Tell me how you spent your income?” is what the taxman asked. “Dig your own grave” is what the taxpayer heard. No, it isn’t a language problem. The miscommunication is because of a deficit of trust. Any information sought by the income tax authorities is perceived by taxpayers—even honest ones—as an invitation to trouble. What if the information sought is used to harass—and possibly demand bribes? In a relationship marked by such distrust, it is a challenge for the tax administration to get all the information it ought to have on a taxpayer’s income. The consequence is rampant evasion: roughly two out of three income taxpayers in India under-report their income. The solution according to tax authorities: ask taxpayers how they spend their income. From the next assessment year, all tax return forms may have a section asking for expenses across three or four broad categories.
This also reflects the limitations of the surveillance techniques the income tax department initiated some two years ago when it started collecting information on people’s expenses from third parties (banks, credit card companies). The aim was to scare people into disclosing their income correctly because the government would find out “what you did with your money”. Unable to use this information adequately, the government now wants to ask you the same question directly.
But dishonesty does not afflict only taxpayers. Tax officials are equally corrupt. Worse, the dishonest tax collector doesn’t distinguish between honest and dishonest taxpayers when it comes to harassment. So how can taxpayers be convinced to part with information they fear would be misused by the taxman? MONEY TODAY talked to tax authorities and experts to prepare an Honest Taxpayers’ Charter. For this and a comprehensive guide on income tax management turn to the cover story on page 26.
We had promised to travel in time and get useful information for you. Turn to page 72 for Memory Lane, a monthly feature that will bring alive various aspects of financial history. Another novelty is a quiz on page 68. It tells you where your career is headed.
The taxman cometh, but here’s wishing your expenses remain untaxed.