SUMMARY OF CONCLUSIONS

AND
SUGGESTIONS
 CHAPTER - VI

SUMMARY OF CONCLUSIONS
AND SUGGESTIONS

India has a fairly lengthy and complicated Law of Income-tax. This law is highly

unstable . It has no long term policy and it is completely based on trial and error method It

contains a number ofuseless provisions, which have no use and exist merely to complicate the tax

law. Some provision are found irrational, illogical, unjust and somewhat inconsistent with the

underlying objectives. For making it simple, logical, rational, consistent and stable, the govejMdent

of India rejfe|£ed it to various tax experts, i.e, to various Tax Reforms Committees such as Boothlin-

gam Committee, Wanchoo Committee, Jha Committee, K.N. Raj Committee, C C Chokshi

Committee and Raja J. Cheliiah Committee. These committees made a number of recommodations

in the required direction and the goverment never implemented reports of these doyens of taxation,

as such. On account of this, the very purpose of tax reforms was defeated.

But the academicians, being critical by nature, can not remain silent spectorstors to

all this. The present work has been taken-up and completed by the researcher largely because of

this reason Infact, the present study entitled “DIRECT TAX REFORMS IN INDIA - A STUDY
OF INCOME TAX LAW since 1961” is one more step in the series of various steps already

taken in this particular field. A summary of conclusions of this study and suggestions have been

presented in this chapter.

Taxation has been used as a powerful instrument of fiscal policy in India. Taxation

alone constitutes more than one half of the total budget resources. The base of taxation in India, is

much less than that in developed countries but it is fairy high in comparison to the countries with

almost same per-capita income. The revenue from major direct taxes of the union goverment as a

proportion of NAGDP shows a decreasing (rend. There has been substantial growth in tax revenue

since 1961. At constant prices, the total central revenue has increased by 13.14 times from 1950-

51. The indirect tax revenue increased by 5.92 times. The increase in income tax revenue is about

5 times in this period of44 years.

The major portion of total tax revenue comes through indirect taxes In spite of the

fact that the direct taxes have relatively lesser reliance ofthe fiscal system, yet the contribution of

Income Tax in resource mobilisation has been quite significant. The per centage contribution of

Income-tax in central tax revenue is about 27 per cent where as the share of personal income-tax

and corporation income-tax is 12.5 per cent and 14.3 per cent respectively. The coporation

income tax has been showing increasing trend while the share of personal income-tax has declined

from 18.9 per cent in 1960-61 to 12.5 per cent in 1994-95.

The composition of income tax revenue shows that company assessces constitute

only 1.62 per cent of total assessees and contribute roughly more than fitly per cent of total income

tax revenue. Individuals assessees are 77.2 per cent in number and they contributed about 40 per

cent oftotal income revenue in the year 1994-05. About three-fourths oftotal income-tax revenue

14C,
comes from Business and profession Head of Income and the salarised person contributed about

10 per cent of the income-tax revenue. Roughly 70 per cent assessees are in the income range of

below 60,000 who contribute about 11 per cent of the total income tax revenue. There is only a

handful ofassessees who are income range of above Rs. 1,20,000 and their contribution in income

tax revenue is roughly 70 per cent.

The tax reform movement began primarily due to the perception of the assessees that

high rates and proliferation of special deductions, exemptions, which had accumulated over time,

had begun to interfere too strongly in the economic decisions taken by individuals and corporations.

The significance of direct taxes can be easily realised because of their vital role in the economic

growth and development of a nation. When economic reforntfare being carried-out, tax reforms

cannot be exception to this major activity. Hence, the present state of our Income Tax Law required

some more reforms so that it could become simple, logocal, consistent, rational and somewhat

global also.

Personal income-tax is an important item the list of direct taxes. A progressive tax

structure of personal income is expected on one hand to mobalise resources for the very purpose

of economic growth and on the other hand to attain greater degree of equality in the distribution of

income. Moreover, in the present environment of internationalisation, the tax rates should be in line

with that ofother countries so as to achieve the targets of exports and to attract foreign investment.

The analysis of MMTR (Maximum Marginal Tax Rate) shows that we have come

down from an extremely high rates enviroment to a moderate tax rates. The technique which has

been adapted in this connection is suitable. However, MMTR still is reasonably high and the

process of reducing MMTR is an incomplete one, which warrents its completion. Not only this.
there is a strong case for raising the level of income where the MMTR should be applicable. This

was elobrated in chapter three.

