Gross income tax or net income?
According to the Income Tax Act 1961, income tax is levied on net income and not on gross income. Employees were allowed to deduct expenses incidental to their employment, i.e. transport, books and periodicals, newspapers, etc., from their gross wages since the Indian Income Tax Act of 1922 u / s 7 (2). Then the limit for these expenses was Rs 500 and the same was adopted 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 Lok Sabha’s debate on the 1974 budget, then Finance Minister YV Chavan made a “standard deduction” on the grounds of the inevitability of such incidental expenses and it was decided that documentary evidence of these expenses would no longer be necessary to claim the benefit of the “standard deduction” deduction “.
Until the 2005 tax year, the limit for such expenses was steadily increased to Rs 30,000 or 40% of gross salary, whichever is less. In the budget for the 2006-07 tax year, the Minister of Finance P Chidambaram refused the standard deduction for employees on the grounds of the increase in the exemption limit to Rs 1,000,000 as well as the broadening of income tax brackets. The same budget could not be debated due to the boycott of the BJP, 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, by simply increasing the ceiling of the tax exemption, the right to deduct cannot be removed.
Due to the rise in oil prices, a substantial part of the salary is spent on transportation. The transport allowance of Rs 800 which is tax exempt does not take this into account. The costs of books, periodicals, newspapers must also be deducted when taxing the income of employees, as is permitted when collecting tax on other persons assessed under other heads of income, namely home ownership, trading profession, capital gains, other sources of income. This provision is also available in other countries namely United States, France, England, Switzerland, etc.
On November 6, 2006, a member of the Central Direct Taxation Council also accepted the anomaly and proposed the reintroduction of the standard deduction from 2007. This was reported in several major newspapers.
Due to the ignorance of the masses and politicians, and the utterly unjustifiable process of passing the budget without any discussion in parliament, after a closed budget process even in this era of transparency, employees are doomed to pay taxes on gross receipts while other contributors pay their tax after deducting their gross income from several ancillary costs as of right.
It is the height of injustice that more than 2.7 crore of employees pay taxes on their gross income while others, whose income comes from sources other than wages, pay taxes on their net income.
(The author teaches at Govt Post Graduate College, Noida)