Indian Tax Law

Arun Shourie, former Union minister for divestment, statistics and programme implementation said ,'The Fifth Pay Commission (set up in 1994) recommendations resulted in a Rs 530 billion payout by the government. The next (sixth) pay commission would effectively wind up Indian sovereignty.'
Bibek Debroy, secretary general, PHDCCI opined ,"We must scrap Pay Commissions' Even World Bank held the Fifth Pay Commission as the 'single largest adverse shock' to India's strained public finances.

Indian Inc in general think it is a disastrous move and most untimely especially when stock market is on on fire, the economy is booming and global heavyweights bullish on India but then .how can central and state government employees' salaries remain stagnant when India is booming?

Well let us first discuss dark side of the story or the corporate perspective on this govt bonanza.

The result: Before the Fifth Pay Commission recommendations came into effect, the central government's wage bill (including pension dues of Rs 50.94 billion) stood at Rs 218.85 billion in 1996-1997.It shot up by nearly 99 per cent to Rs 435.68 billion in 1999-2000.The wage bill of the state govts went up by 74 per cent to Rs 898.13 billion in 1999 from Rs 515.48 billion in 1997.At present, almost 90 per cent of a state's revenues goes in paying salaries. The impact of the Fifth Pay Commission was so brutal that some 13 states did not have money to pay salaries in 2000.

States like West Bengal, Bihar, Orissa, Assam, Manipur, Meghalaya and Mizoram sought a mechanism under which the Centre could not announce a pay revision without consulting the states.They also sought the Centre's help in offsetting the impact of the Fifth Pay Commission and a national wage policy to replace pay commissions.

But did the Fifth Pay Commission just recommend hiking salaries of government employees only .No and therein lies the problem. Some of the Fifth Pay Commission's other recommendations included slashing the government workforce by 30 per cent; abolishing 350,000 vacant posts and reducing the number of pay scales from 51 to 34, none of which were implemented.

Other side of the story is that the govt wants compensation -it must be benchmarked vis-à-vis the private sector. A finance ministry notification said the govt has been considering for sometime the changes that have taken place in the structure of emoluments of its employees over the years. Conditions have also changed in several respects since the last Pay Commission submitted its report in 1997.

With this notification, decks have also been cleared for setting up of the committee to review the pay structure of PSU employees, officials. However, it should be made clear.

However, any revised pay packet for PSU employees will not put burden on the govt exchequer since only those public paying capacity will be increasing salaries of its staff. Terms of reference has left out judicial services and political (public) servants and banking services based on equation with a govt posts. Govt apprehends huge expenditure which is wrong.

The difficulty for govt is that compensation at the senior levels is hopelessly uncompetitive while that at the bottom is often supeior to market levels.

The fears that that Sixth Pay Commission will deal a severe blow to public finances of the sort dealt by the Fifth Pay Commission ,are exaggerated. First, it is not true that it was the Fifth Pay Commission that devastated public finances. Out of the increase in the combined fiscal deficit of the Centre and the states of about 3.5 percentage points in the nineties, the Fifth Pay Commission award accounted for only one percentage point. Tax reductions and increase in interest rates did most of the damage.

It would be logical not to be judgmental about the effect of the commission already as in 10 years Indian economy has under grown a sea change . Now its bigger and more resilient .Commission would definitely learn from the last one's and derive its view . There is no denying the fact there exist a lot of disparity in the pay scales which need redressed . Public opinions have been sought in govt webiste http://finmin.nic.in and http://india.gov.in

Well as for the revenue department pay hike is an urgent necessity to stem the rot of corruption and also especially for the honest officers who are struggling hard to meet the ends meet with pay packets only vis-a vis the luxurious life style of their colleagues .

Gone are the days you can treat it just like any other easily obtainable another govt identification card . It is a tremendous too for the tax department to track your financial transactions thanks to the information technology and govt's will to use it to optimum use.

However the requirement of declaring or even obtaining PAN under Section 139(5A) will not apply to a person whose income is not taxable. All he has to do is furnish a declaration under Section 197A in Form 15G/15H that tax on his income will be nil.

But then ,except for senior citizen any person, whose aggregate income from dividend, interest, withdrawal of deposits with NSS and income in respect of units exceeds the basic exemption limit cannot furnish Form 15G for non-deduction. Violation of section 139 and section 197 may attract fine of Rs 10,000 for each default or failure. So you can afford to take it lightly . But actual threat is much bigger and all encompassing .With this single identifier tax sleuths can hunt down any all your transaction and even all other related financial activities.

