More than half the respondents to a survey said
they would hide income to save tax
Nearly 58% of taxpayers will
under-report their income to save tax, according to an on line survey conducted
by ET Wealth last month. The survey had 953 respondents across age groups and
income levels. On the face of it, the results of the survey validate Prime
Minister NarendraModi's recent assertion that “Indians are inherently honest“.
Over 82% of taxpayers have never knowingly given incorrect information in their
tax returns and 13.6% have done it just “once or twice“. A mere 4.4% are the
bad apples who have under-reported their income many times in their returns.
Likewise, 86% will dutifully pay tax on gains from intra-day trading of stocks
even though there is a very slim chance that anybody but their broker will know
of it (see graphics).
However, the honesty demonstrated
by Indian taxpayers could have more to do with the lack of opportunity than
integrity. Over 22% will not report cash received for freelance work and 23%
will not mention rent received in cash in their returns. If an insurance plan
is closed within two years of buying, the tax benefits availed of in those
years have to be reversed. Over 30% of taxpayers will choose not to pay tax
because they believe nobody will get to know of the transaction.
For salaried taxpayers, there is
very little scope for tax evasion because of the tax deduction at source (TDS).
They can, however, under-report the income they receive from other sources.
We filtered the results to
identify respondents who would not commit any of the 10 transgressions
mentioned in the survey. Only 42% of the 923 respondents made the cut. These
include people who have never submitted incorrect information in their tax returns.
They are willing to cross the line if they know they can get away with the
evasion. Many of them do not realize that the I-T department is keeping a close
eye and a scrutiny could have grave consequences.
Take for instance, the common
fallacy that a taxpayer who changed jobs during the year can get away by paying
lower tax. Although he will get double tax deduction and exemption from both
employers, the mistake will be discovered when he files his 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 exceeds `10,000, after the due
date, there is a penal interest of 1% per month of delay,“ says Vaibhav Sankla,
Director, H&R Block India.
The problem won't go away if he
doesn't file his tax. The income from both employers will be reflected in the
Form 26AS, so he is likely to get a notice for not filing tax return. A
taxpayer can't pass the blame on the employer for not deducting the due tax.
“The employer deducts tax on the estimated annual income of an individual based
on the declaration and investment proof submitted by him.It is the duty of the
employee to verify the particulars reflected in the Form 16,“ says Sankla.
“If there is an error in Form 16,
the employee must immediately alert the employer. The employer shall make the
necessary correction and if required shall also furnish a revised TDS return,“
says Archit Gupta, Founder and CEO, Clear Tax. Though 31% of the respondents
chose this path, that's the long route. The easier way to correct the mistake
is quoting the right numbers in your ITR form.
In a monthly address to the
nation, the Prime Minister had exhorted Indians to pay their taxes honestly.
But many taxpayers also lend their ears to diametrically opposite advice: one
in four taxpayers tends to listen to tax evasion tips from friends even if he
doesn't follow them fully . And 5.7% not only take the advice on tax evasion
but spread it among friends and family.“There is a rise in the number of defaulters
because taxpayers neither fear the law nor perceive any benefit in honesty and
tax compliance,“ says Sudhir Kaushik, Co-founder and CFO, Taxspanner.
One disturbing finding of the
survey is that few people are willing to take proactive steps against tax
evasion by family members. If their spouse or close relative is evading tax,
only 32% of the respondents will forcefully dissuade them from doing so. Nearly
54% will gently advise them against it and 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 evasion or is served a scrutiny notice, it is
acceptable in society,“ adds Kaushik.
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 fudged their returns or
are willing to under-report their income to save tax.
The tax department is under a lot
of pressure to improve compliance because the Prime Minister wants the tax base
to increase from the current 5.43 crore assesses to 10 crore assesses. Notices
are being sent out to non filers, more details are being sought in tax forms
and greater efforts are being put into catching defaulters. Tax evaders should
remember that the penalty can be up to 300% of the tax sought to be evaded,
imprisonment or both. As the prime minister pointed out in his address, honesty
is the best policy. “By running away from rules, we lose our peace (of mind).
Anybody can harass us. Why should we let that happen?
Why don't we give correct
information to the government about our income, about our wealth instead?“ He says. As you get ready to file your tax
return this year, keep his words in mind.
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