic.
    Is the effort put in and paperwork by the account holder and the bank staff worth it.Non compliance results in freezing of bank account.
    How many incidences of fake accounts have surfaced ?

    REPLY

    Amitabha Banerjee

    In Reply to deoa1948 4 weeks ago

    Amitabha Banerjee : Dear Mr deoa1948, I totally agree with you. For my 10 year old bank account, I still have to sub,it the same (unchanged) copies of passport, Aadhar card, PAN card and address proof year after year. What a waste of labour for me and the bank, apart from the harrassment !!!

    reachnareshgarg

    4 weeks ago

    How about not sucking the very life out of those middle class people, who worked their butts off to reach at a certain level of income/salary. Why should they remain middle class for the rest of their lives by paying a whopping 25% in taxes and getting absolutely nothing in return? No wonder that Pichais and Nadellas never stay in the socialist india, and why should they?
    Both rich and lower income groups have it easy. As always, the middle child is getting the royal screwjob.

    REPLY

    Amitabha Banerjee

    In Reply to reachnareshgarg 4 weeks ago

    Amitabha Banerjee - Dear Mr Garg, the answer is simple - this group cannot hide their income, and they never protest via morchas or road-blocks. Why not keep squeezing them? hell, many of them don't even vote !!!

    reachnareshgarg

    In Reply to Amitabha Banerjee 4 weeks ago

    Sir- Just like the government reduced the corporate taxes because of the fears of the flight of the companies out of India, won't the same fears compel them from squeezing too much and eventually breaking the section? This group send s relatively at most ease, in terms of flexibility, willingness and means to move of India in order to escape the "Socialist paradise". Wouldn't the better way be to penalize people who have more children than they could afford. Contraceptive as a concept is atleast 4 decades old in India and if one compares the sales of the contraceptive with other sexual wellness products, one would realise that the lack of knowledge isn't the problem. People simply don't care, as long as someone else pays for it. The real question then becomes- Why should we?

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