The overall analysis of the rate structure reveals that rates on the low level of income

have been inceased in the recent years. On the middle income group, there is an increase but not

high enough. For the high income group, the rates have been reduced, substantially Therefore, it

become a strong case that more benefits should be given to low income assessees so that the

problem of inequalities in income may be given proper treatment.

From the analysis of average income tax rates and effective income tax rates, it can

be again concluded that the relief in the tax burden to high income groups has been given at the cost

of lower income group.

Now a days, when trade and commerce have become widely internationalised, the

tax structure ofdiffrent countries do alfect mutually. So, in order to globalise the tax structure, the

tax rates should in line with that of in other countries. India has already taken various steps in this

direction but some more steps are yet to be taken to complete the process of globalisilion of

personal tax structure in india.(sccappcndix-D)

No doubt, the present rate structure, in respect of personal income tax, is much

better than the previous one. Yet it is not free from defects. How last these defects can be removed,

we have suggested a rate schedule (see table 3.8). Moreover, the rate structure should be stable

and may be reviewed after five years. Such changes should be done by adopting a proper method

and after reasonable public debates and transparency.

The provisions, which have bearing on the subject of computation of income under

the salaries head require serious consideration. These provisions are scattered in different sections
in the present Act and thus these are beyond the understanding of the taxpayers and sometimes

beyond the understanding of assessing officers also. So, it is suggested that all provisionjrelating to

income from salaries should be grouped together under a seprate chapter.Then perhaps, this head

of income will be made easily understandable to the salaried taxpayers.

To remove the discrimination between government and private employees, it is essent ial

to modify the relevent provisions on one hand and uniform salary structure should be designed for

all categories of employee on the other hand. Some restrictions may be put on empolyers in private

sector so that the gross misuse oftax provisions is avoided and which in tum may contribute crore

of rupees as income tax revenue. In the series of checking the gross misuse ofincome tax provisions •

by the private sector, a minimum rate of income tax may be imposed, on the same pattern as it has

already been introduced in case of corporate assessees, on the gross emoluments received by

private sector’s employees.

To avoid unnecessary litigation and to make the law understandable at least to the

educated persons and to remove interpretational problems, it is suggested that one concept should

have only one meaning for all purposes. It would be extremely helpful in making the law more

simple and rational one.

Even after going through the latest income tax rules, available literature on income tax

law, Income-tax Act, 1961 and the studies made so far in this field, we are unable to accept the

rationale behind taxing the allowances particularly dearness allowance when they are provided for-

meeting certain very specific purposes. This shows the unfair intention of the government based on

the principle of “dig deeper” wherever you find it softer. The taxability of allowances, perhaps,

compells private sector not to follow the similar salary structure as adopted in government sector
On account ofthis, the government may be losing a large amount of tax revenue because in such

circumtances the private sector employee will prefer the salary structure which attracts minimum

tax liability. So, it causes unnecessary heavy tax burden on government and semi- govt, employees

which is illogical and unjustified. Therefore, allowance in general and dearness allowance in particular

should be fully exempted from income tax so that salaried employees may get some relief and may

enjoy their living according to their economic status. Alternatively, an automatic inflation adjustment

scheme should be introduced if the practicability of the former suggestion does not seem possible.

The value of certain perquisites in terms of money was fixed in 1969 and since then

their has been no revision in the limits laid down for thier valuation. These provisions have become

outdated due to lack of inflationary adjustments, hence, the value of those pequisites should be

revised so that they may serve the very purpose of Income-tax law’s provisions.

The present system of allowing the standard deduction places the salaried persons in

a disadvantageous position in comparison to the businessmen or professionals with the same

expenditure on conveyance. The rising prices hits the salaried persons first and much more. As the

standard deduction is given in lieu of expenditure incurred for earning the salary, so standard

deduction should be treated as a right of the salaried persons and they should not be put on the

mercy of the Finance Minister for claiming this deduction. The method of providing the standard

deduction is arbitrary, discriminatory and inconsistent with the underlying objectives for which the

provision was introduced. The monetary ceiling on standard deduction should be lifted and made

equivalent to one-third of salary. It will not only be justifiable but will also be providing great relief

to the most honest section of the taxpayers according to their economic status.

