Tax vs Justice: When Laws are Unfair to the Common Man
Picture busting your butt every day, paying taxes on time, obeying all the rules — and still feeling as though this same system is crushing you. That’s the world of millions of everyday Indians now. The tax laws in India have been drafted with the objective of raising money to support Government spending for public welfare, but some, including experts think that even today these are more of a problem than a solution for an aam admi. From bewildering forms to punitive punishments and delayed refunds, the tax system sometimes seems as if it’s designed to be at odds with the people it should serve.
The Promise vs The Reality
New Delhi’s tax system runs on a basic principle: The government spends the money citizens pay in taxes on public services like roads, hospitals and schools. In theory, this sounds fair. Everyone gives what they can, and everyone gets something. But what if the rules are so complicated that regular people can’t understand them? What is it like when small mistakes come with enormous costs?
The Income-tax Act, 1961 is the main act portraying tax laws in India and there are other acts relevant to different taxpayers as well. For a common salaried individual or a small business proprietor, this maze is impossible to penetrate without professional assistance. The average individual does not have access to an army of tax and charter accountants, but they are subjected to the same convoluted rules that apply to multinational corporations.
Quick Facts
5.8 Cr – Individual Tax Returns Filed (2023-24)
298% – Late Filing Penalty Increase
120 Days – Average Refund Processing Time
Where the System Goes Wrong
Complicated Rules That Confuse Everyone
Today we’re discussing the confounding nature of tax laws. Consider the case of Rajesh, a middle class software engineer from Pune. He received his Form 16 from his company, which had all the salary details. He figured his return would be straightforward. But when he attempted to avail deductions for his home loan, health insurance and children’s education, it was a maze of sections — 80C, 80D, 24(b) etc that threw him off. One silly mistake in reporting the bank interest cost a Gentleman a notice from the Income Tax Department after few months.
This confusion isn’t rare. Hundreds of thousands of taxpayers each year receive notices over relatively minor discrepancies, perhaps between what their employer or bank reported and other information they entered on their return. Instead of resolving these issues easily, citizens have to engage in a long bureaucracy process demanding clarifications, sometimes paying for tax experts at their own expense.
Penalties That Don’t Fit the Crime
Here’s where it becomes really unfair. Miss filing your income tax return by a day after the July 31st deadline, and you will have to pay ₹5,000 as penalty. If your income is below ₹5 lakh, the fine will be ₹1,000. But there’s a catch: There is no difference between someone who never filed by mistake and someone who actively failed to file.
Common Tax Penalties in India
Offence
Fee Penalty
Highest Punishment
Failure to file return on time
₹1,000 to ₹10,000
Ineligibility for carry forward
Not paying advance tax
1% interest monthly
12% per annum
Underreporting of income
50% of tax + interest
200% penalty in case of misreporting
Not replying notice
₹10,000
Assessment issued without hearing
TDS mismatch
Interest levied over unpaid tax
Refund adjusted against demand or additional demand
Compare that to the way big corporations are handled. Big companies that have delayed payment of crores usually reach settlements, are given additional time and face penalties in proportionately lower amounts. A businessman who has evaded ₹10 crore in taxes might get away with doing it if not for something less than a tenth of that using different legal tools. But a small business who simply made an unintentional mistake on his GST calculations suffers the wrath of instant fines that may well lead to closure.
The Refund Delay Drama
So how about something that drives millions of people bonkers: their tax refunds. So, when you have paid an excess amount of tax — be it in the form of TDS (Tax Deducted at Source) or advance tax — you are eligible to get that money back. The law requires such refunds to be processed speedily. In fact, many people wait months and years.
Priya, a Delhi-based teacher had TDS of ₹45,000 deducted on interest earned from fixed deposits. She submitted her return in August 2023 and was waiting on her refund to be delivered in October. She got that, too — six months after the fact, in February 2024. She could have used that money then — for her daughter’s school fees — and ended up borrowing from relatives. The government paid her interest on the delayed refund, but it didn’t alleviate her immediate financial hardship.
