The recent announcement by the finance minister in Parliament, before the passage of the Budget for 2023-24, that there will be Tax Collected at Source (TCS) of 20 per cent on credit card payments for overseas travel is an instance of using a sledgehammer to solve a problem that needs finesse.
In Bengaluru a couple of years ago, the finance minister spoke about the budget in a meeting and first introduced a TCS under the Liberalised Remittance Scheme (LRS). I asked why this was being done. The answer I was given was that around $18 to 20 billion is spent abroad by many Indians under the LRS. Many of the transactions were in the names of their household staff, and various other people. About 50 per cent of them did not have an income tax filing.
The government was a bit concerned that this was being used to remit money to be used for purposes that went against the reasons for the liberalisation of the LRS. I had stated that the best thing to do would be to have a rule that any citizen that paid income tax and filed returns for three years before making a remittance under LRS should not be subject to anything like TCS, so that they’re spared the burden of having a deduction and outflow of money. I also stated that much of the remittance was for the education of children. People who have accumulated savings of many years may have to make one large payment — and they may not be taxpayers too.
But this was conveniently ignored by the people on the dais.
For the last 10 years, Income Tax authorities have, possibly, been given more power to go after citizens than in the previous 10 years for various reasons. There seems to be a line of thinking in the government that citizens are not honest taxpayers and there’s great tax evasion. Former FM, late Arun Jaitley said, in Parliament, when he put a surcharge on income above Rs 1 crore that we are a tax non-compliant society, hurting the very many honest taxpayers.
In 2014, the BJP made a promise to stop “tax terrorism” in its manifesto. Jaitley also committed in Parliament that he will stop “tax terrorism”. In 2014, the total amount in dispute as per the budget was around Rs 4.50 lakh crore. According to the latest information, this has gone up to around Rs 12 lakh crore. Clearly, disputes have arisen and there has not been much movement on ending “tax terrorism”.
Tax terrorism increases because of the greater uncontrolled powers given to tax authorities at the expense of civil liberties. Much has been written and reported about the high-handedness of tax authorities, including the ill-treatment and bad publicity during tax raids. Of course, the use of technology, increase in appeal limits and faceless assessment have helped. But the changes in the law like reopening assessments for up to 16 years as against six years in a budget a few years ago created further complications.
If one looks at contingent liabilities in the balance sheets of the top 100 companies, a large part is for income tax demands that are being raised and litigated for long years. Litigation continues for up to 20 years and goes all the way to the Supreme Court. Indians suffer from a perverse, broken-down tax assessment system. We are also the victims of a justice system that does not deliver justice on time.
The TCS of 20 per cent on the use of global credit cards for overseas travel is an instance where citizens are put to greater discomfort, higher compliance costs and unnecessary harassment because the I-T department believes that it does not have the tools to find out if taxes are being evaded. There’s a simple solution for this. That is, as stated earlier, any citizen who has filed tax returns for three years and has a PAN card will not be subject to this kind of TCS. Also, there can be a TCS, of say 2 per cent, to ensure traceability but why 20 per cent?
The people who do not have a tax record can be subject to the higher TCS and can file returns. One must understand that a 20 per cent deduction is very steep for people who might sporadically go for holidays, or those who use international credit cards for genuine transactions. The government, of course, says that you can claim a refund in case the tax is deducted. But refunds take time — although in recent times, many refunds come within a very short period, for which the government needs to be complimented.
I once asked Arun Jaitley why they put a surcharge on people who have declared an income of more than Rs 1 crore. He told me that the I-T Department has said that the move will raise Rs 2,000 crore. I told him that honest taxpayers are made to pay more, whereas dishonest people who don’t declare any income are laughing all the way to the bank.
In a liberal democracy, elected representatives must protect us from excesses and perverse actions taken by tax authorities. In India, we see the exact opposite. Our representatives in the last many years have not protected us adequately from tax terrorism, not ensured timely justice through appeals, nor punished tax officials for perverse assessments. But taxpayers have to suffer more compliances. The current move adds to the continuous distress and deep bias honest taxpayers face in India. We need justice and ease of life for honest taxpayers, not more compliance.
The writer is chairperson, Aarin Capital Partners