During the course of the present study the researcher intemewed a large number of
respondants and collected certain concrete information. On the basis of these information the

following conclusions have been drawn:

a) Tax-payers are not maintaining their books of accounts properly.

b) Chartered Accountants are putting the code of their conduct at stake and certifying

the books of accounts only against high fees.

c) Tax-Administration is using the anti-evasion provisions for meeting their own ends

and not for raising tax revenue.

d) Govt, has not framed the stable and reasonable long term tax policy. Rather it is

playing in the hands of rich people at the cost of the poor.

e) Beaurocracy does not implement the policies properly and enjoys unlimited

discritionary powers.

f) Press is not free and fair and has not been playing its expected role which is quite

essential in a democratic set up particularly in this era of reforms.

From these findings it can be easily concluded that the morality has lost its meaning

and significance to all those connected with taxation.

‘Tax payers are dishonest in India”--------- this is very easy to state, but what basic

reasons are behind it is very difficult to answer. The researcher has developed a model in while he

described the most expected duties of Taxpayers, Chartered Accountants, Tax Admininstration,

Government, Bealirocracy and Press.

(Model has been picturised on next page)

(Tax Reforms Model for Moral Upgradation)

i >^
 Unfortunately, none is performing its duties with absolute dedication and honesty.

And it is simply because of this reason, that black money and tax evasion have become very

common phenomenon in our economy. Therefore, the need of the hour is moral upgradation.

honest coordination, spritual enthusiasm, revolutionary mental change in these categories ol people,

so that there is free and fair implementation of policies and accelrated growth ofthe nation.

It is no secret that a larger part of national income remains outside the income-tax net.

This results into tax evasion and proliferation ofblack money also, which has been rising year afler

year. The provisions dealing with Business and Profession head of income are mainly responsible

for this. So, the government should abolish the present system of taxing the persons falling in this

category particularly the unorganised business sector, and take pains even at the cost of their chair,

if situation so warrants for restructuring the provisions of income-tax laws in respect ofthis income.

Not only this, the proper implementation of existing and restructured provisions should also be

ensured by the government of India so that such provisions may provide justice to the honest

taxpayers.

There is a strong case for raising the exemption limit to Rs, 60,000. Statistics show

that there would not be any adverse effect on tax base, revenue loss etc. (see table 3.12 and 3.14)

The increase in the exemption limit will not merely be a measure for granting relief to taxpayers but

also securing some relief to the income-tax administration and due to increase in exemption limit

may be compensated if evasion of tax is checked properly. Moreover, unless, honesty is duly

rewarded, tax evasion cannot be checked in this country, in the present circumtances

The withdrawl or modification of the existing provisionswhich are complex illogical.

unjust and outdated would be an important step towards the simplification and rationalisation ol

personal income-tax. This should be done with immediate affect. If decision is delayed on such

issues, the very purpose of rationalisation of personal Income-tax law will be defeated in India.

Reduction of corporation tax rates has been the most dramatic manifestation of the

wave of tax reform that swept world during the recent past. It is felt that the system is bet ter il low

rates are levied on a broad base than high rates on a narrow base. In the survey of tax reforms in

various countries, it has been found that there is not even a single country in the world where

corporation income tax rates have been raised. India also could not afford to be aloof and it also

introduced reforms in corporate tax structure to cope-up with the voice of International community.

So, it would be more justifiable to make those reforms in the field of corporate tax which have

international implications so that and it is in consonance with new insights and improvements in the

design of tax laws which have been generated during the recent past in various countrires.

The comparison of corporate tax reforms in India with that of the World wide trend

shows that India is moving towards globalisation but the process seems to be incomplete one. for

completing the process, the government should first harmonise its business laws which have serious

implications over corporate tax law. For this purpose the government should appoint a "fiscal

Commission’ which may recommend the most desired ways ofharmonisation of various Indian

laws. So the confrontations between income-tax law and other laws can be avoided only when t he

implementation of the expected recommendations of the commission will be ensured by the

government of India. Corporate assessees would certainly get the reasonable relief from any such

initiative to be taken from the governemnt side.

