Monday, November 29, 1999

What to expect from the revised tax code

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The revised discussion paper on Direct tax code is finally out. There were several expectations on personal taxation and many of those have been accommodated in some ways. Exclusion of employer's contribution to approved PF/superannuation etc. upto a certain limit, restoration of medical facilities/reimbursements benefits subject to enhanced limits and EEE basis of taxation for long term retrial benefits are indeed a welcome step. It would particularly benefit to the lower income group salaried employees as they would not come into the tax net if their income after excluding the retrial benefits and/or employer's contribution to PF etc remains below taxable limit. Otherwise, these individual would have paid at least some tax under the proposed tax structure as contained in the DTC. If one look at the unmet expectations, salaried class was looking for continuation of House Rent Allowance (HRA) exemption as in today's scenario work force is highly mobile and pay rent for staying and working in a place away from their home. The salaried classes have very less exemptions/ deductions available to them and it is a class of taxpayers who are virtually taxed on their gross income. Therefore, there should be a standard deduction available to them as all other assessees earning non employment income have admissible expenses which can be set off from the income and only the net income is subjected to tax.While allowing deduction of housing loan interest is welcomed but keeping in view the high cost of constructions and interest rate, expectation was for a higher limit rather than the existing Rs. 1.5 lac for one property which is not let out. Some relief is expected to accrue on transfer of listed equity shares or units of equity oriented fund held for more than one year as a deduction at specified percentage is proposed to be allowed while taxing the capital gains arising from such transfers.Last but not least, transfers in nature of reverse mortgage not exempt under the definition of 'transfer' under the DTC and thereby making it taxable. Since the beneficiaries of these schemes are mainly Senior Citizens, this exemption should be continued to avoid financial hardship in old age. More so in the absence of universal social security system in India, these types of old age benefit schemes need special attention to achieve its objective in true sense. One may hope that the reverse mortgage transactions would get addressed in the final print of DTC.One of the considerations for DTC was to simplify the taxes by eliminating the exemptions/deduction and lowering the tax rate. The relief which the Government has proposed to provide in the revised discussion paper for some of the elements, deductions/exemptions are proposed to be given on the similar lines as contained in the existing tax law. To that extent we feel that there is a deviation in the approach. But nothing comes free of cost. The above proposals are likely to result in loosing of some revenue to the Government and which is well admitted in the discussion paper as well. Government may need to amend the proposed tax slab structure or limits of deduction/exemptions etc in order to make good of revenue which it may loose. One has to wait for the final shape of DTC and the fine print only tell us what one gained or lost in this process.(Kuldip Kumar is executive director, PricewaterhouseCoopers Pvt Ltd. Views are personal)

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