The Central and state governments occasiolly provide certain benefits to sections of the population to help improve their lot. But over time, these benefits become entrenched and thus permanent in character. Inevitably, the benefits are then abused widely. One such benefit is Section 10(26) of the Income Tax Act, under which members of scheduled tribes (STs) in the Northeast as well as tribals residing within district councils set up under Sixth schedule of the Constitution and the Ladakh region — do not have to pay income tax. Even if the origil objective for giving such benefit is fulfilled, its continuance creates a mindset of entitlement. This encourages vested interests, corrupt practices and politics of appeasement. Senior tax officials have often revealed widespread anomalies in claims made for such tax exemption. When the claims are examined, it is found that many claimants do not reside in the area concerned or that area doesn’t have the potential to generate the type of income shown. In the me of being an ST member, such claimants deposit tax exemption running into crores of rupees in banks. Many salaried employees, contractors and supposed donors to charitable institutions, while making claims for such exemption, think that the IT department should not make any enquiries or ask for necessary formalities. But this is a wrong belief. In case after case, higher courts have ruled that the source of the income for which tax exemption is sought to be claimed — must be within the areas specified in the income-tax rule. So the benefits for ST members are area-specific and subject to specific conditions. The Central government has on more than one occasion made it clear in Parliament that the income tax exemption for Northeast and Ladakh tribals will not be extended to other tribals in the rest of the country. This is because the country is moving towards a uniform and moderate tax regime, so various exemptions and deductions under the Income-tax Act need to be phased out in due course. Just like rich farmers not paying tax has caused distortions in our primarily agrarian country’s economy, the thinking among rich tribals that it is their permanent right not to pay any income tax — bears serious implications for the economies of concerned tribal states.
food for thought