The tax laws in India should be reformed so that it encourages savings
The tax laws in India should be reformed so that it encourages savings
Introduction
Tax reforms in general should be created with the purpose of benefiting the citizens of a country. As of now, some investments in India have tax relaxations. Such as:
• Rajiv Gandhi Equity Savings Scheme (RGESS) for investment in equities,
• National Savings Scheme (NSS),
• Insurance policies (LIC etc.),
• Post Office Savings Schemes (up to a certain level of interest),
• Select Mutual Funds,
• Home loans on purchase of property, etc.
Encouraging and increasing savings
These measures are commendable, however, insufficient. When the common man is reeling under the blow of rising prices in every sphere, extra taxes like Value Added Tax (VAT) are only reducing the possibility of savings. With the Income Tax rates going up regularly, and with the income increasing only marginally, the expendable income is steadily dropping. The ideal situation should be, an individual should have a small percentage of her or his income that remains after the monthly expenditure, in order to put aside as savings. This can offset any unforeseen circumstances, like job loss, a sudden accident, or to provide for during the individual’s retirement.
The RGESS was launched in 2012, by Finance Minister P. Chidambaram to encourage investments in equities. It provides for a maximum investment of Rs. 50,000. 50% of the amount invested can be claimed in tax deduction. Indian citizens with an annual income below Rs. 12 lakhs are eligible to apply for this scheme. The investors should also be first time investors, i.e. they have not invested in equities before.
The RGESS is an encouraging scheme, but as we observe, it has its limitations as well. The government should provide for more facilities that helps bridge the gap between the rich and poor. For the past few years, the government has been trying to implement Direct Tax Code (DTC) and Goods and Services Tax (GST), which will bring the taxes under the moderation of the government. The DTC is intended to replace the existing Income Tax, and GST is meant to replace taxes on goods and services.
These impending policies will help in sharing the burden of tax among a larger taxpayer base, thereby maximizing the tax revenue for the government, without straining a select few. This in turn, will help in increasing individual savings.
Conclusion
With the election season on in full swing, policy makers are pushing to implement these tax reforms. However, there is still a debate on the feasibility of implementing these policies. The government should get expert opinion on sensitive matters such as taxation, in order to encourage savings among its citizens.
Discussion
- RE: The tax laws in India should be reformed so that it encourages savings -Deepa Kaushik (05/01/14)
- We have many laws and rules those are just documented and never come into action. People do keep paying good amount of tax every year which is on ever increasing note. We have always seen the country on deficit apart from increasing the tax amount per year.
If the regulations concentrate on curbing corruption and extracting the correct amount of the tax amount from the defaulters, our country will become richest in terms of revenue generation. But the loophole has dig a pitch with great depth for the honest tax payers and the defaulters keep enjoying the black money.
The tax laws can be amended to encourage saving, but that could be effective only if the number of defaulters are reduced to bare minimum. Without the proper revenue generation, government cannot plan anything productive for the common man, be that be the saving plan or some other requirement like employment opportunities for the common man.
With the tax laws, Indian mentality and honesty also requires to be reformed for rising the standard of living of the average Indian citizen.
- The tax laws in India should be reformed so that it encourages savings -Nupur Bharagava (04/04/14)
The tax laws of India should be reformed so that they encourage savings.
Tax reform is the practice of altering the manner in which taxes are collected from the public or the way in which the government manages it. There are diverse goals while the taxes are being renewed, they are either to make the tax system more or less advanced or may be to simplify the tax system, this is dependent upon company to company as there a number of companies who take care of tax reformation.
The current tax system comprises of individual income tax with progressive rates, separate tax on corporation, gift and estate tax on transfer of wealth, excise tax, tariffs on imports, professional tax. A nation’s productive competence is set on the savings and investments that nation can do for itself and also the individual savings. Today we have a huge list of companies who provide various policies where in you invest and the premiums you pay are tax saving and the benefits you get in your old age. But you will be able to pay the premiums for such policies only if you can save. Hence when the saving rate is higher, you have more resources to invest not only in policies but to also start something of your own in business.
The economists have suggested “consumption tax” in order for the people to be able to save. In consumption tax, the tax is applicable on how much you spend instead of how much you earn. In this way you will save a huge amount which will be tax-free. An individual is able to save only about one-third of what is required at the time of retirement that is because the current tax system does not allow us to save. An individual who is earning an annual package of 8.5 Lakhs will be levied to pay an annual tax amount of 20%. So that total tax paid by the individual on a package of 8.5L will be liable to pay 1,75,000 annually. The actual earning of the individual is 6,75,000 only. Hence it becomes difficult for an individual to save.
The only drawback of reforming the tax laws to encourage savings will be, the rich people will reap more benefits as their earning shall be high as compared to the amount spent on tax and in turn the tax burden will be on the poor. Hence making the saying “Rich becomes richer and the poor becomes poorer” absolutely true.
In the current scenario, as we see that our economy is not stable and if we decide to completely reform the tax laws then it might have negative repercussions on the country’s economic condition. Probably slight changes could be made to balance both the sides.
