The tax-paying public will be anxiously awaiting the Budget to be presented later this month. The government is facing the twin problems of inflation and black money. Inflation is at an all time high.

The government has never shown any inclination to index taxable incomes to inflation. It believes in doling out relief to tax payers by way of revising the exemption limit upwards.

The foremost expectation from this Budget concerns the exemption limit.

The middle class and the lower middle class are feeling the squeeze. Growth in their incomes does not match the growth in the inflation figures. The least that the government can do is to rejig the tax slabs and rates.

The DTC Bill 2010 had proposed a personal tax exemption limit of Rs 2 lakh. Currently, the exemption limit is Rs.1.6 lakh for individuals. Women and senior citizens have a slightly higher exemption limit.

The per capita income in India has now been estimated at Rs 45,000 per year. This is according to the consulting firm, BCG of Asia Pacific. Nothing will be lost by advancing the slabs and rates proposed in the DTC Bill by one year.

The Income-Tax Act is saddled with too many tax rates. Company tax rates range from 30 per cent to 50 per cent.

We have compartmentalisation of companies earning below and above Rs 1 crore. Domestic companies are charged 7.5 per cent surcharge on incomes above Rs 1 crore for assessment year 2011-12 and foreign companies 2.5 per cent.

The Minimum Alternate Tax also varies for companies with income above Rs 1 crore and below Rs 1 crore. The rate is 18.54 per cent including surcharge and cess for incomes below Rs 1 crore. It goes up to 19.9305 per cent and 19.0035 per cent for domestic and foreign companies respectively if the book profit exceeds Rs 1 crore.

For individuals, the education cess is at 2 per cent and higher education cess at 1 per cent. We have varying rates for capital gains, royalty or fees for technical services, lotteries and insurance business. An immediate suggestion can be to abolish the surcharge and the cess. Revenue loss can be made up by increasing the MAT to 20 per cent uniformly.

The Salaried Class

The salaried class is always worst affected by inflationary woes. Tax is deducted at source. Available figures show that TDS collection for 2009-10 stood at Rs 1,45,736 crore out of the total net budget collections of Rs 3,77,982 crore. The salaried class occupies a bulk of the individual tax payers whose taxes are deducted at source. It will be a good idea to exempt the salaried class from filing returns of income. TDS and pre-paid taxes will take care of all their tax obligations.

Tax filing can made mandatory for those with salary income and other income also. Optional filing of tax returns for the salaried class in the manner indicated above will avoid long queues at the time of fling the return and help reduce the work load of the tax administration

Refunds

Refunds have always been a sore point with the taxpaying public. During 2008-09, refunds totalled Rs 38,766 crore and in 2009-10, Rs 57,101 crore

Prompt settlement of refund claims will gain brownie points for the tax department.

Generally, most taxpayers are heisted to make refund claims because of fear of the tax department. This situation must change and refunds must be issued unasked. This will give a boost to the efforts for getting better voluntary compliance and cooperation from the small and middle class taxpayers who can shed fear of the tax officer.

(The author is a former Chief Commissioner of Income-Tax.)

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