TO REMOVE EXCESSIVE TAX BURDEN ON SELF- EMPLOYED AND SALARIED PEOPLE -TAX RATE OF FIRMS AND MARGINAL TAX RATES FOR INDIVIDUALS AND HUF SHOULD ALSO BE REDUCED IN TUNE WITH LOWEST RATE FOR COMPANIES.

[DEV KUMAR KOTHARI]

Individual, firm and HUF:

An individual comes into existence on birth. An individual is dependent on parents, family and society for a long period of time. Depending on family back ground, and opportunities available an individual may continue to be dependent and pursue his studies and training up to a short to long period of time. We find many unfortunate individual who have to become independent and sometimes need to support to his family at young age.

For occupation, vocation or business matters an individual is simplest form of organisation. Because one can start his activities himself without any form of document for creation of organisation. A proprietary concern of an individual is also formed by adopting a name of firm. Very few requirements are applicable for compliance. In case of individual, his resources are limited as per his financial and social status. These very from poorest to richest.

A partnership firm is created by two or more persons (mostly individuals). Resources of firm will depend on resources of partners.

A HUF is created by formation of a Hindu family. Resources of HUF are dependent on resources of HUF and members of family.    

These form of organisations are mostly, owned, controlled, managed be self-employed individuals who form special purpose vehicles like proprietary concerns, partnership firms, LLP and HUF.

Individuals are also working as wages earner. They have some advantages of exempted funds, exempted perquisites, lowly valued perquisites etc.

Social security system for individuals, partners of firms, firms and members of HUF are also available in limited manner. Except in case of employees of government and some large corporates, social security measures are near about nil for middle class people.

Companies:

As a form of organisation a company is considered to be an organisation with more man power and fiscal resources. A private company can have members up to 200, whereas in case of a public company there is no limit on number of members.

 Even in case of a one man company, we find that such companies are formed by individual having larger resources.

In case of companies, most of recurring expenses are considered allowable whereas in case of individuals, firms and HUF many expenses are disallowed by considering them ‘personal expenses’. In present situation we find only some personal expenses allowable by way of deduction from GTI e.g. health insurance, some medical expenses, some education expenses etc. However, amount allowed as deductions are small and conditions imposed for allowability are also very tough and complicated.

Tax, total tax and tax rate must be according to capacity to pay:

“Ability to pay” is a very important factor to be considered in policy of taxation. Ability to pay tax depends on several factors including:

1. Capital base of tax payer. Higher capital base can bear higher tax and lower capital base will not be able to pay higher tax.
2. Earning capacity. Higher earners can bear higher tax.
3. Personal requirements of individual and his dependents.
4. Savings and improvement in capital base.
5. Rate of interest, rent and other earnings – if rate of interest, rent, salary, and wages is higher, one can bear higher tax.
6. Level of social security available.  Unfortunately, in our country, for tax payers there are not adequate social security available.
    
   Therefore, rate of tax should be so designed that people in different income groups / wealth group are able to pay tax after meeting personal expenses of himself, expenses of  his dependent, family members , expenses on social obligations and some savings so that capital base  gradually improves,
    
    In other words, one should be left with sufficient ‘income after tax’ to enable him to live a reasonably dignified life according to his status.
    
    If tax is high and it does not leave sufficient ‘income after tax’ (IAT), people will be forced to find out ways and means to reduce tax burden, to sustain existence. The measures can be tax planning, or tax avoidance and also tax evasion. Government should attempt to ensure that public is left with reasonable income after tax.

Increased GST has increased costs:

There has been substantial increase in GST. Individuals, and HUF who spent money as ultimate consumers pay substantial GST on all products they use starting from tooth paste and tooth brush in morning after wake up and before going to bed in night. Throughout the day  the have to pay GST on most of items consumed including bottled drinking water, many of foods and other eatables. No credit is allowed against GST as input credit, as companies’ avails. Salaried as well self –employed people have to bear GST as consumer.

Increased GST has reduced net earnings of most of individuals. For simple example, on mobile phones and charges for mobile calls and internet services everyone has to pay GST. A salaried person as well as a small artisan or small unregistered professional or service provider has to pay GST from his pocket.

Therefore, in view of higher indirect tax levied on individuals and HUF by way of GST, ability to pay income tax has reduced.

Tax rates reduced for companies but not for others:

We find that tax rates for companies have been reduced. Option to lower rate of tax of 15 percent has also been provided at option of company assessee subject to some conditions.

However, tax rates in case of firms and marginal tax rates in case of individuals and HUF have not been reduced. The same should be reduced at least to bring at par with lowest rate applicable in case of companies that is 15%.

Budget suggestions:

Honourable PM and FM are requested to consider to reduce considerably rate of income-tax on individuals, HUF and firms to enable them to pay tax comfortably and to have some savings by way of income after tax for future requirements. It is high time to rationalise tax rates in view of several aspects discussed above.