Raghav Chadha, in a significant policy suggestion in Parliament, proposed the introduction of optional joint filing of Income Tax Returns (ITR) for married couples to address perceived tax inequities between single-income and dual-income families.
Raghav Chadha argued that the current income tax framework assesses individuals separately, even when they belong to the same household and share common financial responsibilities.
Example Highlighting Tax Disparity
To illustrate the issue, Chadha presented two hypothetical families:
Family A - Dual-Income Household
- Spouse 1 income: Rs 10 lakh
- Spouse 2 income: Rs 10 lakh
- Total household income: Rs 20 lakh
- Total tax liability: Rs 0
Family B - Single-Income Household
- Spouse 1 income: Rs 20 lakh
- Spouse 2 income: Rs 0 (stays home to raise a child)
- Total household income: Rs 20 lakh
- Total tax liability: Rs 1.92 lakh
Despite both families earning the same combined income, the second household ends up paying significantly more tax because the entire income is attributed to a single taxpayer.
Family Disappears at Tax Time
During his remarks, Chadha said that while a married couple shares one home, one kitchen and one household budget, the tax system treats them as completely separate individuals.
He noted that there is currently no provision for clubbing income or sharing rebates between spouses in such situations, which may disadvantage families with uneven income distribution.
Proposal for Optional System
Chadha clarified that his proposal is for an optional joint tax filing system, allowing married couples to choose whether they want to file taxes jointly or individually.
If such a system were implemented, households with uneven income distribution could potentially reduce their tax liability, similar to the way joint tax filing works in several other countries.
Under the proposed concept, both the example families with a total income of Rs 20 lakh could pay zero tax, provided the applicable deductions and tax slabs allow such treatment under a joint filing framework.
Possible Policy Implications
If adopted, joint tax filing could have several implications:
- Greater tax neutrality between single-income and dual-income households
- Recognition of shared household finances
- Potential tax savings for families with a single primary earner
However, such a change would require significant amendments to India's income tax structure and detailed policy analysis regarding revenue implications and fairness across taxpayers.
For now, Chadha's proposal adds to the broader discussion on family-based taxation and tax equity in India's personal income tax system.
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