Why it pays to pay your income tax

The income tax (I-T) department has proposed monetary rewards for honest taxpayers depending on the tax paid. According to the proposal, the reward will be for taxpayers who are consistent in filing returns and have no outstanding tax liabilities. However, if a taxpayer defaults in the future, the tax department will deduct the amount from his refund with interest.

The quantum of the reward will depend on the amount of tax paid and the slab a taxpayer falls under. Sources said the reward could vary between one per cent and five per cent of the total tax paid. The reward will not be part of the refund that the tax department typically releases every year.

Essentially, the reward would honour those who had paid their taxes, had been consistent in paying taxes, and were prompt in making advance tax payments, sources added.

“We draw several action plans to nab tax evaders, but there are no provisions to reward compliant taxpayers, who have been abiding by the tax laws over the years,” said a senior tax official privy to the development.

Sources said the Central Board of Direct Taxes (CBDT) had discussed the proposal in a recent meeting with the finance ministry and the Department of Revenue. The board has outlined highlights to make the scheme effective.

According to the CBDT, the heads of the I-T department across the country will pick names of diligent taxpayers in various jurisdictions and accordingly pay them a certain amount.

“The base of such taxpayers will be low and initially the reward could be in the lakhs of rupees. But if the scheme encourages taxpayers to pay tax regularly, eventually we could see an increase in the tax base,” said another tax official.

The proposal comes at a time when the authorities are putting in all efforts to widen the tax base. For 2017-18, the CBDT has set a target of adding 12.5 million people to those who file I-T returns.

Speaking on the occasion of Income Tax Day celebrations in July this year, CBDT Chairman Sushil Chandra had said, “As on date, we have 62.6 million assessees. It is a myth that we have 30-40 million.  (These are) assessees who have filed returns, paid advance tax or tax has been deducted at source. This is a large jump from earlier years.”

“A reward system could be an effective measure to motivate potential taxpayers. It is part of the revenue generation strategy in many developed countries such as the UK, US, and Canada,” said a tax consultant, who did not wish to be named.

Compliance by existing taxpayers in the country is typically low. However, data available till September 2016 suggest in a population of 1.2 billion, there are just 35 million taxpayers, or three per cent.

Last year, the I-T department had made an attempt to encourage taxpayers by issuing certificates of appreciation, acknowledging their contribution to nation building, but this has been discontinued this year.
Incentivising compliance

* Proposes monetary reward to honest taxpayers  

* Quantum to vary between 1-5% of total tax paid

* Consistent payers, without liabilities to be rewarded first

* Idea is to widen tax base; target to add 12.5 mn in FY18

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