Income tax concessions : implications for equity and growth of tax base

Abstract

V N KOTHARI (EPW,i February 21) argues that the income tax base in India is being eroded in the name of tax concessions as incentives for savings. On the basis of a broad analysis of the income tax/GDP ratio and some limited hypothetical arguments, he reaches a very serious conclusion that "by extending exemptions to the principal amount invested in particular forms such as the NSC, we have resorted to a costly and inequitous method of borrowing. A full or partial exemption of interest income would have been enough". Considering the profound implications of his conclusions, a detailed scrutiny of his arguments is imperative.