Wanted: An income tax system for India that's fairer and simpler

Tax reforms must fix its current skew in favour of corporate taxpayers and the non-salaried rich

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The interim budget will be presented on 1 February. This will be followed by the budget in July after the next government has been elected. So, this is a good time to talk about the things that the government needs to do as far as India's income tax system is concerned.

First, very few Indians buy term insurance policies. A term insurance policy is an insurance policy that leads to a payout to the nominee(s) in case the policyholder dies during the term of the policy; and if the policyholder outlives the term of the policy, then no payments are made.

Over the years, life insurance companies have primed Indians to buy life insurance in order to save tax. But almost all such policies sold are investment-oriented insurance policies, and not term insurance. This results in most Indian households that can afford to pay insurance premiums having very little life insurance to fall back on in the event of an emergency.

To correct this, a separate deduction of up to 10,000-20,000 every year against the premium paid for a term insurance policy needs to be offered.

This should be over and above the deduction of up to 150,000 that is currently available under Section 80C of the Income Tax Act for investments made in tax-saving mutual funds, tax-saving fixed deposits, the public provident fund and life insurance policies.