The Debate

[Yeddanapudi Markandeyulu]

I understand your frustration. Let me restate your argument in its pure, simple form, without dilution and without technical complication.

Your core point is this:

• If interest = inflation, real income becomes zero.

• Even then, tax is charged on the nominal interest.

• Meanwhile, the purchasing power of the principal declines.

• Therefore, the saver becomes poorer in real terms.

That is your fundamental grievance.

You are not making a mathematical curiosity. You are making a moral claim:

A retiree who earns no real income should not be taxed as if he has earned income.

That is a clear and coherent position.

Now, about the principal:

When inflation is 10%, ₹1,00,000 after one year has the purchasing power of roughly ₹90,000 in previous-year terms. Whether we say “the principal becomes ₹90,000” or “its purchasing power equals ₹90,000,” the lived reality for the retiree is the same: he can buy less.

Your second point is also simple:

• Land prices in India often rise sharply.

• Bank deposits remain numerically fixed.

• Over time, deposits lose relative economic strength compared to land.

That comparison creates psychological and financial pressure:

Retirees think:

• “My deposits are shrinking in real value.”

• “Land values are rising.”

• “Maybe I should shift.”

And in India, as you point out, this shift has consequences. Unscrupulous developers have built illegally over lakes, wetlands, parks, and riverbeds. Environmental damage has followed. That part is not theoretical — it is visible in several cities.

However, here is where I must be intellectually honest with you.

The taxation of interest may contribute to dissatisfaction with bank deposits.
But environmental destruction is primarily caused by:

• Weak enforcement of land laws

• Corruption in local governance

• Speculative greed

• Urbanization pressures

Tax on interest may be one irritation among many — but it is not the central driver of ecological collapse.

If you want your argument to remain powerful, keep it disciplined:

Strong Version of Your Argument:

• Inflation reduces real returns on fixed deposits.

• Taxing nominal interest during high inflation reduces real savings further.

• Retirees depending on fixed income instruments are especially vulnerable.

• Policy should consider inflation when taxing conservative savers.

Weaker Version:

• Tax on interest causes biosphere destruction and civilizational doom.

When you mix the second into the first, critics will dismiss the entire piece — even the strong part.

You are correct that the issue is simple:
Inflation eats returns. Tax ignores inflation.

That is the clean core of your case.

But if you want policymakers or serious readers to engage with you, the argument must remain proportionate. The moral force of your concern for retirees is strongest when it is not stretched into apocalyptic conclusions.

If you wish, I can now rewrite your piece in a way that preserves your intensity but makes it unassailable logically.

[Rajaram Krishnamurthy]

KR     Chat GPT analysed the weakness of the argument but left to elaborate on the point. One point is about the FDs of the bank. 2^nd mute point was land price; IS IT NOT A FACT THAT ENHANCEMENT OF LAND PRICE IS ALSO DUE TO INFLATION, GIVING AN APPEARANCE OF HUGE INCOME? THEN CAN IT BE TAXED? IF SAY NO, THEN THERE IS FALLACY IN ARGUMENT OF DISTINGUISHING THE FD AND LAND; IF “YES” THEN ONLY THE INFLATION IS TAXED SO PARIPASU TAXING THE FD IS RELEVANT AS THAT OF LAND. So then leaving fd if land is taxed at higher rates also one may squeal. So it is not the inflation or fake income whether FD or LAND; it is paying the tax which is less than 1/6^th, which was paid by the ancestors to the Kings silently. Ofcourse, then we may demand that as GDP is crossing high marks, all shall pay tax on real or fake income whether ag land or others. That is forceful thinking where politics must be bent to accept. Savings were blocked by Chidambaram cong when Singh Manmohan was PM. WHERE ONE SECTION SHALL NOT SAVE WHY SHOULD OTHER LANDOWNERS WHOSE INFLATED VALUE IS CRORES SHALL BE SPARED? If we may hear at least a million voices well there is a dawn across.   K Rajaram IRS 26226

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[Markendeya Yeddanapudi]

So much of obfuscation!!!

1)Fixed Deposits are unchanging numerical figures.

2) The interest on FDs does not change.Its real value dies because often the rate of inflation is more than the rate of interest.

3) The Capital value of the Fixed Deposit gets corroded by inflation.

4) The net effect is loss and there is no income at all.

5) Still the interest is added to the taxable income bloating the total taxable income.

5) As a result of the bloat the assessee gets dragged into a higher income slab,and his other incomes,pension,rent etc get overtaxed.

6) Interest has no protection from inflation.Pensions are protected by DA increase.Other incomes like rent,commission,fee etc automatically increase as part of inflation.

7) The fake income increases the total taxable income dragging those who otherwise need not pay any tax.

8)As a result of the disastrous inclusion of the fake income,Banks no longer can get many deposits and the money is getting diverted into the black money economy.

9) As a result land prices sky rocket, killing the real value of Fixed Deposits.

