Generally, a taxpayer does not bother whether the law is fair or not, because it is too complex to understand. However, many tax laws, when seen in relation to other tax laws, appear to be unfair. While one party enjoys tax benefit in a situation, there may be a similar situation in which a person is liable to pay a huge amount of tax. Here is a list of such tax laws.
Interest paid vs interest charged
While interest charged by the government on late payment of tax is 12% per annum, interest paid by the government on late processing of tax refund is 6% per annum. For example, if you sell some shares during the year and make a short-term capital gain, tax is payable in the quarter in which shares are sold. In case you forget to pay advance tax at the time of filing your returns, you need to pay interest on the tax amount due at 1% per month. On the other hand, if you have filed your income tax return and tax deducted at source (TDS) is higher than the tax payable, the income-tax department pays interest on the refund amount at 6% per annum from the date the returns have been filed.
Agricultural land vs urban land
Not only is income from agriculture tax-free, income from the sale of agricultural land is also tax-free without any limit. When you sell a land worth Rs 1 crore that is 8 km away from the limits of an urban territory, the capital gain will not be taxable at all. On the other hand, if you have a small house for Rs 5 lakh and sell it for Rs 10 lakh, the short-term capital gain will be included in your income and taxed as per your slab between 10% and 30%.
Retail traders vs commission agents
A retail trader need not prepare books of account even if the annual sales/receipts are up to Rs 60 lakh. On the other hand, if you are a commission agent, you need to prepare complete books of account if gross receipts in a year are above Rs 60,000.
Residential property vs commercial property
If you have more than one house in your name, only one will be treated as self-occupied; others will be included in the net wealth to be taxed at 1% per annum. It has to be kept on rent for at least 300 days during the financial year for it to be not taxed. On any number of commercial properties, there is no wealth tax payable.
Tax on gifts from relatives vs non-relatives
In case a relative gives you money without any consideration, it becomes a gift which is 100% tax-free with no upper limit. The list of relatives includes parents, grandparents, siblings of parents, and siblings of your spouse and you. On the other hand, if you get financial help from your best friend, it will be included in your taxable income. Take the case of a medical emergency. Your friend gives you Rs 60,000 (up to Rs 50,000 is exempt per year) for medical expenses. The entire amount will be included in your income.
In a scenario where most of the taxpaying Indian populace is finding it difficult to cope with increasing financial burdens, questions against such unfair laws are bound to be raised. What remains to be seen is whether the government will be forthcoming enough to recognize these aberrations.
Sudhir Kaushik is chief financial officer, TaxSpanner.com
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