Did You Know? The Central Board of Direct Taxes (CBDT) has said more than ₹2.4 lakh-crore worth of refunds are carried by Income Tax Department at any given point in time. Although efforts have been made by the government to address this through automation, on the ground it is seen that many bonafide refunds get ensnared in the verification process.
Tax vs Justice: When Laws Fail the Common Citizen
GST: Another Layer of Burden
When the Goods and Services Tax (GST) was rolled out in July 2017, the government had sold it as “One Nation, One Tax” — a formula to integrate multiple indirect taxes into a single system. It brought a measure of uniformity to the consumer. For small businesses and traders, however, it turned into a nightmare.
Mohan owns a small electronics store in Jaipur. Before GST, he was submitting just one or two tax returns a year. As of now, he needs to file GSTR-1 (sales return) and GSTR-3B (summary return) every month. That’s 24 returns per year, each with its own due date. If he misses a deadline, the tax bill is accompanied by penalties and interest; sometimes he even loses the right to produce his own invoices — which could result in his business closing its doors overnight.
Digitalization of most tax processes by the government. You can e-file returns, track refunds and receive notices by email. This sounds modern and efficient. But here’s the rub: Not everyone has equal access to technology or facility with it.
Many people in rural areas and older people have trouble with online portals. Computers and stable internet are too expensive for them. Even in metropolitan areas, the tax portals often collapse during peak filing season and cause some to miss deadlines when their failure to file is not the fault of such individuals. The I-T portal had witnessed major technical glitches in July 2021 which had led to lakhs of taxpayers not being able to submit their returns on time. Even given the extension of deadlines, the anxiety and uncertainty persisted.
Tax Compliance Burden Comparison
Category
Annual Filings
Large Corporations
12-15 Returns
Medium Business
24-30 Returns
Small Traders
30-36 Returns
Individual Salaried
1-2 Returns
When it Costs Too Much to Defend Yourself
What do you do if you get a misaddressed tax notice? In a perfect world, you would prove yourself right and the issue would be done. In fact, the appeals process is time-consuming, expensive and traumatic.
The tax dispute resolution mechanism has various tiers such as first appeal before Commissioner of Income Tax (Appeals), then in ITAT, High Court and lastly in the Supreme Court. Each level of the process is time-consuming — it often takes years — and demands legal representation.
Suresh, a small-time manufacturer in Coimbatore, got a demand notice of ₹8 lakh over some wrong calculation by the tax officer. He knew he was in the right, but fighting the case entailed hiring a tax consultant for ₹50,000 and waiting two years before getting his day in court. His bank account was attached during this time period — in other words, he couldn’t get at his own money. His business was hurt, his orders were stalled and he had a blow to his reputation. When he eventually won the case, for two years there was no recompense for all his loss.
The Fear Factor
Then there is aggravated assault in the form of fear created by tax law. Many honest tax payers are living in fear of notices. They both have heard horror stories of tax raids, account seizures and harassment. This fear makes them overly cautious — some will go so far to avoid drawing attention that we refuse to take even the deductions we are allowed.
Tax officers have substantial powers under the Income Tax Act — they can search premises, seize documents, attach bank accounts and arrest individuals in the most egregious cases. Though they are meant to snare tax cheats, they can also sweep up law-abiding citizens who made honest mistakes or could not make sense of complicated rules.
Who Pays the Real Price?
What Do We Mean? Let’s see who ultimately gets hurt by these cruel tax laws. It’s not the super-rich or mega-corporations armed with teams of lawyers finding tax shelters. It’s the middle class — the salaried professionals, small business owners, teachers and doctors with small clinics, shopkeepers.
These are people who can’t pay for fancy tax planners. They are not able to afford the hiring of lawyers for long battles. They do not have contacts for quick resolutions. A tax notice is more than a financial matter for them, it’s a cause of embarrassment, tension and family troubles.
