Most people grudge paying tax on income they earn. Imagine paying tax on income you haven’t earned or may never earn. There are not one or two but several cases where individuals or companies are required to pay tax on income that never accrued or may accrue in future.

Apart from the lack of sound rationale behind such taxes, even calculating the right amount of tax is difficult. Here are three instances of such taxation:

1. Taxing rent from a house that is not let out 
Rising income levels and easier availability of home loans have made it possible for many middle-class taxpayers to own a second home. Under the I-T Act, if an individual owns more than one house, only one property (as per the taxpayer’s choice) is treated as self-occupied. The other property is considered ‘deemed to be let out’ and taxed at the market rental value even if the taxpayer does not earn any income from it.

This is because under the present law, tax is levied not on the rent received, but on the potential of the property to yield income for the owner. Globally, only a few countries such as Switzerland, Iceland, Spain and Belgium tax imputed income on vacant properties. Considering the current slowdown in the real estate sector, removal of this could act as a stimulus for potential buyers.

2. Timing of taxing Employees Stock Option Plans (ESOPs)
ESOPs are a popular tool to attract and retain talent. They are issued free of cost or at concessional rates and are taxable at the time of exercise (when they are granted). Tax is calculated on the spread between the fair market value on the date of exercise and the amount paid by the employee. However, unless the employee sells the shares, the gain is only notional. The issue becomes more complicated where lock-in  conditions are imposed on sale or in cases where companies issuing ESOPs are not listed. The employees end up paying taxes on notional income.

Since the government is committed to creating a vibrant ecosystem for the startup sector, it could consider taxing income from ESOPs at the time when shares are sold and income accrues to the employee .

3. Double taxation in case of approved superannuation fund
An employer’s contribution to an approved superannuation fund in excess of Rs 1.5 lakh is taxable. Superannuation benefits accrue only when the employee retires, usually at the age of 58. The employer’s contribution should be fully exempt without any limit because the current provision leads to double taxation in case of pre-retirement withdrawal or full commutation of annuity.

Source : PTI