This post is going to be politically incorrect and many will view it as a harsh indictment on most people. However, it will also be the complete truth and as usual, I do not care much about public opinion when I am writing these posts. Now that you have been given an early warning and have had a chance to stop reading, let me get on with it.
As all of us know there are only about 4.5 crore people in the country today who file their tax returns. This too is after a great deal of efforts by all relevant authorities, the figure used to be less than 2.5 crores only about 5 years back. Now out of this 4.5 crores there are many who pay no taxes, so the number of tax payers is only about 2.5 crores. Among these also, the number of people paying taxes less than 10000 Rs is significant. Now, it does not take a genius to figure out that there must be tax evasion on a massive scale here. Also, even the people who are paying taxes are probably not fully compliant.
Why do people, who are perfectly well educated and understand the importance of taxes do not take the right attitude of paying taxes. Well, the harsh truth is they want to keep the money themselves due to their wanton greed and crooked nature. However, since they cannot take that stance publicly, due to their own image and the inordinate fear of tax authorities, they will come up with several excuses that sound reasonably clever but are completely flawed in reality. Let us look at some of these :-
- Our tax rates are too high, cannot afford to pay so much. Yes, this used to be true decades back but the current rates are quite reasonable.
- Tax laws are too complex, do not want to get into it. Truth is that arriving at your taxable income and taxes is fairly simple and you have a slew of professionals who can help you with it.
- Taxes paid by me will not be used properly. This may or may not be true, but it cannot be a justification for not paying taxes.
- Chances of getting caught are not high. People giving this logic are of course admitting that they want to stay crooked as they probably will escape.
- Even after paying taxes I will be harassed by the tax authorities. Truth is only 1 % returns get taken up for scrutiny and that too if there are some red flags in them.
So who are the people who practice tax evasion on a massive scale? Almost all sections of society and some of the notable ones are as follows:-
- Professionals like Doctors, Lawyers, Consultants, Architects who insist on getting paid by cash, maintain 2 sets of books and seriously under-report their income while seemingly being tax compliant citizens.
- Small businesses which deal almost entirely in cash, have very little records and almost pay minimal taxes or no taxes.
- Individual vendors like a Chaat wala or a Fish seller who are of course not in the tax ambit at all. Now, I have my full sympathy for their plight in life, which is tough to say the least, but as far as taxable income goes they need to file returns if their income crosses the threshold of 2.5 lacs in a year.
- Small companies and big corporate who have stretched the tax laws to the limit, often quite creatively, to ensure their employees can avoid taxes as much as they can.
- Individuals who rarely report the right income in terms of House property and other financial assets.
What about the people who do pay taxes more or less correctly? Well, firstly their numbers are really pretty limited, most of them are salaried people who can limit the TDS but cannot really avoid it. However, even here there are serious mistakes or malpractices that are common. Let me state a few of them :-
- Many people getting rent from a house owned by them so not declare it properly. Some under-report it, some believe that for one house the rent does not need to be declared, some show the house as self occupied etc. The rule is very clear, any income you earn must first be reported, exemptions can be looked at later.
- This is more tricky, but the law is that if you have 2 houses you need to declare some deemed rent for the second house and add it to your income. It does seem frightfully silly but if it is the law then it has to be followed.
- Most people do not declare income from their Debt instruments such as POMIS etc where there is no TDS provision. The logic again is that it will be difficult for the tax authorities to find out !!
- For FD where there is TDS, very few people declare the total interest income and pay the taxes beyond the statutory deduction of 10 %.
- As far as LTC and Medical bills go the malpractices are quite legendary and most readers will be familiar with them.
- Capital gains earned are often not reported at all or reported wrongly.
- Savings bank interest are now exempt till 10000 Rs but all such interest earning must be declared and applicable taxes paid on the amount exceeding 10000 Rs.
Are you seeing anything here that you can identify with? If so, I would seriously suggest that you correct this when you are filing your returns next year. Do not listen to people telling you as to how you can avoid taxes, they are crooks of the first order. You should pay taxes properly because it is the right thing to do, not because you can get caught. In any case, with the IT enabling of records, it will become increasingly difficult not to be tax compliant, so you might as well make a virtue out of a necessity.
Not paying taxes due is a sure shot indicator of being a bad citizen. You can pay your dues and then question the government as to how it is using the taxes. They are accountable to you, just as you are accountable to the tax authorities.