Surchage, being a charge over efficiency, is quite unjust, illogical and inconsistent and
it should be withdrawn, immediately. When there is a World Race for bringing reforms in corporate

tax, India should not only participate in the rate but it should try to win the race by introducing such

corporate tax reforms which will really lead her economy towards globalisation. It would be

possible only when our corporate tax law is more conducive and responsive to the needs ol the

present hour

The performance of income-tax department in discharging its duties is not satislactory

It is poor not only in quantitative terms, but also the quality of work. A huge number of assessments

is pending with income-tax department and waiting for disposal. The system of‘with-holding the

tax at source’, has been widely used for collection. The advance payment of tax is also very

effective. It has been found that the provisions of TDS and advance payment of tax have been

adhered to a large extent but the fault lies in the system of collection of tax through summary

assessment and regular assessment i.e. with the income tax administration. The performance of

Income-tax Administration also is not satisfactory as the pendency of appeals is increasing year

after year. The anti-evasion provisions in income tax law have not been used efficiently by the tax

administration. The search and surveys have become just a mode of bribe collection by the tax

officers. The corruption in the income-tax department has made the anti-evasion provisions

ineffective.

The wrong recruitment policies for tax officers, corruption prevailing in the department,

lack of cooperation from taxpayers and general public, lack of coordination between tax officer

are the few major causes for the poor performance of tax administration.

Raja J. Chelliah Committee has considered the aspect of Income-tax Administration

Reforms very seriously but it is regrettable that the government has not done enough so far to
tackle this problem.

There must be a complete change in recruitment system and all possible dibits should

be made to check corruption prevailing in the tax administration. For meeting this purpose a model

has been suggested by the researcher where due emphasis has been given on moral upgradation

Since all sections ofthe society are found responsible in varying degresffor corruption, therefore,

only the collective efforts made by all sections can ensure a fair tax system in the country Needless

to say as soon as a fair tax system, it will automatically have a very honest tax administration.

MAJOR RECOMMENDATION! A GLANCE

Government should have grearter reliance on Direct Taxes and the reliance on Indirect

Taxes should be minimised, gradually.

Tax rates should be in line with that of other countries so that the targets of export and

foreign investment may be timely achieved.

Relief in the tax burden to the high- income groups should not be given at the cost of

lower-income groups.

Tax Rates, as has been suggested in table 3.8, should be accepted without any further

delay and the stability in tax rates structure should also be ensured.

While making any amendment to tax law, due importance should be given to public

debates and discussions.

All provisions ralated to salaries head of income should be grouped together under a
separate chapter so that it may become easily understandable to the salaried taxpayers

Discrimination between government and private employees should be removed and a

uniform salary stmeture should be applicable to all employees. If private sector s employees are

making gross misuse of the present provisions, why not they be charged a minimum income tax

rate on their gross emolument received.

One concept should have only one meaning for all purposes so that interpretational

problems could be avoided.

All allowances in general and dearness allowance in particular either should not be

taxable or an automatic inflation adjustment system should be introduced in Indian tax system

Perquisites valuation methods should be suitably revised in the light of inflationary

conditions.

Standard deduction should be equivalent to one-third of salary without any upper

limit so that the honest tax payers may enjoy the life according to their economic status

The model for tax Reforms, which is more relevant to un - organised tax payers,

should be seriously considered and due consideration should be given to moral up-gradation.

Exemption limit should be raised to Rs. 60,000.

MAT system should be further strengthened for collecting higher income tax revenue

from corporate assessees.

Corporate-tax rate should be further reduced and global trend should be followed

for this purpose.

Surcharge being charge on efficiency on corporate assessees should be compeletly

withdrawn without any further delay.

 There should be harmonisation between corporate tax-law and other relevant laws.

For that sake a ‘FISCAL COMMISSION’ should be appointed which could recommend the

ways of harmonising the Income-tax law with that of other laws. Corporate assessees would

certainly be benefited and confrontations among different laws would also be minimised by

harmonising all relevant laws.

Global trend should be strictly followed in respect of the provision ol double taxation

to corporate assessees in India.

Recruitment policy ofpersonnel of revenue department should be suitably reviewed

by the government in the light ofthe present requirements. Specialised persons should be considered

for direct appointment to the high offices.

Proper training and development programmes should be given more importance so

that tax administration may be more responsible.

Tax officers should be held accountable for achieving a particular revenue collection

target.

Government should always protect first the national interest and ‘VOTE-BANK’

should not be the basis oftax reforms.

Corruption prevailing in tax-department should be completely checked and dishonest

officers/personnels should be strictly punished while honest should be duly rewarded by the

appropriate authorities.

At the end the researcher strongly believes that suggestions made above if

implementing may add a new chapter in the present literature of Income Tax Reforms in this

country.

156