TAX COLLECTION AT SOURCE (TCS) TO BRING SMALL AND MEDIUM TRADERS IN TAX NET

[C.A. DEV KUMAR KOTHARI]

Income Tax dept planning to bring rural traders into tax net- some suggestions -TCS

As per a press report issued before 18th May 2010 the Income Tax department is looking to bring rural traders and others into the tax net. The department which is attempting to expand the taxpayer base in the country will now focus their attention on a large swathe of rural businesses that have so far remained untouched.

"We are planning to increase the taxpayers base. A number of taxpayers and assessees that the department would include will be from the rural areas," CBDT Member (Revenue) Durgesh Shankar told PTI.

There are a large number of people who do not pay tax.

Tax avoidance is a great worry and the department would strengthen the mechanism to include such assesses in the income tax fold, Shankar said.

The I-T department has found that the income generated from numerous kinds of businesses conducted in rural areas can be brought under the tax net.

Analysis:

From the above press report, as highlighted by underlining, it can be summarized that to increase the tax net, now the revenue is looking at rural areas. The focus is on traders and other business persons doing business in rural area.

Suggestions:

In view of increased basic exemption limits and investment to save avenues, there will not be much taxable income in hands of small traders in rural areas. The income is in hands of farmers holding large area of land with mechanized farming.

The focus should therefore be on large traders and commission agents, contractors, and investors in rural area.

Data base for owners of large plots of agricultural lands need to be updated and broad based. Based on land holding, enquiry about other income earned by farmers can be made.

People earning agricultural income in rural area are having investible surplus, and income from such investments need to be taxed.

TDS and TCS:

Medium and Small traders in cities, towns as well as in villages can be brought into tax net by increasing scope of TDS and TCS.

Tax collection at source (TCS):

A TCS @ 0.2% (or Rs. 200 per Rs. one lakh purchase value) on value of goods purchased by any trader can be made mandatory. This rate can be reduced to @ 0.1 % (Rs.100 per one lakh) in case purchase value exceeds Rs. Twenty lakh by a trader from any manufacturer or wholesale dealer. Suppose a trader purchases goods valued at Rs.75 lakh and his TCS is say Rs.12500/- at applicable rates from various whole sellers. This TCS can be adjusted against his tax liability and he can pay excess tax , if any or can claim refund if his tax liability is less.

Suppose the trader earns net income @ 3% on cost of goods purchased , his income on sale of goods costing to him Rs. seventy five lakh will be around Rs.2,25,000/-. Depending on his other income, tax saving investments his tax liability will be determined. And he can accordingly pay excess amount of tax payable or claim refund.

Even a tax collection of say Rs.15000/- (assuming highest rate of 0.2% on all purchases) against purchase value of Rs. Seventy five lakh will not pinch the trader.

There should be exemption up to purchase of Rs. Five lakh from any one whole seller to reduce unnecessary administrative work in case of small customers of a whole seller/ manufacturer.

In case a trader has no PAN the rate of TCS can be 0.3% that is Rs.300 on purchases of Rs one lakh.

TCS will improve tax payers data base:

TCS will improve the data base about small and medium traders. On selective and rotational basis some enquiries can be made to find potentiality of further tax collection and chances of tax evasion.

Rural traders are also generally farmers:

Rural traders are also generally farmers. The taxation of such traders will also help in having an enquiry about agricultural income earned by such traders or their family members. This will also help in bringing potential tax payers in the scope of enquiry by department.

Readers are requested to send their suggestions on this issue.

Income Tax dept planning to bring rural traders into tax net

The Income Tax department is looking to bring rural traders and others into the tax net. The department which is attempting to expand the taxpayer base in the country will now focus their attention on a large swathe of rural businesses that have so far remained untouched.

"We are planning to increase the taxpayers base. A number of taxpayers and assessees that the department would include will be from the rural areas," CBDT Member (Revenue) Durgesh Shankar told PTI.

There are a large number of people who do not pay tax.

Tax avoidance is a great worry and the department would strengthen the mechanism to include such assesses in the income tax fold, Shankar said.

The I-T department has found that the income generated from numerous kinds of businesses conducted in rural areas can be brought under the tax net.