MP Raghav Chadha, in a notable policy proposal presented in Parliament, advocated the introduction of an optional system for joint filing of Income Tax Returns (ITR) for married couples.
The proposal aims to address perceived tax inequities between single-income and dual-income households.
Raghav Chadha contended that the current income tax system evaluates individuals independently, despite their belonging to the same household and sharing financial obligations.
Example Showing Tax Distinction
To elaborate on the issue, Chadha shows two hypothetical families:
Family A – Dual-Income Household
- Spouse 1 income: Rs 10 lakh
- Spouse 2 income: Rs 10 lakh
- Total household income: Rs 20 lakh
- Total tax liability: Rs 0
Family B – Single-Income Household
- Spouse 1 income: Rs 20 lakh
- Spouse 2 income: Rs 0 (stays home to raise a child)
- Total household income: Rs 20 lakh
- Total tax liability: Rs 1.92 lakh
Even after that, both families are making the same combined income, and the second household ends up paying more tax due to the reason that the whole income is attributed to a single taxpayer.
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Family Ignored in Tax Calculations
Also, Chadha mentioned that while a married couple shares one home, one kitchen, and one household budget, the tax system considers them as separate individuals.
He cited that at present, no provision is in place for clubbing income or sharing rebates between spouses in these cases, which may disadvantage families with uneven income distribution.
Introducing an Optional System Proposal
Chadha’s proposal is for an optional joint tax filing system, permitting married couples to opt whether they desire to submit taxes jointly or individually.
On execution of the same system, households with uneven income distribution could potentially reduce their tax liability, similar to the way joint tax filing works in several other countries.
Under the proposed concept, both the families given as an example with a total income of Rs 20 lakh could pay zero tax, provided the applicable deductions and tax slabs allow such treatment under a joint filing framework.
Feasible Policy Implications
If opted, joint tax filing could have various implications:
- Greater tax neutrality between single-income and dual-income households
- Recognition of shared household finances
- Potential tax savings for families with a single primary earner
The same amendment shall need changes to the income tax framework of India and a detailed policy analysis concerning revenue implications and fairness among taxpayers.
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For the present time, Chadha’s proposal specifies a broader discussion on family-based taxation and tax equity in India’s personal income tax system.
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