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Introduction:

In India all the revenue augmenting acts and rules are based on the preamble principle(s) of Benefit Vs Ability-to-Pay and Canon of (i) Ability, (ii) Certainty, (iii) Convenience, (iv) Economy, (v) Elasticity and (vi) Productivity and its exigency at the time of introduction or at the time of amendments or as it appears to be so.

When it comes to Direct Tax in India, the principle and canon of Ability-to-Pay will prevail over others.

Secondly, the acts and rules enacted in the country should be within the powers granted by the different articles in the constitution, which can be termed as constitutional privileges.

Considering the canon of ability to pay tax, the income tax slabs been introduced and it's been amended from time to time based on the exigency without affecting the canon behind the act.

As such i am not in line with a provision, section 87A of IT act, which gives rebate on Income Tax liability before adding up the cess on IT.

In order to exhibit my views and in support of my argument(s), I just re-produce the tax slab for the FY: 2019-20/ AY: 2020-21

How rebate u/s 87A has diluted the principle of Income Tax

Table:1

   

Individuals

(Other than senior and super senior citizen)

Assessment Year 2020-21

Net Income Range

Rate of Income Tax

Up to Rs. 2,50,000

-

Rs. 2,50,000 to Rs. 5,00,000

5%

Rs. 5,00,000 to Rs. 10,00,000

20%

Above Rs. 10,00,000

30%

Content of Section 87A (applicable for AY 2020-21);

A resident individual having taxable income upto Rs 5,00,000 will get a tax rebate of Rs.12,500/- or equal to the amount of tax payable (whichever is lower), subject to the condition that the assesse should be Resident Individual and his/her total income after reducing the deductions under chapter VI-A (Section 80C, 80D and so on) is not more than Rs 5 lakhs.

Table:2

Showing Assessment of Income Tax liability for the income ranging from Rs.2,49,000/- to Rs.6,25,000/- considering rebate under section 87A and assuming the income is after adjusting deductions under Chapter VI-A, with considerable intervals;

 

Income level

Income Tax Assessed

Rebate u/s 87A

Tax payable

HE Cess @ 4%

Total of income tax due

Incremental income/ Marginal income

Tax on the incremental income/ Marginal income

Rs.

Rs

Rs

Rs

Rs

Rs

Rs

Rs

249,000

0

0

0

0

0

0

0

250,000

0

0

0

0

0

1,000

0

251,000

50

50

0

0

0

1,000

0

275,000

1,250

1,250

0

0

0

24,000

0

300,000

2,500

2,500

0

0

0

25,000

0

350,000

5,000

5,000

0

0

0

50,000

0

400,000

7,500

7,500

0

0

0

50,000

0

450,000

10,000

10,000

0

0

0

50,000

0

499,980

12,499

12,499

0

0

0

49,980

0

499,990

12,500

12,500

0

0

0

10

0

500,000

12,500

12,500

0

0

0

10

0

500,001

12,500

0

12,500

500

13,000

1

13,000

500,010

12,502

0

12,502

500

13,002

9

2

500,100

12,520

0

12,520

501

13,021

90

19

501,000

12,700

0

12,700

508

13,208

900

187

510,000

14,500

0

14,500

580

15,080

9,000

1,872

512,500

15,000

0

15,000

600

15,600

2,500

520

515,000

15,500

0

15,500

620

16,120

2,500

520

515,500

15,600

0

15,600

624

16,224

500

104

516,000

15,700

0

15,700

628

16,328

500

104

516,500

15,800

0

15,800

632

16,432

500

104

517,500

16,000

0

16,000

640

16,640

1,000

208

518,500

16,200

0

16,200

648

16,848

1,000

208

520,000

16,500

0

16,500

660

17,160

1,500

312

525,000

17,500

0

17,500

700

18,200

5,000

1,040

550,000

22,500

0

22,500

900

23,400

25,000

5,200

575,000

27,500

0

27,500

1,100

28,600

25,000

5,200

600,000

32,500

0

32,500

1,300

33,800

25,000

5,200

625,000

37,500

0

37,500

1,500

39,000

25,000

5,200

650,000

42,500

0

42,500

1,700

44,200

25,000

5,200

Observations;

(a) Income up to Rs.5.00 lakhs the income tax liability is Nil and for the income of Re.1 in excess of Rs.5.00 lakh the tax liability is Rs. 13,000/-. In order to ignore the arguments of rounding off procedurals, I will consider the income of Rs.10 in excess of Rs.5.00 lakhs attracts tax liability of Rs. 13,002/-. Now my question is, is it not a provision which override the canon of the taxation and very preciously how it could be possible for payment of Tax of Rs.13002/- out of the earning of Just Rs.10./-. Further the rate of tax here is more than 100%.

 

(b) The highest tax rate of 30% is nearing to match at the earning of Rs.6.50 lakhs at the rate of 29.47% as against the 20% rate fixed in the charging section.

(c) Ignoring the facts quoted in Para b above and to remove this anomaly, it is prudential to allow the maximum deduction of Rs. 12,500/- under section 87A for the income up to Rs.5,16,500/-, so that the rate of tax is equal to or less than 100% on the marginal income of Rs.16,500/- in excess of Rs.5.00 lakhs.

(d) Rebate under section 87A is really a wonderful rider for people whose income is within the limit of Rs.5.00 lakhs and it is not a matter of concern for people who earns Rs.6.50 lakhs. It is really a provision which override the canon of ability to pay tax for a person who just crossing Rs.5.00 lakhs and not even crossed Rs.5,00,100/- or Rs.5,16,500/- or so.

(e) This situation is common for people who switch over from third slab to fourth slab where the impact is lesser than what we have discussed above. When we consider the situation of a person who switchover from second slab to third slab the tax liability of Rs.13,000/- is about 31.2% of his monthly earning and the value of the money with him is more powerful as compared to the person who switchover from third slab to fourth slab.

 

Conclusion;

Considering the different proportions shown in the above two table, I am sure the anomalies are clearly understood and no answers to be posted as it is a clear view of overriding of canon and misleading provisions beyond the constitutional privileges with the legislators and hence it is my humble prayer to consider the issue for suitable remedial measures at the earliest.

Disclaimer: The readers are informed to note that the facts and information's stated in this article is my own interpretations. For any specific requirement of legal opinion on the facts of the case, the reader may reach the author for professional support.

The author is a Practitioner under GST/IT act and under earlier VAT acts of multiple states in the country. He can also be reached at eswaran60@yahoo.com, eswaran1960@gmail.com

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