Tuesday, February 26, 2013

Rising prices a misery IT on DA & Pension a salt on wounds

Rising prices a misery
IT on DA & Pension a salt on wounds

By Amba Charan Vashishth

Price rise and rising inflation has rightly been called an indirect tax on the common man. The worst sufferer, however, is the population living below the poverty line. Yet no less are the miseries of the middle class consisting of the salaried class which gets its emoluments through cheques and government treasuries.
This class constitutes a major chunk of those who pay income tax regularly. This is because firstly, for this class no avenues to conceal their income are available and secondly, in its case the income comes first and expenses later. For those who run their own business, it is the reverse.  Their income is the remainder of their earnings after subtracting their expenses.  
The annual increment which a salaried person earns through hard work spanning the whole year has become immaterial in the face of jumps he gets after every six months in the form of increase in dearness allowance (DA) because of rising prices and inflation. This cannot be computed as his income. It is most inhuman to tax this as income generated because of rise in prices, an income forced on an unwilling person because of market forces in economy  over which he has no control and for which he is neither accountable nor responsible. If there is no rise in prices, there would be no increase in the DA. Even in private sector the annual increase in wages, to a large extent, is attributable to this rise in prices. So to consider this as income is irrational.
Rising prices and inflation is a double-edged weapon that cuts the salaried class from both sides. The neutralization of rise in prices is never hundred percent; it varies from 60 to 80 percent for different classes of workers. Therefore, on the one hand, while a salaried person continues to suffer the pain because of rise in prices even after a DA increase and, on the other, he is further made to pay through his nose a higher rate of income tax. This again is highly unreasonable. If there is no increase in prices, there would be no occasion and justification for increase in DA and consequently no jump in one's salary to pay a higher rate of income tax.
The fate of the pensioner is still worse. He doesn't get any annual increment. All the increase he gets in his pension is only because of the DA accruing because of rising prices. His savings get further gnawed away by the uncontrolled spurt in inflation.  By no stretch of economic argument and equity can DA be called income. On the one hand, he feels the pinch of rising prices and on the other, he is made to pay a higher rate of income tax because of increase in his DA.
Further, charging of income tax on the income accruing to salaried class because of an annual increment it earns through hard work and good performance plus a hike in his DA is discriminatory on the ground the hefty pay and perks the public representatives and ministers get – all considered as public servants – are exempt from income tax. A salaried person earns his pension after serving for at least 33 years but a public representative earns pension for life after functioning as such just after five years and even less. Yet, his income is not taxable. This discrimination is unjustified.
Therefore, DA and pension cannot, by no stretch of imagination and law of equity, be treated as income for purposes of income tax. It is time the finance minister takes cognizance of this hard reality and in the budget provides for exemption of DA and pension from the purview of income tax. This step would be most reasonable and equitable. 

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