Let us just have a glimpse of cases where we need to declare our PAN which in itself clarify my point that PAN has brought in silent revolution in tax assessment and IT governance.

1) All returns, quarterly statements, challans or correspondence with the income tax authorities should include the PAN. It is necessary to quote the PAN in documents related to the following transactions:

2) Opening a bank account.

3) Application for issue of a credit card.

4) A cash deposit of Rs 50,000 or more with any bank during any one day.

5) Contract of sale or purchase of securities exceeding Rs 1 lakh in value, including shares, bonds, debentures, derivatives, units and government securities.

6) Cash payment of Rs 50,000 or more for purchase of bank drafts, pay orders or bankers cheques during any one day.

7) Cash payment exceeding Rs 25,000 in connection with travel to any foreign country (fare or purchase of foreign currency).

8) Application for installation of telephone, including cellular telephone.

9)Payment to hotels and restaurants against bills exceeding Rs 25,000 at any one time.

10) Sale or purchase of immovable property valued at Rs 500,000 or more. If there are co-owners (buyer or seller), the PAN of both the owners will have to be mentioned. If a nominee holds the property, the PAN of the legal owner must be mentioned.

11) Sale or purchase of a motor vehicle requiring registration other than two-wheelers.

12) A time deposit of more than Rs 50,000 with any banking company and deposit of more than Rs 50,000 with post-office savings bank. This requirement is not mandatory when investing in post-office National Savings Certificate or Kisan Vikas Patra, and the PAN will be required only if the time deposit exceeds Rs 50,000.

13) Payment of Rs 50,000 or more to a mutual fund for purchase of units or to a company for acquiring its shares or to a company/institution for acquiring its debentures/bonds or to RBI for acquiring bonds.

14) Minor intending to open time deposit or bank account should quote the PAN of either father or mother or guardian in whose hands income is likely to be clubbed.

15) Any person (other than non-residents) who receives any sum or income or amount from which tax has been deducted must provide the PAN to the person/organisation that has deducted tax at source as per Section 139(5A).

16) Buyer of specified goods like alcoholic liquor, tendu leaves, timber, forest produce and scrap for trading and every licensee or lessee of parking lots, toll plazas, mines or quarries, has to provide the PAN to the seller/licensor.

17) Any person who has deducted tax at source must quote the PAN of the payee in all the TDS certificates, TDS returns and statements of perquisites and profits in lieu of salary (Section 139(5).

Never ending vicious lunatic cycle where we all got caught in some where .

Indian Judiciary is framed after British system of justice where benefit of doubts goes in the favour of guilty as no one can be pronounced guilty without hard evidence both in civil as well as corporate legal system..
In the judicial system of Indian tax law scope is much more to get exonerated through the maze of technicalities and bar of limitation .Further , burden of proof is always being on the Department more often than not department lack to provide fool proof documents in support of their charge .Hence although there are thousands of cases where charges are based on obvious reasons but could not stand the test unleashed by the hard core professional lawyers who have expertised in identifying lapse of departmental inquiry and framing of charges.
Golden example is the stock variance in a manufacturing unit . Most of these cases made by Central Excise departments got unkind beating at floor of tribunal all over India because no malafide on part of the assessee could be established .merely for stock shortage in absence of any corroborative evidence of clandestine removal
Even if a truck load of manufactured goods are caught in road by the officers with out any duty paying documents it could easily be proved that it was mistake on the part of the excise clerk who had issued the invoice afterwards and had it sent by post to the consignee .So words like ' assumption',' presumption',' obvious' have no place in the Indian Judiciary .
Govt loses thousands of crores in cases barred by limitation which means department either fail to prove any malafide on part of the assessee so that longer period of 5 years could be invoked or where there is no such malafide involved but duty was not paid or less paid only , failed to frame charge or issue show cause within a stipulated period of 1 year.
Tax department are there fore always on the alert to issue show cause notice even if there is no case in order to avoid getting time barred or invoke longer period mindlessly even if there is no malafide intention of the assessee to save their skin resulting in piling of thousands of cases at the tribunals .
Its an unsolved puzzle of its own kind where parties are Govt with its pretending revenue biasness and blind porous Indian judicial system
Tarun Majumder