Policy hazard: Either-or taxation could send us down a slippery slope

livemint.com:

₹45 lakh. Before 1 April 2019, their sales were charged GST at a rate of 12% with the burden lowered by input tax credit (ITC) for levies on inputs. In response to a plea that much of what went into flats was sourced from the informal sector, with no trail of tax bills for respite, that rate was slashed to 5%, but without any ITC granted.

Apart from cost confusion among builders with partly built residential projects, which sell by and by, the upshot in some cases was differing prices of identical flats within the same housing complex. Such an uneven pitch can tempt a googly, and India’s pre-covid budget delivered one soon for a far larger group: Assessees of income tax. We could either go by the old tax regime, with its rates rising in slabs from 5% to 30% on earnings after claiming tax relief for a clutch of investments, insurance premiums, housing outflows, etc, or forgo deductions to opt for a simplified new regime with lower slab charges.

For folks uneasy about making annual allotments of money just for tax savings, this was a bold display of fiscal justice. Many others, though, got caught between the two options, unsure which works out more favourably. If the privilege that lets salaried earners switch back and forth hasn’t eased the dilemma, nor has the low interest tax-consultants apparently have in freeing clients of complexity.

Authorities can hardly profess surprise that some taxpayers got pushed to the end of their wits. Any choice (barring a Hobson’s) constitutes a ‘Pareto’ gain over none at all, since it favours at least somebody without making anyone else worse off. This theory is behind last week’s bifurcation of capital-gains tax on secondary sales of long-held homes into a choice of paying either 20% of