Tax laws should be same for all Indian citizens

  • Tax laws should be same for Indian citizens; religion, caste or tribe should not be basis for providing benefits; discrimination on a/c of religion, caste or tribe should be prohibited; Benefits given on basis of backwardness measured by income and education deficiency.

I was surprised to read about a Madras High Court judgement which ruled that salaries received by missionaries and nuns of catholic church for teaching services are liable to be subjected to Tax Deduction at Source (TDS) under Section 192 of the Income Tax Act 1961. Simply put the Court held that that the salaries were received by them in their individual capacity so tax had to be deducted. How they used their income i.e. surrender of salaries to church was not the tax departments concern.  


Catholic institutions argued that since priests/nuns had taken a “vow of poverty as per which they had to surrender their personal income to the Church/Diocese, no income effectively accrued to them. Arguing in the Supreme Court, senior advocate Arvind P Datar said that, “Recognizing this, they have not been subjected to income tax since 1944”.


While the Supreme Court has stayed the Madras High Court order and will decide what surprised me is that it took from 1950 to 2019 for the matter to be escalated


The relevant section 192 (1) of the Income Tax Act 1961 reads, “Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year”.


Note that section 192 has no reference to the religion of the assesse.


This is not the only instance of Indian laws being contrary and discriminatory.  


1. In Manipur, the Meitie community (Hindus) are liable to pay income-tax, whilst Scheduled Tribes are not. Here is why. 


According to section 10 (26) of the Income-Tax Act (excerpts), "A member of a Scheduled Tribe, as defined under clause 25 of article 366 of the Constitution, who resides in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura is exempt from paying income-tax on any income which accrues or arises to him in these States".  


So even though tribals have converted to Christianity, they are considered ST for the purposes of income-tax exemption.


Can one be a Scheduled tribe and Christian?  

Does it matter that this exemption has become a route for tax evasion. Debashis Basu wrote in the Business Standard of January 9 2017: "The buzz in Kolkata is that this is the conversion route used by many politicians. Some tribal communities of the Northeast are exempt from paying income tax. According to reports, thousands of crores have been transferred from other parts of the country to the Northeast”.


2. Ever since the state of Punjab was formed in 1966 it had a Sikh Chief Minister because the majority population is Sikh.

Here is the twist. A 2007 judgement of the Punjab and Haryana High Court held Sikhs not be a minority in Punjab. This meant that educational institutions run by the Shiromani Gurudwara Parbandhak Committee (SGPC) were not granted minority status. 

In support of its order the High Court stated that the Sikh community was numerically strong, the statement government had not produced any evidence to show that the rights of Sikhs were trampled upon in anyway.


The SGPC appealed to the Supreme Court who stayed the High Court order. Whilst doing an online search got to know that the last time SC heard the matter was in January 2016 when Justice T.S. Thakur was CJI.


Is 2007 to 2019 adequate time to give a final order?


Pending a Supreme Court order means that the provisions of the Right to Education Act, do not apply to educational institutions run by the SGPC. This Act provides that private schools set aside 25% of their seats for students from poor and disadvantaged groups.


Note that Sikhs are considered a minority under Article 30 (rights of minorities to establish and administer educational) but are a Hindu under Article 25 which reads "In sub-clause (b) of clause (2), the reference to Hindus shall be construed as including a reference to persons professing the Sikh, Jain or Buddhist religion, and the reference to Hindu religious institutions shall be construed accordingly." 


Can a community be a minority and Hindu?


Yes because the Indian Constitution does not define the word minority and specify a population percentage beyond which a community ceases to be a minority


3. More on this minority business.


From 1950 to 2014 Jains were not considered a minority till the Congress declared them to be one before the 2014 polls.


Sikhs began to be considered a minority only after the Khalistani Movement, targeted at Hindus, and the Congress-orchestrated 1984 riots. 


In fact “when Akali leaders approached the then Prime Minister, Morarji Desai (PM from 1977 to 1979) and Deputy PM Charan Singh to declare Sikhs a minority community, both turned down the request on the grounds that they regarded Sikhs as a part of the Hindu community.” A History of Sikhs, Volume II by Khushwant Singh


Today, Sikhs and Jains are considered to be a minority by the Reserve Bank of India and for government schemes. Here is the twist.

Under the Income-tax Act Sikhs and Jains are considered Hindus meaning they can form a HUF (Hindu Undivided Family).


A HUF is a separate entity (person under section 2 (31) the Income-Tax Act). "Under Hindu Law an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters". 


The HUF is recognised by the income-tax department only when there is an income-generating asset. Once recognised it gets a separate Permanent Account Number and is taxed separately. If structured sensibly HUF can become an efficient tax planning tool.


Can Sikhs and Jains be a minority and Hindu?


4. Although the Indian state aims to remove caste and religion based affiliations its policies only reinforce them.


Let us take the case of the education sector. This NDA-2 government informed the Rajya Sabha on 7 February 2017 that it runs nine schemes for education empowerment of the notified minorities.


According to this Swarajya article by Arihant Pawariya, the ministry of human resource development justifies such schemes on the basis of Article 46 which reads:


“The State shall promote, with special care, the education and economic interests of the weaker sections of the people, and, in particular of the Scheduled Castes and Scheduled Tribes, and shall protect them from social injustice and all forms of social exploitation.”


Since this forms part of the Directive Principles of State Policy , it is not binding in nature. Note that Article 46 refers to weaker sections esp. SC/ST and not minorities even though Arihant argues that they are the biggest beneficiaries today.


The working of this article implies all minorities belongs to weaker sections, need government scholarships whilst Hindus are all financially well-off so do not need help.


5. The Constitution provides for reservations for scheduled castes and tribes, albeit for a period of ten years, notwithstanding that the word SC was first introduced in the Government of India Act 1935 and the word ST around 1948. 


Because of its benefits, community after community wish to be declared a ST or SC. Two examples. The Dhangars of Maharashtra (shepherd community to which belonged Ahilyabai Holkar) and Nishads (boatman community of Uttar Pradesh) are agitating to be declared ST.


When the constitution was written, reservations for SC and ST were made because of alleged discrimination for centuries. But today other communities are agitating to be declared one, because of reservation benefits, with politicians being only too eager to oblige.


According to this 2016 Economic Times report the Akhilesh Yadav state government gave its accent to include 17 Other Backward Castes in the Scheduled Castes (SC) list. I am sure there are many more examples.  


Our laws have got complex and created vested interests in status-quo.


Any attempt to treat all Indians equally before law means inviting public interest litigations and being accused of infringing upon right to religious freedom. It could also find a mention in the United States Annual Report on International Religious Freedom.


Nations are built through amalgamation of identities not by continuously creating differences.  


But is there a way to dismantle this system of discrimination, being colonial in origin?

Here is a four point action plan: Tax laws should be the same for all Indian citizens; Religion, caste or tribe should not be the basis for giving benefits; Discrimination on account of religion, caste or tribe should be prohibited; and Benefits given on the basis of backwardness measured by income and educational deficiency only.

Who will change the status-quo?


Sanjeev is a Chartered Accountant and founder 

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