The dark irony of the opinions / discussions on the Finance Bill 2024-25 and Income Tax Act

This week after deliberations / discussions / arguments / accusations, Parliament passed the Finance Bill 2024-25 with some amendments and the Bill will now become the Income Tax Act for the year 2024-25.

It was real dark humour to watch and understand that Media / Analysts / Columnists / Parliamentarians spent the majority of time commenting on the changes in Income Tax undertaken in Capital Gains – Short Term and Long Term.  Particular focus was on Long Term Capital Gains applicable to Real Estate business (sale of property).

It felt as if the Finance Ministry had consciously tossed a red herring to shift attention and keep focusing only on Real Estate business impact.  It was made out as if the entire Indian Economy would collapse if the Long Term  Property Developers and Real Estate investors were not attended to.  They won the day and the Finance Ministry gave an option on sale of property to apply the old method of long term capital gains computation or the new method – select the method more beneficial.  I believe this method selection is restricted to property sales and not sale of financial investments like shares.  

No experts on Income Tax inside or outside Parliament felt it necessary to speak on the many failings and injustices of the Finance Act (which is an Annual ritual).  The main issues are:

1. Nobody questioned or commented on why a very large section of income earners are not captured under the Income Tax Act.  I am talking of exclusion of large farmers and land owner agriculturists who have significant income but pay no tax.  Contrast that with employees, pensioners, retirees who pay tax on their total income.  You have the case of agriculturists having high income and asset holdings – land, machinery, vehicles, real estate ownership in residences / bungalows etc.  One section of society pays income tax, the other section escapes income tax and goes scot free.  Not one squeak from anyone on this gross injustice.  It is clear that vested interests in Agriculture have always won the day and everybody is applauding a ‘progressive and investment oriented budget’.  Not one columnist, TV anchor or Parliamentarian spoke for taxing Agriculture Income.  Even the Leftists and Communists allow this and look away.
2. India has almost 60 crores of Income Tax PAN Cards linked with Aadhar cards.  However, the number of income tax returns filed for year ended March 31, 2024 is less than 8 crores.  Difficult to believe that approx 52 Crores individuals with PAN cards do not have taxable income.  Nobody asked any questions on how the income tax payers circle can be expanded.  
3. The reason why PAN Cards issued are so much more than income tax returns filers is because in the absence of PAN Card #, the TDS rates are higher on other income like interest earnings, etc.  However, no effort is made to track down the non income tax returns filers from TDS data.  Nobody questions why blatant dis-regard of income tax law is permitted.
4. No effort seems to be made to compute the loss of Income Tax earnings by Government due to the twin scissors blades impact of non taxable agriculture income and low income tax returns filing.  In my view the individual income tax collections should increase by at least 50% if Income Tax Act was made equitable and applicable to all regardless of source of income.  Do we really comprehend the extent of increase in budget allocation for defense, infrastructure, education, R&D, digitization that can happen?  Individuals vote and the fear of hurting vested interests is holding this essential activity back.
5. Perhaps the biggest irony this time was that of Finance Minister and Finance Ministry attempting to explain that the individual tax payer is taken care of and adequately compensated.  The Finance Minister   explained that the combination of changes would yield Rs 17000 to Rs 18000 annual benefit to tax payers.  

 In summation, there are 3 dark ironies of India Income Tax Act which everybody knows about but choose not to acknowledge the unfairness of:

1. A salaried individual with an annual income of Rs 20 lakhs will be paying income tax.  However, a big farmer with annual agriculture income of Rs 50 lakhs will not pay any income tax;
2. In the case of income tax returns filers, you have income tax repeated at every stage.  Your salary income gets taxed.  From post tax income you invest – the dividend and interest on the same is taxed again.  Have agriculture income, the primary source is not taxed.  Get away from paying income tax by not filing your income tax returns.  Your tax deducted at source say on dividend income, interest income will be much lower than the income tax actually payable by you on summation of your other sources of income;
3. Reducing corporate income tax rate % is fine and necessary for investment and employment but giving income tax benefit to the individual who is actually driving national growth is not a priority and cannot be done.  The individual is both consumer and investor but he is last in the line for getting attention;

An unjust Income Tax Act will never be accepted and will never realize  it’s real potential of increasing tax revenues.  At the current state of affairs, we will see individual tax revenues getting into a plateau phase.  No nation with an unfair income tax system should expect compliance.  Sadly, some are caught in the middle and are getting squeezed.  Both the finance bureaucracy and the politician representing us know that there is injustice to individuals.  They have chosen SILENCE.

END OF ARTICLE