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DIRECT TAX

CIA 1: CONTEMPORARY ISSUES IN INDIAN DIRECT TAX SYSTEM SOLUTIONS

Direct taxes are the taxes directly incurred and paid by the person concerned. It is levied
on the income / wealth of the assesses. There is no shifting of tax burden. Hence its directly
borne by the taxpayers. Direct taxes are collected after the income for year is earned. Example
is income tax.

While calculating income tax 5 heads of incomes are considered, they are:

1. Income from salaries


2. Income from house property
3. Income from profits or gains from nosiness or profession
4. Income from capital gains
5. Income from other source

Issues in Indian direct tax system:

1. In India, the rate of direct tax is very high but the contribution to the total tax revenue
is very low.

2. the rate of income tax in India is one of the highest in the world even today

3. Although the rate of income tax is the highest in India, the contribution from such is
very low.

4. high exemption limit in a country where per capita income is very low
5. due to double taxation of dividend, the rate of domestic saving and capital formation
has failed to increase appreciably.
6. It is often alleged that one of the causes of industrial stagnation in India has been the
high rate of taxation and slow growth of corporate capital
7. there is no tax on agricultural income. Agriculture is the dominant sector of the Indian
economy.
8. In India, importance of indirect taxes has increased over the years which implies that
the importance of direct taxes has diminished

 Can agricultural income be taxed in India?

1. Agricultural income is tax free in India. This benefit is reportedly being misused by
wealthy farmers with large incomes to evade taxes.
2. It’s time to talk about the taxation of rich farmers, those who own more than 4 hectares
of land. They form just 4% of the total agricultural households but hold over 20% of
agricultural income.
3. The latest National Sample Survey 70th round revealed that 70% of agricultural
households in India have marginal holdings (under 1 hectare), and only 0.4% hold over
10 hectares. Even the proportion of agricultural households holding 4-10 hectares of land
is just 3.7%. Just by taxing the incomes of the top 4.1% of agricultural households, at an
average of 30%, as much as Rs 25,000 crore could be collected as agricultural tax.
It’s true that agriculture is the main source of income for the majority of the rural Indian
population. It is also equally true that while the small-scale farmers have been barely
impacted by the tax exemptions under the Indian Income Tax Act, wealthy farmers have
reaped the benefits by abusing them.
4. The prudent path to take would be to amend the definition of ‘agricultural income’ under
the tax laws, and impose an appropriate monetary threshold after careful deliberation and
study. Income that is not covered by this revised definition can then be subject to income
tax. This would ensure that only the high-income farmers come under the purview of
taxation, and the interest of small scale and mid-scale farmers is protected. Another
alternative is for the parliament to formulate a model law for.
5. The intent to broaden the base, check tax avoidance and to tax the ‘rich farmers’ while
sparing the poor is well accepted. However, we need to consider if it makes economic
sense to tax agricultural income at the current juncture. Given that the sector is still
largely informal and driven by cash-based transactions with no account keeping
framework in place, implementing an agriculture tax can turn out to be a major
challenge.
6. At a time when the Economic Survey 2016 computes the average income of a farming
family in 17 Indian states at Rs 20,000 a year, on average 2,500 farmers commit suicide
every year, all reeling under a growing debt burden, any talk of imposing tax on farm
incomes is nothing short of a financial crime. The biggest challenge today is raising the
meagre income of farmers, and the Prime Minister himself has promised to double the
same by 2022.
7. Taken together, the National Sample Survey Organisation computes the average income
from agriculture to be around Rs 3,000 a month. Can this be considered a taxable
income?

 SOLUTIONS:
1. far as the taxpayer is concerned, the filing of tax returns and the payment of taxes should be
a simple, uniform process, irrespective of location and the size of the taxpayer's business
2. The transparency conferred by the use of technology will help to plug leaks, eliminate tax
fraud and enable easy auditing. Data from this system can be mined and analysed to
improve tax collection.
3. Small taxpayers cannot be expected to immediately adopt an entirely electronic tax
payment and processing system and there should be extensive education and training to
make the process as smooth as possible.
4. Corporate taxpayers tend to operate across the country and have to grapple with different
tax regimes in different states. They usually have sophisticated in-house software systems
to handle the complexity of tax processing and payment.
5. These systems must be made compatible with the GSTN by issuing a uniform set of
standards to corporate tax software providers. These standards should also be implemented
across all states, making it easier for state authorities to collect tax and implement policies.
6. Tax collection, after all, is about actually collecting money, and hence the Reserve Bank of
India and other banks should be able to freely work with the GSTN to get taxpayer
information and process payments.

By Smitha S (1917058)

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