Will the salaried class ever wake up?
In spite of being hardly 10% of the country’s population, the salaried class is the most taxed class in the whole of India. The latest straw is the levy of service tax whose breadth and width is getting expanded every day. And i sincerly think the time to put an end to this menace.
Today, whether one pays a mobile bill or buys an apartment, there is service tax. Mr. Chidambaram thinks it’s a cool idea but I think its day-light robbery on the salaried class whose income is already being taxed multiple times - directly or indirectly. With each passing year, Mr. Chidambaram is hell bent on increasing the service tax net. The real tragedy is that the actual service tax is not borne by the person who is being levied the tax but by the end consumer, more often than not, the salaried person.
There have been instances where people have challenged the constitutional validity of Service Tax. Our esteemed courts seem to think that levying service tax is indeed within the ambits of our constitution. In the course of such verdicts, the courts have also declared that service tax is a tax levied on the service provider for the value of service discharged.
It essentially means if Airtel is providing me a telecom service of value 100Rs, Airtel incurs a service tax of 12.36% (a recent official SMS says so). But what these service providers do is, they pass on their tax charges to the hapless consumer.
Let’s consider another perspective. Lets say I work for a company X and get a salary. Assume my taxable income is above Rs.5,00,000 per annum and so, I am getting into the highest tax bracket slab. Now, if my employer offers to pay tax on my behalf, will the tax department agree? Apparently no, the tax paid by my employer is again added to my taxable income.
Thus, the law which lets the person who is levied a service tax to pass on the incidence to consumers does not allow a salaried person to pass on his tax incidence to the employer.
I think the time has come for the salaried class to pay back to the likes of Mr. Chidambaram by hitting where it hurts the most with our own ingenuity. In the prevailing scenario, it makes perfect sense for a professional to renegotiate his terms with the employer as that of a consultant and client rather than an employer and employee who works for a salary. Let us be consultants than as employees.
One can draw the same amount from one’s ‘client’ as one was getting from his ‘employer’ as salary.So he does not lose in monetary terms.But the advantages are many,
For one, the income will not be taxed under ‘Income from Salary’ but under ‘Profits and Gains from business or Profession’.
In the case of a latter, almost every damn expenses one incurs is eligible for deduction under the grounds of ‘expenses arising in the course of conducting a business or profession’.
On the other hand look at the salaried class - he gets a salary to make a living, He incurs expenses arising in the course of conducting a living, but he gets zilch benefits.
For eg. as an self employed consultant if i buy a car, I can charge my petrol bill under the expenses of my business and get deduction from taxable income. What’s more, I can also claim depreciation for the value of the car purchased as an expense on my business.
But a salaried person gets nothing.
The days of job security associated with government jobs are long over.
At the present scenario and cost of living, it does not make sense to suffer tax at multiple points in our miniscule incomes. When will the salaried class wake up, if at all? I think more importantly, the corporates should wake up to the realities and start giving such flexible options to the professionals.
Lets wait and see!
May 25th, 2007 at 3:28 am
Good post Prabu Karthik.
Tell me how the employment culture is in India that would allow people to work as consultants rather than employees. I know for sure that in western countries, many employers if not all are quite flexible on that count.
May 25th, 2007 at 3:47 am
PK, enakku ippavum indha sandhegam undu. ST is supposed to be paid by the company for the charges they had levied on the customer but why do they charge the ST also to the customer. So wouldn’t it translate to increasing the service charge itself (since that is what they are charging the customer anyway). Is this legal? and since its happening everywhere, is Govt. turning a blind eye to this practice? Maybe they are happy as long as they get money, no matter who pays it!!
Yes, its unfortunate that Chidambaram keeps taxing the salaried class repeatedly. Tax is the backbone no doubt but its not fair to keep squeezing one class over and over again.
May 26th, 2007 at 6:25 pm
PK,
I have always thought the same when I lived in India. I have wondered at some of my friends who were well off in their business but paying lesser tax than me who was a salaried class. I am not very good in Economics but could not understand this taxation policy that prevails in India.
I hope something happens soon.
May 28th, 2007 at 10:44 am
indian voter,
there is a saying which goes like ‘necessity is the mother of all inventions’ . Maybe we can say change in place of inventions… i think its going to happen, far sooner than we think.
ravi,
http://www.servicetax.gov.in/overview/ovw_pt-6.htm
read closely the section when the court says
“”The service tax levied by reason of services which are offered. The imposition is on the person rendering the service. Of course, it may be indirect tax, it may be possible that the same is passed on to the customer but as far as the levy and assessment is concerned, it is the person rendering the service who alone can be regarded as an assessee and not the customer. This is the only way in which the provision can be read harmoniously.
”
Ennatha solla???
May 28th, 2007 at 10:45 am
Balaji sir,
surukama sonna, salaried class ellam ‘ilicha vaayans’ apdinnu namba govt. nenaikudhu.. ambuttu dhaan!
Nothing will happen unless we change first!
May 30th, 2007 at 6:07 pm
You’ve made my day Prabu. Wonderful.
May 31st, 2007 at 4:59 am
Prabhu!
This is indeed true.
I have been thinking along these lines of reinventing myself in the taxman’s eyes as a “Consultant”. There was a brief period in NDA rule where it was cool to be a salaried person as all the low interest rate loans were easily accessible. Now with the screwed up cabinet in the center, it pays to be smart than ’salaried’.
June 1st, 2007 at 10:52 am
chillipilgim,
thanks
jaiganesh,
its high time we considered that option with all seriousness.
consider this. a business man may or may not pay taxes on his income..
but we end up paying taxes both for the income as well as for the expenditure