Impact Analysis by Tax Category
Tax Category
Access to Resources
Impact of Harsh Laws
Large Corporations
Full-time tax departments, CAs, legal teams
Minimal – can negotiate and delay
High Net Worth Individuals
Personal tax advisors, wealth managers
Low – can structure finances optimally
Salaried Middle Class
Limited or no professional help
High – face full brunt of penalties
Small Businesses
Occasional consultation, mostly self-managed
Very High – can destroy livelihoods
Steps Toward Real Justice
So what can be done? How can we make tax laws fair for the people with less?
1. Simpler Language and Clearer Rules
Our tax laws should be written in plain English and understandable to the average American. Instead of saying “Section 80C of the Income Tax Act, 1961,” why not just write: “You can save tax on money you give as school fees for your kids, life insurance or a public provident fund—up to ₹1.5 lakh each year.”
2. Proportionate Penalties
The severity of the punishment should match the degree of error. There’s a difference between someone who missed the deadline for filing by a day and someone who intentionally avoided reporting their income. First time offenders who made honest mistakes should be given warnings and a chance to correct, not immediate heavy fines.
3. Faster Dispute Resolution
The Vivad se Vishwas scheme that was launched in 2020 and served as an invitation to people to settle old disputes by paying the disputed tax without having to pay any interest or penalties might be a step in the right direction. There are needed more such mechanisms, including fast-track courts for small tax disputes under ₹10 lakh that can set 90-day resolution targets.
4. Better Taxpayer Services
Special help desks for common man be set up in the tax department. Free tax literacy campaign widely in schools, colleges, and community support. The government’s Aaykar Seva Kendra initiative is good but we need many more such centres across India, particularly in tier-2 and tier-3 cities.
5. Accountability for Wrong Notices
When a lackadaisical tax officer sends out an erroneous notice that creates pain in the life of citizen — account frozen, business disrupted, mental tension — consequences ought to happen. Currently, there’s no real accountability. Officers who consistently make mistakes or harass taxpayers should be subject to disciplinary action by the department.
Recent Good: The Income Tax Department has introduced faceless assessment and faceless appeals to cut harassment and corruption. You never actually meet the officers who evaluate your case under this system, offering fewer opportunities for bribery or intimidation. It is hard to implement, but as a step toward more fair treatment of the taxation process, it’s welcome.
What Can Citizens Do?
While waiting for broader changes, here’s what the average citizen can do to help safeguard themselves:
Retain all the records: Preserve salary slips, Form 16s, bank statements, investment proofs and rent receipts for at least seven years. Digital and physical both.
File on Time: If you are unable to pay the entire tax by the due date, file your return anyway. You may be able to pay later with interest, but late filing brings more penalties.
Check Everything, Again: After filing your return, check to make sure you can verify it within 120 days. Verify in Form 26AS if its reflects all the TDS.
Respond to Notice Promptly: When you receive a notice, do not be alarm and ignore it. Answer within time frames with the right documents. Ignoring makes things worse.
Call for Help: When the situation is complex, buy expertise. It’s less expensive than the penalties and legal fights down the road.
Know Your Rights: You have the right to defend yourself, appeal and fair consideration. And don’t be bullied into accepting wrong requests.
For comprehensive legal guidance on tax matters and citizen rights, visit https://zistalegalis.com for expert assistance.
The Bigger Picture
This is not just a matter of tax laws; it’s a question about the nature of the relationship between citizens and state. A just tax system is one in which people cough up their full share happily, because they believe the money will be well spent and that they are being treated with respect. When laws are turned into instruments of harassment, rather than tools of justice, that trust is corroded.
India is still a developing country with vast needs — infrastructure, health care, education and poverty reduction. All of this takes money, and that money comes from taxes. Nobody disputes this. But deriving taxes doesn’t have to equal brutalizing those who are legitimately working to contribute to the nation’s advancement.
With the current system, it often seems as if the priority above all else is to maximize revenue collection — no matter how much that process disrupts ordinary citizens’ peace of mind, financial well-being and human dignity. Real justice is that which strikes a balance between the state’s right to revenue and the individual citizen’s entitlement to fare treatment.
