Friday, January 20, 2012

Budget 2012 – Income Tax

Budget 2012 – Income Tax

When it comes to annual budget of government, a common Indian shows concern over the income tax rates just because this is the only aspect of the budget which falls under the understand arena of common citizen and affects on life style. This is the most common practice in the parliament that usually the finance ministers are used to have few sips of waters before reading out this section of the budget, though no one is aware about the actual reason behind this action but probably this action of finance minister can be justified with reason that as this section deals with drying up of funds of common people hence minister might be in need of a wet throat to announce it.   

I think most of us will agree that income tax is the tool which if used effectively can prove a very huge hurdle in the process of generating the black money. Unfortunately over the years we had over looked this effective tool just concentrating on collecting some revenue under this head and for this we had not only kept the income tax rates higher but also made it complicated with so many exemptions. In my view we need a very simplified rule for this along with a very effective statement of income and expenditures by the individuals should be made compulsory while filling the income tax return.

My suggestions for Income tax reads like the followings: -

1] If we look the expenses of living of a family of four in a city it comes around to minimum of Rs. 1.5 Lakh hence my first suggestion is that annual income up to Rs. 2 Lakh will not attract any income tax and should be considered as the tax free income for all individuals.
2] Education expenses of children is yet another major concern of middle class economy families hence my proposal is that up to Rs.1 Lakh or actual expenses made for the education of children, which ever is lesser should be deducted from the total income of parents. [If the husband and wife both are earning any of them can get this exemption or both can get shared maximum exemption of Rs. 1 Lakh] 
3] Every individual will be entitled for exemption of maximum of Rs. 1 Lakh for savings under PPF, LIC and even in mutual funds. This one lakh will also be deducted from the total income of the individual.
4] There will be no other exemption it means if a person is earning Rs. 4 Lakh 60 thousand and pays Rs. 80,000 for education of children while saves Rs. 80,000 net income for the tax calculation will be Rs. 3 Lakh out of which Rs. 2 Lakhs are tax free income and for remaining Rs. 1 Lakh will be taxable income.
5] As individuals will have to claim educational expenses hence this will compulsory for the schools and colleges to issue receipts for each and every amount collected from students even the fees collected for annual day celebration.
6] It will be essential for every citizen above 18 years to get registered with income tax irrespective of being liable for the purpose of income tax collection. This means every adult citizen will get a photo identity proof, which can be useful for many purposes at many places.
7] Income Tax Slabs: individuals will be supposed to pay income tax after deducting tax free income of Rs. 2 Lakh and exemptions allowed as in [2] & [3] at the following rates
a] First 2 Lakh at the rate of 5%
b] Next 3 Lakh at the rate of 10%
c] Next 10 Lakh at the rate of 15%
d] Income above Rs. 15 Lakh will attract flat rate of 20%
8] There will be no surcharge of any kind. As rates are considerably low hence there will be higher penalty say up to 70% tax for undeclared income.
9] Our present income tax return form is not indicating the actual assets held by the individuals hence there remains a space open for investing black money. My last proposal is associated with the alteration of income tax return form as the follow

Income Tax Return Form

1] Name of individual:
2] PAN Card No. :-
3] Permanent Residential Address:-
4] Present Address:-
5] Return for the Year ended on 31st December:
6] Income liable for tax during the year:
          a] Total Income
          b] Less education expenses
          c] Less saving exemption
          d] Net taxable income
7] Total Payable Income Tax:
8] Details of Tax paid / refund claims
          a] Advance tax paid on or before 15 June
          b] Advance tax paid on or before 15 September
          c] Advance tax paid on or before 15 December
          d] Tax paid before submitting this income tax return on
9] Net funds remains during the year
          a] Net taxable income
          b] Less Tax Paid
          c] Less House hold expenses
10] Details of loans, Assets and properties [including previous two years shown in separate columns]
a] Cash                   Total            This year       Last Year       Previous to Last Year

b] Bank Balance        Total            This year       Last Year       Previous to Last Year

c] Investments         Total            This year       Last Year       Previous to Last Year

d] Fixed Assets        Total            This year       Last Year       Previous to Last Year

e] Ornaments           Total            This year       Last Year       Previous to Last Year

f] Agricultural land    Total            This year       Last Year       Previous to Last Year

h] Loans                 Total            This year       Last Year       Previous to Last Year

This information will not only help in reducing the investment of black money in property but will also help banks and other financial institutions to get mirror for sanctioning loan to individuals.

As the income tax for the year will be collected well before the presentation of the budget hence finance minister will also enjoy the comfort of knowing the actual figures.

11] Pension is not an income hence pensioner should not be liable for any income tax, provided if they are not engaged with any earning activity. However filling annual income tax return should also be compulsory for these. Similarly citizen above 60 years not involved with any earning activity and with refunds on the investments only source of earning will also be exempted from paying income tax irrespective of amount getting as refund of investments.

12] As number of income tax returns filled will increased by huge hence there will be nominal charge of Rs. 100 for the filling the return. In case of individual fails to file income tax return by 31st March there will be penalty of Rs. 5000/- . 

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