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.)