Income Tax Revolution 2015 (#ITR2015)

Reforms

These suggested reforms are based upon #ITR2015 guidelines and applicable to all Resident Individuals (Male, Female, Senior Citizen, Super Senior Citizen).

Let's start the reform by adopting fair and equal income tax rates that can motivate people to earn more money instead of worrying about how to cut increased tax burden that comes with increased income.

Traditionally, we have slab-wise income tax rates that increases with higher slab. Higher tax slab means higher tax burden. So, people try to keep their income in a lowest possible slab. To do so, they don't mind generating 'Black Money' as they see higher tax rates for earning more income is unjust.

The below suggested income tax rates are fair and equal to all. The effective tax rate of all slabs is almost same i.e. little more or less 15% of total net income.

Notes :-

• All tax rates should be for 5 (five) years.
• No need for the different income tax rates for Male, Female, Senior Citizen, Super Senior Citizen.
• No deduction or rebates should be allowed. All such deductions and rebates laws should be null and void.
• There shouldn't be any 'tax on tax' like 'Surcharge', 'Education cess', and 'Secondary and higher education cess'. If government need money for education etc then they should think hard to find better & fair way to get it.
• If there is no tax liability then there shouldn't be any necessity to file tax returns. Currently even if you have zero tax liability, you may need to file income tax return because of few unnecessary laws. All such laws should be abolished as it cost time & money to people and GOI both; and doesn't yield any gain.

Agriculture income is exempt under the Indian Income Tax Act. This should be change as it isn't fair to other tax paying citizens. If a person earning more than allowed 'Standard Deduction' as salaried or business income, is paying tax then why a person earning same level of income as agriculture income is allowed NOT to pay tax? This is unjust.

Treat agriculture income as taxable income and should be added to the non-agriculture income and the tax should be paid as per the income tax slabs.

Example 1 :-
If Mr. A has Rs. 4,75,000/- as agriculture income and no additional income from any other source then there is NO need to pay any income tax as per Slab-I.

So income tax liability of Mr. A is NIL.

Example 2 :-
If Mr. B has Rs. 7,50,000/- as agriculture income and he has no other income then he has to pay income tax as per Slab-II i.e. 25% of (total income minus Rs. 5,00,000). Here is the calculation:

Income Tax = 25% of (Rs. 7,50,000/- minus Rs. 5,00,000/-) = 25% of Rs. 2,50,000/- = Rs. 62,500/-

So income tax liability of Mr. B is Rs. 62,500/-

Example 3 :-
If Mr. C has Rs. 8,00,000/- as agriculture income and Rs. 6,00,000/- from other income sources (salary / business activity / any other source) then his tax should be calculated as follow:

Total Net Income = Rs. 8,00,000 + Rs. 6,00,000/- = Rs. 14,00,000/-

This will put Mr. A into the Slab-III i.e. 20% of (total income minus Rs. 5,00,000).

Income Tax = 20% of (Rs. 14,00,000/- minus Rs. 5,00,000/-) = 20% of Rs. 9,00,000/- = Rs. 1,80,000/-

So income tax liability of Mr. C is Rs. 1,80,000/-

Currently 'Capital Gains' are divided into 'Short Term Capital Gain' and 'Long Term Capital Gain' depending upon type of assets and time period of it's holding. Both type of gains attract different tax rates.

Currently, most of the time people have to pay either more tax or no (zero) tax on 'Capital Gains'. This should NOT happen. 'Capital Gains' should be treated as normal income and taxable as per income tax slab.

Formula to calculate 'Capital Gain':

A = (Sell price of the Asset) - (Expenses incurred while selling the Asset)

B = (Purchase price of the Asset) + (Expenses incurred while purchasing the Asset)

Capital Gain = A - B

Even if GOI, decides to keep 'Speical Tax Rates for Capital Gains' as it is, they should make long term capital gain on sell of shares taxable. Currently, if you sell shares after 1 year then the profit is tax free. This is against our 5th guideline, as it offers legal option to avoid paying tax. Also such laws helps to create bubble in share market, which is not good for investors and market itself; as such bubbles are meant to burst anytime in long run.

If there are any similar laws that offers legal options to avoid paying taxes then those laws needs to change.

HUF (Hindu Undivided Family) tax profile can be created by any Hindu family. It enjoys similar tax benefits like individuals and using HUF profile, a Hindu family can save more tax. It offers a legal trick to avoid taxes; so it should be abolish.

But HUF is very famous; so GOI may not want to abolish it. In that case, it should be transform into IUF (Indian Undivided Family). Because HUF can be created by Hindu family ONLY. Non-Hindu families can't create HUF. The minimum family requirement is husband, wife and one either boy or girl child. There are many non-Hindu families fulfilling this minimum family requirement but they can't create 'Undivided Family' tax profile similar to Hindus. This is against Constitution of India that offers equality and fairness to all people irrespective of their religion.

Hence GOI, should transform HUF (Hindu Undivided Family) into IUF (Indian Undivided Family), which can be created by any Indian family that fulfill following minimum requirements.

1. All members should be citizen of India.
   
2. There should be minimum 3 members.
   
3. The minimum age of IUF Karta should 21+ years.
   
4. At least one member should be either parent or grand parent of other member(s). Parent and grand parent in same IUF shouldn't be allowed. Hence possible combinations of 3 members IUF will be as follow :-
   1. Father, Mother, Child
   2. Father, Child, Child
   3. Mother, Child, Child
   4. Grand Father, Grand Mother, Grand Child
   5. Grand Father, Grand Child, Grand Child
   6. Grand Mother, Grand Child, Grand Child

Notes :-

• A woman should be allowed to act as Karta of IUF. It offers equal rights to woman. Also it's a need of current modern world where single mothers can also take benefits of IUF.
• By gifting any asset (money, real estate, or anything that comes under Asset category) in the name of the IUF, IUF can be created. Karta who want to create IUF or any other IUF member, may gift his/her own asset to create IUF.

Advance tax is a tax on future income that you may (or may not) earn! What does GOI expect from us? Do they want us to visit an astrologer to know our future income; so we can calculate and pay the correct advance tax? If you may wonder why we should calculate and pay the correct advance tax, then you need to know that if we paid less advance tax (in case of wrong estimate of our future income) then we have to pay interest on it. So it's better to visit an astrologer to know your future income.

So GOI should either abolish advance tax or allow an astrologer consultant fee to treat as legal expenses. [sarcastic]

Seriously, abolishing the advance tax will save not only time & money of taxpayers but also resources of GOI, that they can use for some other purpose.

If GOI thinks that it's a better idea to get some money in the middle of a financial year then they may ask people to pay half yearly tax... not advance tax, but tax on their actual income of past 6 months. In that case, taxpayers will be needed to pay income tax twice a year.

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