Prime Minister believes that Indians are naturally honest, but a recent survey reveals that if given a chance, 58% of the taxpayers will under-report their income to save tax. The online survey which was conducted by ET Wealth got 953 respondents beyond age groups and income levels. On the face of it, the results of the survey verify PM's words. Over 82% of the taxpayers have never knowingly given the incorrect information in their tax returns whereas 13.6% have done it just once or twice". A mere 4.4% are the bad apples who have under-reported their income many a time in their income tax returns. Besides, 86% will dutifully pay their tax on the gains from the intra-day trading of stocks even though there is a very little chance that anybody but their broker will know of it.
Therefore, the honesty determined by the Indian taxpayers can have more to do with the lack of opportunity than sincerity. Over 22% will not report the cash received for freelance work and 23% will not mention the rent received in cash in their income tax returns. If an insurance plan is closed within two years of buying then the tax benefits availed of in those years have to be reversed. Over 30% of the taxpayers will not pay tax because they believe nobody will get to know about the transaction.
For salaried taxpayers, there is very little scope for tax dodging because of the tax deduction at source (TDS). They can, therefore, under-report the income that they have received from other sources.
We have trickled the results to determine the respondents who will not commit any of the 10 faults mentioned in the survey. Only 42% of the 923 respondents have made the cut. These include people who have never submitted incorrect information in their income tax returns. They are willing to cross the line if they know that they can get away by simply dodging. Many of the taxpayers do not realise that the Income Tax department is keeping a very close eye and a scrutiny can be dignified consequences.
The Prime Minister had advised Indians to pay their income tax returns honestly. But many taxpayers also lend their ears to opposite advice: one in four taxpayers tends to listen to tax dodging tips from their friends even if he does not follow them fully. And 5.7% not only take the advice on tax dodge but also spread it among their friends and family. There is a rise in the number of defaulters because the taxpayers do neither fear the law nor perceive any benefit in honesty and tax compliance.
One element of disturbance is that few people are willing to take proactive steps against tax evasions by their family members. If their spouse or close relative is dodging tax then only 32% of the respondents will forcefully dissuade them from doing so. Nearly 54% will gently advise them against it and then 14% will not even interfere in the matter. There is no social stigma for being a tax offender in India; even if someone gets caught for dodging or is served a scrutiny notice then it is acceptable in the society. This social acceptability of unethical tax practices is surprising, given that a vast majority (73%) of taxpayers feel that Indian tax rules are not fair. Interestingly, 68% of those who complain that the system favours the dishonest have dodged their income tax returns or are willing to under-report their income to save the tax.
For example, the common fallacy that a taxpayer who changed his/her jobs during the year can get away by paying less tax. Despite he/she will get double tax deduction and exemption from both the employers, the mistake will be discovered when he/she files his/her income tax return. The double exemption and deduction will automatically get reduced and the taxpayer will have to shell out a huge tax. If the unpaid tax crosses Rs 10,000 even after the due date then there is a penalty for an interest rate of 1% per month of being delayed.
The problem will not leave him until he files his income tax return. The income from both the employers will be reflected in the Form 26AS, he is likely to receive a notice for not filing his income tax return. A taxpayer cannot put the blame on the employer for not deducting the due tax. The employer deducts the tax on the approximated annual income of an individual based on the declaration and the investment proof submitted by him. It is the employee’s duty to verify the particulars reflected in the Form 16.
If there is a mistake in the Form 16 then the employee must immediately alert the employer. The employer should make the necessary correction, if required should furnish a revised TDS return. Yet 31% of the respondents choose this path, that's the long route. The easier way to correct the mistake is to provide the right numbers in the Income Tax Return form.
Honesty is best policy
The tax department is under lot of pressure by the PM to improve compliance because he wants the tax base to increase from the current 5.43 crore assessees to 10 crore assessees. Notices are being sent out to non filers and more details are being sought in the tax forms and greater efforts are being put into catching defaulters. Tax evaders needs to remember that the penalty can be up to 300% of the tax sought to be evaded, imprisonment or can be both. As the prime minister pointed out that honesty is the best policy. By running away from the rules, we lose our peace of mind. Anybody can harass us. Why should we allow that to happen? Why don't we give the correct information to the government about our income, about our wealth? As you get ready to file your income tax return this year, keep his words in mind.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
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