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*Mar*
Edited and Improved Version
*Fake Income and Targeting Senior Citizens*
It is reported that senior citizens who may not be filing Income Tax
Returns, but who receive interest on Fixed Deposits and Savings Bank
accounts, could face taxation if this so-called “income” exceeds ₹12 lakhs
per annum. In such cases, tax may be levied from a base threshold of ₹7
lakhs, and they could even be scrutinized for tax evasion.
For many elderly citizens, interest on deposits is not a luxury—it is life
support drawn from lifelong savings. Yet this interest, which is often
lower than the rate of inflation, represents little or no real gain. In
fact, when inflation equals or exceeds the interest rate, the real income
becomes negligible or even negative.
To explain simply: if a deposit earns 10% interest while inflation is also
10%, the real income is effectively zero. Meanwhile, the purchasing power
of the principal declines. Despite this, the nominal interest is added to
taxable income. This can push retirees into higher tax slabs, increasing
the tax burden not only on interest but also on pensions and other modest
earnings.
Inflation steadily erodes both the interest earned and the principal saved.
Yet tax calculations ignore this erosion and treat nominal interest as
genuine income. The result, many argue, is taxation of “income” that does
not truly exist in real terms.
At the same time, land prices often rise sharply. A parcel of land costing
₹1 lakh today may multiply in value within a few years. Unlike fixed
deposits, real estate values can keep pace with or exceed inflation. Thus,
there appears to be an inverse relationship between stagnant monetary
deposits and appreciating physical assets.
This dynamic may produce unintended consequences. To avoid what they
perceive as unjust taxation, some may shift savings into land or gold. Such
shifts can fuel speculative real estate activity, sometimes leading to
environmental degradation—illegal construction over forests, lakes, and
riverbeds. The destruction of ecosystems displaces wildlife and degrades
air and food quality, with long-term risks to public health.
When honest savings are penalized while speculative or black-market gains
seem rewarded, public trust erodes. A tax system perceived as unfair may
inadvertently strengthen the very informal or “black” economy it seeks to
curb.
The broader concern is that economic policies must be aligned with
environmental and social sustainability. If savings instruments lose value
in real terms and are taxed regardless, while asset inflation and
speculative gains go unchecked, society may move toward deeper inequality
and ecological harm.
The issue, therefore, is not merely taxation—it is about fairness,
incentives, and the long-term health of both the economy and the
environment.
— YM Sarma
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My Views
You raise an important concern: *the difference between nominal income and
real income*. Inflation does reduce the purchasing power of interest
earnings, and taxation systems in many countries do not adjust interest
income for inflation. This can feel particularly burdensome for retirees
who depend heavily on fixed-income instruments.
However, a few broader considerations are relevant:
1.
*Tax systems operate on nominal income*
Most countries tax nominal income because adjusting each taxpayer’s
income for inflation would make the system complex and administratively
difficult.
2.
*Inflation affects all income types*
Salaries, business income, and pensions are also taxed in nominal terms.
The issue is not unique to deposit interest.
3.
*Senior citizen relief measures*
Many tax systems provide higher exemption limits, deductions, or special
schemes for senior citizens to reduce hardship. The fairness of thresholds
and slab rates is a legitimate policy debate.
4.
*Asset inflation vs. deposit returns*
While land and gold may appreciate, they also carry risks: illiquidity,
price volatility, legal disputes, and speculative bubbles. Fixed deposits,
though inflation-sensitive, offer safety and predictability.
5.
*Environmental linkage*
The connection between taxation of interest and ecological collapse is
more indirect. Environmental degradation is primarily driven by regulatory
failures, corruption, and unplanned development rather than tax policy
alone.
6.
*Possible constructive reforms*
-
Indexing certain savings instruments to inflation
-
Offering tax-free or inflation-protected bonds for seniors
-
Adjusting tax slabs periodically for inflation
-
Encouraging diversified retirement portfolios
Your central philosophical point is about *fairness to honest savers*. That
is a valid public policy question. A well-designed tax system should
protect vulnerable retirees while maintaining fiscal balance and
discouraging tax evasion.
If you would like, I can also:
-
Refine this into a shorter op-ed (800 words),
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Convert it into a formal representation to policymakers,
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Or help fact-check specific tax thresholds under current Indian law.
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