EXEMPTIONS. A CONTRAPOINT


By ANADI VARMA

Executive Summary

Availing of substantial exemptions and deductions is a subject of hot debate under the income tax law.The article makes one simple contrapoint on the debate,hitherto not given due importance in the tax debates.

1.If we look at the 1922 Act which is the root source of the 1961 Act,we find that exemptions as provided in s 10 presently were almost completely absent in the 1922 Act.
1.1 There were only three whole sections dealing with the exemption provisions.To wit,
1922 Income Tax Act

SECTION 14: EXEMPTIONS OF A GENERAL NATURAL :

(1) The tax shall not be payable by an assessee in respect Exemptions of a ‘ of any sum which he receives as a member of a Hindu undivided family.

(2) The tax shall not be payable by an assessee in respect of”

(a) any sum which he receives by way of dividend as a shareholder in a
company where the profits or gains of the company have been assessed to income-tax; or

(b) such an amount of the profits or gains of any firm which have been assessed to income-tax as is proportionate to his share in the firm.

SECTION 15: EXEMPTION IN CASE OF LIFE INSURANCES :-

(1) The tax shall not be payable by an assessee in respect of any sums paid by him to effect an insurance life or on the life of his wife, or in respect of a contract for a deferred annuity on his own life or on the life of his wife, or as a contribution to any Provident Fund to which the Provident Funds Act, 1897, applies or to-any Provident Fund which complies with the provisions of the Provident Insurance Societies Act, 1912, or has been exempted from the provisions of that Act.

(2) Where the assessee is a Hindu undivided family, there shall be exempted under sub-section (1) any sums paid to effect an insurance on the life of any male member of the family or of the wife of any such member.

(3) The aggregate of any sums exempted under this section shall not, together with any sums exempted under the proviso to Sub-section (1) of section 7-, exceed one-sixth of the total income of the assessee.

SECTION 16: ESEMPTIONS AND EXCLUSIONS IN DETERMINING THE TOTAL INCOME

(1) In computing the total income of an assessee sums exempted under the proviso to sub-section (1) of section 7-, the provisos to section 8-, Sub- section (2) of section 14-andsection 15-, shall be included.
(2) For the purposes of sub-section (1), any sum mentioned in clause (a) of sub-section (8) of section 14-shall be increased by the amount of income-tax payable by the company in respect of the dividend received.
(SIC)
1.2 The sums referred in sections 7 & 8 (supra)were:

SECTION 07: SALARIES

(1) The tax shall be payable by an assessee under the head “Salaries” in respect of any salary or wages any annuity, pension or gratuity, and any fees, commissions, perquisites or profits received by him in lieu of, or in addition to, any salary or wages, which are paid by or on behalf of Government, a local authority, a company, or any other public body or association, or by or on behalf of any private employer:

Provided that the tax shall not be payable in respect of any sum deducted under the authority of Government from the salary of any individual for the purpose of securing to him a deferred annuity or of making provision for his wife or children, provided that the sum so deducted shall not exceed one-sixth of the salary………

SECTION 08: INTEREST OF SECURITIES

The tax shall be payable by an assessee under the head “Interest on securities” in respect of the interest receivable by him on any security of the ‘Government of India or of a Local Government, or on debentures or other securities for money issued by or on behalf of a local authority or a company :

Provided that no income-tax shall be payable on the interest receivable on any security of the Government of India issued or declared to be income-tax free:
Provided, further, that the income-tax payable on the interest receivable on any security of a Local Government issued inncome-tax free shall be payable by that Local Government.
(SIC)
S 14 and 15 have already been given above.

2.The present regimen of exemptions draws as much from economic reasons as from social and equity reasons and specific sectoral developments.As a matter of academic thought,often the socio-political reasons override economic compulsions.

2.1 Just one section is taken as a illustration-10(1)-AGRICULTURE INCOME. In 2012, 812,426 individual tax-payers disclosed agricultural income and average income per individual assessee was Rs 83 crore. (Do the multiplication, and the mind boggles.) In the assessment year 2015-16, 307 individuals reported agricultural income of more than Rs 1 crore a year.All exempted from income tax.In 2002, there was Report of Task Force (Vijay Kelkar) on direct taxes. This made the point that not taxing agricultural income violates horizontal and vertical equity and “encourages laundering of non-agricultural income as agricultural income i.e. it has become a conduit for tax evasion. Both the arguments are empirically verifiable.” This empirical validation was done on the basis of tax returns in Mumbai. This Report proposed, “A tax rental arrangement should be designed whereby states should pass a resolution under Article 252 of the Constitution authorizing the Central Government to impose income tax on agricultural income. The taxes collected by the Centre would however be assigned to the states. Most agricultural farmers would continue to remain out of the tax net.” At that time, estimates were that 95% of farmers would be below the threshold.Nothing came of it.

3.If we were to understand exemptions as voluntary loss of generateable revenue to push economy in a certain direction,and to encourage certain specific lines of commerce,manufacture and trade,we would be probably better placed to understand the non economic reasons behind a economic decision.

About the Author: THE AUTHOR BELONGS TO THE 1989 BATCH OF INDIAN REVENUE SERVICE. TOOK VRS AFTER ALMOST 32 YEARS OF SERVICE FROM THE POST OF Pr.COMMISSIONER INCOME TAX.FUNCTIONED AS DR IN ITAT OF LUCKNOW,JABALPUR ,INDORE AND MUMBAI FOR ALMOST A DECADE REPRESENTING REVENUE IN 10,000 PLUS APPEALS WITH A FAIR DEGREE OF SUCCESS. HOLDS TWO MASTERS DEGREES INCLUDING AN MBA (SPECIALIZATION :HRD)FROM DELHI AND A MID CAREER MANAGEMENT COURSE FROM IIM AHMEDABAD. LOCATED PRESENTLY AT MUMBAI AND IN FREELANCE PRACTICE OF I.T. LITIGATION AS WELL AS COMPLIANCE,ADVISORY AND DRAFTING.OPEN TO COLLABORATION ON SPECIFIC ASSIGNMENTS.PRO BONO REPRESENTATION FOR THE ECONOMICALLY CHALLENGED AND PRO BONO GUIDANCE FOR NEW ENTRANTS IN I.T. LITIGATION SETTING UP INDEPENDENT PRACTICE. av7627@gmail.com 9425650302

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Posted on: July 12th, 2022


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2 comments on “EXEMPTIONS. A CONTRAPOINT
  1. vswami says:

    REaction: This instantly brings to memory an interesting but moot point that has been raised in regard to the so called ‘standard deduction’ admissible to senior citizens u/s 80 TTB ; particularly in the wake of the controversy on the option given to tax payer , after the new idea of new tax regime (prescribing lower multiple slab rates) brought on the statute , in addition to the erstwhile old regime. For a view canvassed for, not without merits, suggesting an insightful study, if so inspired, look up the posts on FB and Likedin !

    courtesy

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