Biggest Benefit of Demonetisation:Low Payment of Taxes,Hopefully!

What is proposed: Change in slab rate will be as follows:

Why is it done: 

a) To increase growth rate. Less rate of taxation will provide more disposable income in the hands of tax payer. More disposable income will ensure increased expenditure on goods & services which will in turn compensate the fall in GDP done by demonetisation.

b) To enhance the tax base. With increase in basic exemption limit and changes in slab rates, more people will be enticed to pay taxes as compliance cost have reduced due to change in slab. This increase in tax base will somewhat compensate the fall in direct tax revenue to be borne by government, due to change in slab rates.

c) When Returns will be filed for the first time by lot of tax payers due to such proposed changes in slab rate, tax department will come to know about such cases.  The tax department will then issue notices to such assesses who filed return for the first time,to know the reasons for which return was not filed in earlier years. In case there used to be income in earlier years also, exceeding the exemption limit,which were concealed by such first time return filers, the government will be able to recover taxes on such concealed income along with penalty. Such powers to issue notice, recover taxes along with penalty are given by virtue of Section 147 &148 of Income Tax Act, 1961. No doubt there will be increase in litigation for the time being but such issuance of notice and recovery of taxes and penalty will augment government’s direct tax kitty.

Keep connected for further updates on demonetisation move of government. If you have any query regarding this article or related to anything in the world of taxation, do post your query at the Quaremon section of the website. I will try to revert back to your query at the earliest.