Finance Minister Nirmala Sitharaman, while presenting the so-called "once-in-century budget" on February 1, left the honest taxpayers "high and dry" who were praised by Prime minister Narendra Modi for having helped finance the free food grain scheme and a significant humanitarian effort in dealing with the COVID-19 crisis. 


PM Modi had said if the government has been able to give free food grain to the needy, its credit goes to two classes of people - farmers and honest taxpayers.


Over three weeks after the Budget, the Finance Minister, when asked about the salaried taxpayers, acknowledged that few taxpayers are burdened with taxes, and many old burdens are yet to be removed to make it reasonable for the taxpayers.


Salaried Class - 'Most Abused Taxpayers'


The Union Budget 2021 had no income tax relief provisions to the ordinary person, especially the salaried class, the "most abused class" among the taxpayers, many of whom lost jobs or had to take drastic pay cuts during the COVID-19 pandemic. 


Commenting on the situation, Mohandas Pai, chairman of Aarin Capital, in a tweet after the Union Budget 2021, said: "India's most abused taxpayers. Very sad state of salaried, and yet they are treated shabbily by tax policy! Rich farmers are pampered with huge subsidies paid by honest salariat!"


Only 1% Bears Tax Burden 


To put things in perspective, out of the total population of 136.64 crores, only 5.61 crores or 4% file their Income Tax Returns, and only a mere 1.46 crore or 1% are liable to pay tax. In the past 20 years, there has been an increase of about 60% in the number of return filers but only a 20% increase in taxpayers.


The tax liability is computed on one's earnings and ability to show the income as non-taxable. The salaried class or the honest taxpayer is the most disadvantaged as 100% of the income tax is deducted even before the salary reaches their bank accounts. 


Gopal Kumar Kedia, Managing Partner, G. K. Kedia & Co told ABP Live, "no income tax reliefs to the common person, especially the salaried class, left the population at large, in discontent and melancholy. The only merit of the budget was that though it didn't bring any income tax reliefs to the common person, there weren't any escalations either. But, there is more to what meets the eye."


According to Gopal Kumar Kedia, a former accountant member of the Income Tax Appellate Tribunal, the irony of the situation is that a significant contribution towards this tax-paying community of 1% of the total population is the upper-middle-class having mainly salary income. 


The Milking Cow - Feeding The Holy Cows


"For long, the salaried class has been treated as a scapegoat for collecting income tax revenue by the government. While the common person pays high taxes, businesses enjoy exemptions and tax holidays, and the poor enjoy the facilities of health, transport, and what not, for free. Considering the above, it can be substantiated that salaried class is the Milk Cow who is feeding the Holy Cows, i.e., the Business Entities and the Poor," said Kedia. 


The honest taxpayers won't mind if the government uses their taxes to give free food grain to the needy during the COVID-19 crisis. 


The government offers various subsidies to the poor and farmers amounting to Rs 2.62 lakh crore, a part of which the honest taxpayers bear.


However, it will concern them if their hard-earned money is used to recapitalize banks that loaned cash to dishonest businessmen Vijay Mallya and Nirav Modi. 


India is one of the five largest economies in the world. Global tax collection is about 14.3% of the gross domestic product (GDP), and in India, it is about 12%. Almost half of India's GDP comes from informal sectors. Agriculture, which contributes 14% of India's GDP, remains tax-free. So, the government has to push honest taxpayers harder to meet budget obligations.


When it comes to tax regimes, Indians pay one of the highest taxes and get almost nothing in terms of social security than other nations (refer to the chart below).


India's tax ecosystem compared to major economies, including the US, UK & Japan



 


No Social Security For Honest Taxpayers 


From the above, it is evident that India is charging a high tax rate compared to other large economies worldwide. Some countries charge high-income tax rates as India and provide superior social security in public education, public healthcare, medical, insurance, and unemployment benefits.


The public's tax comes back to them in the form of free or low-cost facilities. There is equal treatment of all taxpayers and non-taxpayers in India, except farmers and government employees, who get extra benefits in multiple terms.


12 Crore Job Loss During COVID Without Any Unemployment Benefits


According to CMIE data, over 12 crore Indians lost jobs due to the COVID-19 pandemic, and the salaried workers, many of them honest taxpayers, will find it difficult to find their jobs back. 


"I think a part of income tax should be contributed to unemployment funds for taxpayers. The government can define eligibility criteria for it, like paying a minimum of Rs.1,00,000 yearly tax are eligible to get benefits and conditions to claim unemployment benefits. Like in the US, you are entitled to get unemployment claims only if the employer has terminated you from your job and are willing to join a company. But at least the people who are paying tax every year and now are unemployed with genuine reason should be taken care of by the government," Ravi Singhal, vice chairman, GCL Securities, told ABP News. 


The social security tax rate is almost 8-13% (in addition to income tax) across the world, including unemployment insurance benefits and supplements, old-age, disability and survivors' pensions, family allowances, reimbursements for medical and hospital expenses, or provision of the hospital or medical services.


Some part of social security tax is paid by the employer and the remaining by employees. Like in the US, the social security tax is 12.4%, out of which 6.2% is paid by the employee and 6.2% is paid by the employer, but it gives them huge mental relief.


"The government should allocate some funds to the social security of taxpayers. It will not only boost the confidence of taxpayers but also increase the number of taxpayers in India. If not all of the above benefits, at least we can start with unemployment insurance in India," Singhal added. 


Indirect Taxes


Besides paying one of the highest direct taxes on income, Indians also pay one of the highest indirect taxes globally when they spend whatever is left after paying direct taxes. Buy a vehicle, pay road tax, Buy a house, pay stamp duty and registration, invest money, pay taxes on the return of investments.


Now, even the interest earned on an employee's contribution above Rs 2.5 lakh in a year will become taxable.


India's Indirect Taxes* 


For example, Mr. X earns a salary of Rs 20 lakh in a private firm. He daily commutes to his office in the Fort area in Mumbai by his car from his residence in Navi Mumbai. 


Total Income - Rs 20,00,000


Tax (New regime) - Rs 3,51,000


Fuel Expenses - Rs 1,80,000


Other Expenses - Rs 14,69,000


Indirect Taxes (@18%) Rs 2,64,420


Taxes on Fuel (@60%) Rs 1,08,000


Total amount paid in tax: Rs 7,23,420 or 36%


*Calculation is based on an assumption and a fictitious situation. It is not to be taken for real tax calculations.