Ym Sarma

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Mar

[Rajaram Krishnamurthy]

Thanks for the explanation. Fake income 3

What is obfuscation or obscurity about taxation of int on account of inflation?  Only taxed money is invested to earn more money; so income is not one-time-taxation; every time, taxed money is deployed, and attempted to earn, that revenue had to be taxed. So the interest on fixed deposit. And salary. Pension is also only inflated but can be taxed by the author as it is supported by additional revenue which is obfuscation. All tagged to salry and pension are only extra revenue sanctioned for other needs and efforts; DA is defined as,” Dearness Allowance (DA) is a cost-of-living adjustment allowance paid to government employees, public sector employees (PSEs), and pensioners in India to mitigate the impact of inflation. It is calculated as a percentage of the basic salary, revised periodically (usually twice a year) based on the Consumer Price Index (CPI).”. Yes, bank interest rates generally take inflation into account, but they do so by reacting to it rather than perfectly offsetting it in real-time. Central banks, such as the Reserve Bank of India (RBI), use interest rates as a primary tool to control inflation, which subsequently dictates the rates banks offer to customers.

Here is how bank interest rates factor in inflation:

The Reaction Mechanism: When inflation rises (prices increase too fast), the central bank raises the repo rate (the rate at which it lends to commercial banks) to slow down economic activity, curb spending, and control inflation.

Impact on Deposits & Loans: When the central bank hikes rates, banks increase the interest rates on savings accounts and Fixed Deposits (FDs) to attract deposits, and increase loan rates to make borrowing more expensive.

Real Interest Rate (Actual Return): While your bank account shows a nominal rate, your actual gain is the Real Interest Rate, calculated as:

 

Example: If a bank offers a 7% FD rate but inflation is 5%, your real return is 2%.

Negative Real Rates: If inflation is 7% and the bank only pays 5%, your real return is -2%, meaning your purchasing power is actually declining despite the bank paying you interest.

  Hence deduction of one income is protected and another income is not-is only a fallacy. Every fixation of price or allowance is taken care only wrt the inflation, hence enhanced cost and sale price, or enhanced salary pension, interest payment, compensation enhancements so on so forth. And the joke part of it, is in no country, inflation real value is deduced and compensated; approximate value after the impact alone is received on pro-rata basis. So also in Banks. The author adduces the real inflation for bank and deduce a loss while even in salary and pension, loss is incurred.

        Taxation in India is primarily based on real income, which is actual income received or accrued, rather than notional or expected income. It is categorized into five heads—Salary, House Property, Business/Profession, Capital Gains, and Other Sources—taxed at applicable slab rates (0% to 30%+) or special rates, with deductions available.

Real Income Concept: Tax is levied on actual financial gains. For example, ESOPs are taxed on the difference between Fair Market Value (FMV) and exercise price at the time of exercise, not on future potential value.

Income from Other Sources: Includes interest, dividends, and gifts. Winnings from lotteries, horse races, or online games are taxed at a flat 30%.

Real Estate Taxation: Income from house property is taxed on rental income (net of 30% standard deduction). Capital gains on property sales are taxed based on holding period and, since July 23, 2024, at a 12.5% long-term rate without indexation.

Business/Professional Income: Small businesses with turnover  crores can opt for presumptive taxation, declaring  ( for digital) of turnover as income.

         The Supreme Court of India has established that "real income"—not merely notional or accrued income—is taxable based on actual, enforceable rights and commercial reality, often disregarding strict book entries. Courts emphasize a holistic assessment over mere tax returns, particularly in matrimonial or dispute cases.

Key Apex Court Decisions on Real Income:

Godhra Electricity Co. Ltd. v. CIT (1997): The Court emphasized that income tax is levied on real income, not hypothetical income. In a mercantile system, if income has not resulted in an actual, enforceable claim to receive the amount, it cannot be taxed.

Kiran Tomar v. State of UP (2022): The Supreme Court held that Income Tax Returns (ITRs) are not conclusive proof of a party's "real income," especially in matrimonial disputes. Family Courts must conduct a holistic assessment of evidence to determine actual earnings.

E.D. Sassoon & Company Ltd. v. CIT (1955): This foundational case established that income "accrues or arises" only when the taxpayer acquires a legal right to receive it.

CIT v. Shoorji Vallabhdas & Co. (1962): The court held that if income does not result at all, there cannot be a tax, even if book entries exist. The concept of "real income" cannot be ignored.

Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971): The Court ruled that entries in books of account are not determinative of the true nature of transactions; tax should be levied on the correct income in the correct year.

Core Principles Established:

Substance Over Form: The reality of the transaction is more important than technical book-keeping.

Commercial Expediency: If income is surrendered or not received due to genuine business reasons, it is not taxable as real income.

Accrual Reality: Income must be legally receivable to be taxed under the mercantile system.

        So desperation of individuals in non-complained is a pure self-centered thinking and expressions of individual dissatisfaction, and thete is no obscurity.

K Rajaram IRS 26226