As an Ex IT Commissioner, Even I Can’t Help My Tax-Burdened Mother

Her neighbor, a lawyer, earns several times more than her, but pays a pittance to the Government.

My mother, 86 years old, is disappointed with me.

Her earnings consist of family pension and bank interest. Till two years ago, she was also getting a salary. The money is just about enough to keep body and soul together. Yet her tax bill, unconscionably high as per her estimate, gets her agitated when she files her tax return.

Having a former Commissioner of Income Tax as her son, she expects me to suggest ways to minimize her tax outgo. But having exhausted all exemptions, deductions and allowances, there is no scope to fulfill her wish. Mind you, being a very senior citizen (above 80 years), her exemption limit is Rs. 5 lakhs, twice as high as the normal limit.

My sister, a salaried person, is equally agitated, as well as disappointed with her brother.

My Mother’s Grouse

What agitates my mother more is the fact that her neighbour, a lawyer, earns several times more than her, but pays a pittance to the government. She knows because the lawyer’s mother told her, proudly. How is that possible, she asks me every year.

I patiently explain to her that as a professional, the lawyer is entitled to claim expenses which have been incurred for the purpose of his profession.

So he would be entitled to deduct petrol expenses, car maintenance, car insurance, driver salary, interest on loan taken to purchase the car or any other asset ( such as air-conditioner, furniture and fixtures), electricity, entertainment of clients, tour and travel, professional books and periodicals, membership fees of professional bodies, book-keeping, office staff, and so on, to the extent these are spent for the purposes of his profession.

He is also entitled to depreciation on his car and other assets used in the profession. He is thus being charged to tax on a ‘net’ basis, in contrast to a salaried person who is charged on ‘gross’ basis.

He also takes a part of his fees in cash, she informs me. So, there you have it, I tell her. The ‘cash’ component obviously goes untaxed.

Why can’t the same principle be extended to salaried persons, she asks. Don’t we also incur expenses to earn our salary?

But how would you identify and quantify such expenses, I reason with her. Because such a thing is not possible, the government has given you a Standard Deduction from the salary up to Rs 40,000, I inform her.

Yes, true, but the Transport Allowance of Rs 19,200 per annum, and medical re-imbursement of Rs. 15,000 (totaling Rs 34, 200) has been simultaneously withdrawn, she retorts. The net benefit is only Rs 5,800. On the family pension, I only get a deduction of Rs 15,000. Is this joke being played on us, she asks?

But salaried class also receives many perquisites and allowances. Surely, they need to be factored in too, I respond.

They are a joke too, she says resignedly.

What about the generous deductions on account of medical treatment, especially for very senior citizens like you, I ask.

Yes, they are generous, she agrees. But they are only useful if I were to fall ill!

She has a point.

Why I Agree With Her

The field is completely skewed against a salaried person. Between 2014-15 to 2017-18, the number of salaried taxpayers increased from 1.70 crore to 2.33 crore (37 % rise). The average income went up from Rs 5.76 lakh to Rs 6.84 lakh (19 % increase).

Now consider the non-salaried individual tax-payers. In the same period, their number went up from 1.95 crore to 2.33 crore (19 % increase) and the average income increased from Rs 4.11 lakh to Rs 5.23 lakh (27 % increase). Both in absolute and relative terms, the numbers regarding the non-salaried individual taxpayers is ridiculously low.

What is equally astounding is the number of crorepati individual taxpayers in the country – 81,344, up from 48,416 during the same three-year period (68 % increase). Though the increase is commendable, the number, in a country of 1.3 billion people, is abysmally low. The National Capital Region has probably more crorepatis.

Steps The Govt Can Take

While the Government does its bit to widen and deepen the tax net, what can be done to ameliorate the condition of the salaried class? Here are a few things that the government can do:

• Tax Exemption Limit – needs a hefty upward revision from the present Rs 2.5 lakh. Though the exemption has been raised periodically, the increase has been modest and sadly out of step with the market place.
  The limit needs to be set at a minimum of Rs 5 lakhs with corresponding increase for senior and very senior citizens. Additionally, standard deduction of 10% on salary up to a limit of Rs 2 lakh should be provided for.

• Medical Reimbursement – needs to be restored. It was pegged at Rs 1,250 per month which was too low. While employees in their 20s/30s may not need medicines to such an extent, with age and family come medical expenses way beyond this limit. A root canal by a decent dentist cost thrice that much. It should be at least Rs 5,000 a month.
  
• Transport Allowance – also needs to be restored. It was fixed at Rs 1,600 a month to commute to office and back, which is ridiculous.
  
  With towns and cities spreading outwards like molten lava, this amount cannot take you too far unless you are expected to take public transport. Forget taxi, even a three-wheeler is out of the question. The allowance needs to go up to Rs 5,000 per month.
  
• Education Allowance – is a joke. Rs 100 per child per month up to a maximum of two children! Either don't have this allowance at all or keep a realistic amount. At least Rs 1,000 a month.
  
• Hostel Expenditure Allowance – is an even bigger joke. Rs 300 a month per child up to a maximum of two children. Probably, somebody forgot to add a zero. Anyway, this figure deserves to be trashed. Minimum Rs 5,000 per month per child.
  
• Deduction of Bank Interest on Housing Loan – is allowed up to Rs. 2 lakh a year. So, if you take a loan to buy or construct a house to live in, you would need to take a loan of Rs 20 lakhs or below, for the interest (which comes to about Rs 2 lakhs at the current bank rates) to be tax exempt.
  While the real estate market is not as crazy as it was in the immediate past, property prices are still prohibitive. A twenty-lakh house exists only in the realm of dreams. To expect employees to shell out massive construction costs and deny them tax exemption on the entire interest liability is a double whammy. The deduction needs to be based on the actual interest paid, rather than be capped. This is the only equitable solution.

• Pension – is normally 50% of the last salary earned. Tax on pension is a highly regressive step. The expenses and standard of living do not come down by half one day after you retire. There are, in fact, additional expenses on family commitments and medical expenses.
  Facing a tax bill on a suddenly truncated remuneration is a big blow. If not this, at least eliminate tax on family pension given to widows. This is much less than the regular pension and the husband's death doesn't mean that expenses have come down to that extent.
  
• Deductions on Savings – is limited to Rs 1.5 lakh which is a very modest figure given the increasing salaries over the years, and the thrifty habits of Indians. Needs to go up to Rs 2.5 lakh. The more the savings in the country, the more the growth, so tax foregone by increasing the limit can be more than compensated by the positive impact on the economy and upswing in revenues.

If these changes are brought about, then the average salaried person’s lot can be improved.

But as long as the non-salaried class gets away with not paying their fair share of taxes, the tendency to treat the salary earners as easy and convenient milch cows will persist.

As my mother put it, the fish in the pond are the easiest to catch. But there is a finite number. The ocean is where the Government should be looking. To the credit of the Government, steps are already underway. But till the results show the progress, my mother’s and sister’s disappointment won’t go away.

(Ajay Mankotia is a former IRS officer presently working in a media company. This is a personal opinion and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)