The Hindu : Additional relief for senior citizens, widows

Online edition of India's National Newspaper
Saturday, Dec 28, 2002

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Additional relief for senior citizens, widows

By Our Special Correspondent

NEW DELHI DEC. 27. The final report of the task force on direct taxes, headed by Vijay Kelkar, has modified some of its earlier proposals in such a manner as to provide additional relief to senior citizens and widows, maintain fiscal support to the housing needs of the low-income groups and strengthen old age income security by encouraging long-term savings.

``In formulating our final report, we accepted the principle that no vulnerable class of taxpayer shall be worse off because of our proposals,'' Dr. Kelkar told presspersons after presenting the report to the Finance Minister, Jaswant Singh, today.

The task force has claimed that with the proposed personal tax rates, the tax burden will be lower for each income group as well as for senior citizens. It estimated that the personal tax burden for the existing taxpayers will be collectively reduced by as much as Rs. 7,900 crores a year.

Consequently, in the final report, the original proposal of tax exemption up to an income limit of Rs. 1 lakh annually has been retained, but the exemption limit for senior citizens has been proposed at Rs. 1,50,000. Widows too, irrespective of their age, will be entitled to the higher exemption limit.

For other taxpayers, the task force has proposed 20 per cent income tax for the Rs. 1 lakh to Rs. 4 lakhs slab and 30 per cent tax on income in excess of Rs. 4 lakhs.

At the same time, incentives for savings under Section 88, Section 80L, Section 10(15)(i), Section 10(15)(iib), Section 10(15)(iic), Section 10(15)(iid), Section 10(15)(iv)(h) and Section 10(15)(iv)(i) of the Income Tax Act have been recommended for elimination with immediate effect.

Also, the standard deduction for salaried taxpayers is to be abolished and only exemption for conveyance allowance, subject to a ceiling of Rs. 9,600, is to continue.

The task force has, however, recommended continuation of the deduction under Section 80CCC for contribution to pension fund of LIC or any other insurance company, with an enhanced ceiling of Rs. 20,000 from the existing level of Rs 10,000. It has said that this income-based deduction will be converted to a tax rebate at the minimum marginal rate of 20 per cent. Consequently, the ceiling on tax rebate for contribution to the pension fund will be Rs. 4,000. The task force has suggested that deduction under Section 80D, with a ceiling of Rs 15,000, for payment of medical insurance, should be converted to a tax rebate at the rate of 20 per cent, subject to a maximum of Rs. 3,000. The task force has also recommended the withdrawal of the five per cent surcharge on income tax.

Similarly, Section 80DDB, pertaining to deduction on medical expenses, is to be withdrawn for the general category of taxpayers. But for senior citizens, it would continue to be eligible for tax rebate, with a maximum benefit of Rs. 4,000. Deduction under Section 80E, for repayment of educational expenses, will continue, but the limit for tax rebate will be Rs. 4,000. However, the rebate under Section 88C for women taxpayers below the age of 65 is to be eliminated.

With the proposed changes, Dr. Kelkar claimed that every proposal was essentially pro-taxpayer, especially the middle class.

According to an illustrative table provided by the task force, there would be considerable tax relief at every level of income. For instance, in the Rs. 1 lakh to Rs. 1.5 lakhs income bracket, the tax relief is said to be Rs. 2,567, going up to Rs. 69,579 for incomes above Rs. 10 lakhs.

Responding to the criticism that the initial report recommended withdrawal of tax incentives for housing, the final report has said that the current benefit of allowing payment of interest on housing loans up to Rs. 1,50,000 to be deductible in taxable income amounts to a subsidy of Rs. 45,000 a year for individuals living in their own houses costing Rs. 20 lakhs or more.

``This violates vertical equity as the richer sections of the society are being subsidised... whereas a fiscally constrained economy is aiming to reduce subsidies on food and fuel. If a housing subsidy is to be given, it should be directed only at low-income households.

At present, a powerloom worker, whose taxable income is below Rs. 80,000, receives no subsidy for loan repayment for his own dwelling for the simple reason that he is not a tax payer,'' the report has said.

Consequently, it has suggested an interest subsidy of two per cent for housing loans up to Rs. 5 lakhs to all borrowers, as that would help prospective homebuilders whose income is less than Rs. 1 lakh.

However, the report also recommends that until this proposal is adopted, the interest deduction should continue, but with a limit of Rs. 50,000.

On corporate tax, the task force has basically retained its earlier proposals of 30 per cent corporate tax for domestic companies and tax exemption for all dividends and long-term capital gains from listed equity.

Also, the Minimum Alternate Tax under Section 115JB is to be eliminated.

Dr. Kelkar claimed that despite the lower tax incidence on all taxpayers, the new proposals would be revenue neutral, but they would increase revenues over time with better compliance.

As for its proposal to tax agriculture income, the task force has not pressed with it in the final report and left it to the States to consider the proposal.

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