Salaried Class The Soft target for Income Tax Collections

CMA Arif Farooqui

As earlier years, this year too salaried class had so much expectation from budget and as earlier
years this year too they are disappointed after budget. No new deductions or no enhanced
deductions, no rebate, no parity with self-employed/professionals (who are taxed on net income
basis).
IT rates halved to 5% on income below Rs 5 Lakhs but benefit from rate cut is reduced by
decreasing tax rebate to Rs 2500 from Rs 5000 for taxpayer with income up to Rs 3.50Lakhs which
was earlier Rs 5 Lakhs. 10% surcharge is introduced for person having income more than Rs 50
Lakhs. Most affected person by surcharge will be salaried class as few taxpayers other than him will
declare income which attract surcharge.
Corporate taxes have been assumed to grow by 8.4%in 2016-17 (vs 12.6% last year), personal
income tax collections are expected to grow by 17% in 2016-17 (vs 14% last year). When corporate
profitability is low and people are getting low hikes then on what ground government can think to
increase personal income tax collections? Answer is just squeeze your cash cow Salaried class
It felt being salaried class is a PAAP after seeing a businessman who is earning even less than us,
live lavish life by paying lesser tax and that too without violating any rules. Survival in todays
corporates world is not easy. Employees have to complete unrealistic targets, scold by bosses, lives
with fear of losing job etc. Even as loyalist taxpayer, what benefits he is getting? Should not he get
priority over the queue at railway station, hospitals etc.? Government must have some sympathies
towards them.
Salaried persons, the most honest person in matter of payment of income tax. Pay up to 35% of their
GROSS earning as income tax but instead of getting some relief as loyalist taxpayers they are
ignored year after year by government. Every year before finalizing budget, finance minister takes
inputs from corporates, bankers etc. Why he not bothers to take inputs from his loyalist taxpayer and
try to understand their problems?
The following will demonstrate that there is discrimination against the salaried class.
Treatment for salaried
Expenses Treatment for self-employed / professionals
class
Taxable Income Gross Salary (almost) Net income after deducting all expenses

Payment of Tax Monthly basis Quarterly basis

Deduction available is Actual amount incurred is allowed as
Transport Allowance
Rs 1600 per month. deduction.
Can claim entire amount as business
Lunch / Dinner No deduction
development expense from his income.
Can claim entire interest expense as
deduction. Further he can also claim
Buying a Car No deduction
depreciation on car and drivers salary as
expenses
Can claim entire interest amount as well as
Interest on self- Exempt up to Rs 1.5
depreciation on house as expenses provide
occupied house lakh per annum.
that use that property for official use too
Training No deduction Full amount is deductible
This is not the only lacunae. Some of deductions allowed to salaried class have been unchanged for
decades.

1. Education and Hostel Allowances Exemption limit of education allowance and hostel
allowance are Rs 100 and Rs 300 per month respectively. At present these allowances seems as
a joke, even in villages there is no school / hostel which has such low fees.
2. Medical Reimbursements Exemption limit for reimbursement of medical expenses is Rs
15000 annually for entire family and it was set in 1998. Since then medical costs have risen
radically.
3. Interest on self-occupied house/property Deduction amount of Rs 1,50,000 was set in 1999.
Property rates have zoomed up significantly since then.

1. Deduction under Section 80C Rs 1,50,000 is not matching present days inflation. Almost all
savings and investments are covered under this section.

5. Leave Salary Leave salary is exempted at retirement to maximum of Rs 3,00,000 and it too
was fixed in 1998.
6. Free Food Value of free food or meal vouchers provided by the employer is exempt from
income tax to the extent of Rs. 50 per meal.

Lastly I want to draw attention on this point,

Maximum exemption limit must be increased In budget speech, FM said, people earning up to
Rs 4.50 Lakhs should invest Rs 1.50 under section 80C, they can avoid paying tax for an income up
to Rs 4.50 Lakhs. Looking at cost of living, running a family in such a small amount is very difficult
and how to save so much. It would be great help if present limit is increase. Most affected person
here too is salaried class as other taxpayer got deduction for all expenses and their net income
comes lower than Rs 2.50 Lakhs even if they earning more than 10 Lakhs.
Conclusion:
Salaried class needs to be taxed in a similar manner in which self-employed / professionals are
taxed, that is all expenses should be allowed as deduction, only net income should be taxed and all
exemptions should be done away with or substantially hike the caps for all allowances just by taking
into account the inflation aspect or standard deduction must be back.
Efforts of government should be to increase the tax net and not milk the cow in their hands. Only
1.5% (1.90Crore) Indians pay income tax and more than half of this, pay less Rs 1,000. Over the
years, number of income tax payers has fallen even though tax revenue has risen. Any shortfall in
income tax collection should be made up by taxing people who are paying zero taxes and leading
lavish lifestyles including rich farmers and politicians. is it justifiable that a rich farmer and politicians
who has bungalows, SUVs servants etc. does not pay income tax but a salaried person who earns
just Rs 25,000 pm and reach his office going through all the torture of public transport, pay income
tax?