Tax on gross income or net income?
Under the Income Tax Act 1961, income tax is levied on net income, not gross income. Salaried persons were allowed to deduct expenses incidental to their employment i.e. means of transport, books and periodicals, newspapers etc. from their gross salary since the Indian Income Tax Act 1922 u / sec 7 (2). Then the limit for such expenses was Rs 500 and the same was enacted verbatim in the Income Tax Act 1961 u/s 16(i). With inflation, the u/s 16(i) deduction limit has increased from time to time.
During the Lok Sabha debate on the 1974 budget, the then Minister of Finance, YV Chavan, made it a “standard deduction” due to the inevitability of such incidental expenses and it was decided that documentary evidence for these expenses would no longer be necessary to claim the benefit of the “standard deduction”. deduction”.
Until assessment year 2005, the limit on such expenses was regularly raised to Rs 30,000 or 40% of gross salary, whichever is lower. In the budget for the tax year 2006-07, the Minister of Finance P Chidambaram rejected the standard deduction for employees on the grounds of increasing the exemption ceiling to Rs 1,00,000 as well as widening the brackets income tax. The same budget could not be debated due to the BJP boycott, and the workers became the victims of politics.
In fact, the former Chief Justice of India, Justice PN Bhagawati, rightly mentioned in his book on income tax that exemption and deduction are distinguished; thus, simply by increasing the exemption ceiling, the right to deduction cannot be eliminated.
Due to rising oil prices, a significant portion of the salary is spent on transportation. The transport allowance of Rs 800 which is exempt from tax hardly takes this into account. Expenses on books, periodicals, newspapers must also be deducted when taxing the income of employees, as is allowed when levying tax on other persons assessed under other heads of income , namely real estate, commercial profession, capital gains, other sources of income. This layout is also available in other countries i.e. USA, France, England, Switzerland etc.
On November 6, 2006, a member of the Central Board of Direct Taxes also accepted the anomaly and proposed the re-induction of the standard deduction from 2007. This was reported in several major newspapers.
Due to the ignorance of the masses and politicians, and the totally unjustifiable process of adopting the budget without any discussion in Parliament, after a closed budget process even in this era of transparency, wage earners are condemned to pay taxes on gross receipts while other taxpayers pay their tax after having deducted from their gross income several ancillary costs as of right.
It is the height of injustice that more than 2.7 million wage earners pay tax on their gross income while others, whose income comes from sources other than salary, pay tax on their net income.
(The author teaches at Govt Post Graduate College, Noida)