Column

I am the parliamentarian,
I make the laws,
And for most of the litigations,
I am the cause.

As I go about my daily duties of planning investments and taxes for my clients, the above words resonate in my ears. One would think over fifteen years, one would have been there and done that — that one would have come across everything that there is to come across as far as income tax law is concerned.

However, I can only marvel at the creativity with which the law makers prove me wrong time and again.

This time, the victims are employees who have availed of employer-provided accommodation. So far (before FY 07-08), as per Rule 3, such persons paid a perk tax of the lower amount between 20% of salary or the amount of rent paid on their behalf by the employer.

The Finance Act 2007 ushered in what at first glance seemed a beneficial amendment by lowering such tax from 20% to 15%. At a time when property prices and consequently lease rents are sky high, a 5% reduction in the tax outgo would indeed bring in a semblance of relief to the harried taxpayer. What’s more, in a show of rare magnanimity, the lower rate of tax was made applicable retrospectively with effect from the previous year (FY 05-06 onwards).

However, the cheer seems to have been premature. While the lower tax rate (15%) has been made applicable by amending Section 17, Rule 3 that specifies the 20% rate has been kept intact. This has now led to the anomalous situation where the law seems to prescribe two different tax rates (20% and 15%, respectively) for the same item of income.

Four months of the current year have already passed and there has been no clarification from the authorities on this issue. Meanwhile, came July 31 and some taxpayers on the advice of their chartered accountants have already filed revised returns claiming the 15% rate for FY 05-06. I used the words ‘some taxpayers’ because there seems to be no consensus amongst the experts on this issue.

There are some who feel that the 15% rate is applicable only in cases where a concession in rent is given by the employer. In other words, where an employee pays no rent whatsoever, the 20% rate as specified by Rule 3 will continue to apply. Yet, there are others who feel that where there is a 1% concession, there could also be a 100% one and the taxpayer notwithstanding whether he bears any rent on account of the accommodation or not, is indeed entitled to the lower rate.

The latter school of thought holds the opinion that an amendment omitting Rule 3 has been missed out of oversight and it is only a matter of time when the same will come through.

Now, these are all opinions and chances are the income tax officer will also have his own. Chances are it won’t be the same as yours. But, there is no chance that your opinion will hold more weight than the tax officer’s. And everyone knows how that story will end.

Which begs the question — when a new law is introduced, especially when it seeks to modify or alter the way things have been done, it is imperative that it is as clear and unambiguous as possible. If it is indeed the intention of the law to have a dual tax structure, how easy is it to be explicit, even categorical about it.

If not in the main provision, an explanation or a clarification could have been added to Section 17, clearly laying out the intended treatment.

And while on this thought, I fervently hope that the government doesn’t actually intend such dichotomous treatment as it will only invite what can only be called antics on the part of taxpayers such as paying a lip service rent of Rs 100 only to avail of the lower rate. This would expectedly give rise to a fresh litigation on charges of alleged tax evasion.

It is the stated intent of the government not only to simplify tax laws but to reduce harassment to the honest taxpayer. However, so far it has not walked the talk. As has been mentioned in this column before, it is high time the authorities learn to discern between the words sucker and succour.

sandeep.shanbhag@gmail.com