The Road Ahead
It is possible to change but will the Government and responsible citizens (across civil society) have the political will, administrative revival and citizen participation? When tax laws screw the little guy, they’re screwing the country. A wealthy India requires not just big tax revenues, but a system in which people respect the law and each other, one where everyone is treated proportionally, irrespective of wealth and connections.
The answer to whether we can afford tax justice is a political one, but it depends on what kind of country we want to be. That is the sort of system which we want, in which the powerful escape and the weak are punished. Or do we want a system where everybody pays their fair share and everybody is treated with dignity? The answer should be obvious. But we all have an obligation to make it reality.
Tax vs Justice: When Laws Fail the Common Citizen
Frequently Asked Questions
What if I get a notice from the tax authorities that I think is mistaken?
Don’t panic or ignore it. To begin, read the notice closely to determine what is being alleged. Verify your documents — Form 26AS, AIS (Annual Information Statement), bank statement and returns filed. If you think it’s an error, reply within the deadline stated (usually 30 days) and include documents that support your case. You can answer online via the e-filing portal. If the problem is too difficult, engage a chartered accountant or tax expert. Keep in mind, timely responding is important — non-response can result in ex-parte order and award against you.
Can tax officials block my bank account? Under what circumstances?
Yes, under Section 226(3) of the Income Tax Act, tax authorities can provisionally attach your bank accounts if they suspect that you aren’t likely to make payment on demand for tax made on you. But this power is limited — they must have authority from senior officers, give you notice and the attachment is temporary (usually for six months but can be extended to two years). It’s a serious sort of provision, for situations in which there’s concern that money might be moved out. If you think the attachment is not in order, you can go to the Commissioner of Income Tax or the High Court for relief.
What is the duration in days it takes for refunds by Income Tax Department?
As per law, which also indicates that the refund must happen within 30-45 days after e-verification of your return. But 2-4 months is often the reality. Such delays are triggered by pending verifications, mismatch in details, technical errors or just the volume of returns. You can check your refund status on the Income Tax e-filing portal or through NSDL with your PAN and assessment year. If the amount you receive as refund is excessively delayed, then in addition to your refund, you can also request interest @ 0.5% per month from April 1st of the assessment year concerned.
What are the charges in case of not filing income tax returns?
If you fail to file returns within the deadline of July 31, you are slapped with a late filing fee as per Section 234F. There is a late fee of ₹5,000 for those whose income exceeds ₹5 lakh. On income up to ₹5 lakh, it’s ₹1,000. But if you file after December 31 of the assessment year, the penalty doubles to ₹10,000 (₹1,000 for income less than ₹5 lakh). You also forego the option to carry forward some losses and could be subject to interest at a 1% a month rate on unpaid tax. The point is to get a filing out as soon as possible even after the due date — better late than never.
Are small businesses and large corporations treated equally on tax?
On the books, tax laws are supposed to be applied equally to all. There are differences in practice, though. Big businesses enjoy presumptive tax, pre-ruling services and relationship officers in tax divisions. They may settle through intermediaries such as the AAR or the Income Tax Settlement Commission. Small, especially GST businesses are under very close watch and non-compliance calls for instant penalties. But, there is a bit of a savior from the government – if you run your business and have turnover below Rs 2 crore, you are eligible to choose presumptive taxation under Section 44AD where the calculation benefits can be relished.
If there is a wrong tax demand and I suffer financial loss, can I claim compensation?
This is because, there’s no specific provision in the Indian tax law for claiming damages due to wrong tax assessments or wrongful attachment of property. But if you win your case, by appeal or otherwise, you make money on the excess tax paid. If you face harassment or the commission of illegal action by some tax officers, that can be reported to their seniors, approached Lokpal or filed writ petitions in High Court for getting relief. There are just a few documented judicial decisions involving events of particularly egregious proven harassment, which have resulted in damages being awarded, however. The only surefire protection is to keep perfect records and promptly respond to any correspondence from the tax authorities.
