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Journalism of Courage
In The Sunday Express, the editor-in-chief of this newspaper had proposed that one of the steps the FM must take in this year8217;s budget 8212; which the Left will not oppose 8212; is to tax the rich more. In fact, the Left has been saying the same thing for a long time now. One element of the Indian tax system that needs urgent reform is the tax treatment of savings. Currently, there are some instruments of savings that are a complete tax pass through and invite no taxation. An example of this is the EPF which has an EEE status 8212; exempt at the time of saving, exempt at accumulation stage and exempt at the time of withdrawal. This leaves income that goes into EPF completely tax free. The same holds for other instruments such as post office deposits, the Public Provident Fund and National Saving Certificates. This system is exploited by the rich who are able to tuck away a large part of their income without paying a tax on it.
In the rest of the world to encourage people to save for their old age, the part of income that is set aside as savings is given tax exempt status at the time of saving. This is also allowed to be tax exempt at the time of accumulation and so interest on it is not taxed. However, at the stage of withdrawal, the income gets taxed. In India, one way is to tax the withdrawal at a low rate 8212; say at 20 per cent, the rate at which long-term capital gains are taxed. Another way is to tax withdrawals above a limit 8212; say, Rs 5 lakh. But rules should ensure that there is no incentive for people to break up their withdrawals into smaller amounts to avoid being taxed.
