The tax rates proposed for the future in the Direct Taxes Code are generally being welcomed. In this hype, one tends to lose sight of the huge tax burden, hardships and inequities, to which a major section of the taxpayers namely the salary earners is going to be subjected, if the Code is enacted in the present form. Unable to curb large-scale tax evasion, the I-T department has been eyeing soft targets like salary earners for many years now. The Standard Deduction available to them (a lumpsum deduction for employment-related expenses) was discontinued on the specious ground that these were 'personal expenses.' Then, through the Finance Bill, 2009, the benefit of section 89(1) to salaried people for amounts in excess of Rs.5 lakh, received on account of voluntary retirement, which is exempt under section 10(10C), has been discontinued, though nearly half a dozen high courts have held that both the benefits can be claimed by such taxpayers. The "most unkindest cut of all" could turn out to be new Code. Consider these:
For umpteen years, VRS payment, commuted pension and retirement gratuities, received by employees on retirement have been considered exempt without any conditions. These are now to be considered as salary income and should be subjected to tax, if these are not invested in permitted savings/intermediary in accordance with the scheme framed and prescribed by the central government. Also, the retirees will have to keep such amounts locked in the account indefinitely as any withdrawals made or amounts received, under whatever circumstances from this account, are to be included in the income of the persons.
A person saves during his service period so that when he retires, the drop in his income may be made up, to some extent, by accumulated savings invested in the manner he thinks appropriate. Also, money may be required to meet the family obligations like marriages of the children, their education, unexpected illness, etc. Once the code comes into force, this would be possible only after the payment of income-tax, which could be as high as 30%. This amounts to autocratic decision-making.
Under the new Code, the salary will also include, inter-alia, the following:-
The value of rent-free or concessional accommodation provided by the employer, irrespective of whether the employer is government or any other person. The value of rent-free accommodation is to be determined for all employees in identical way.
The values of any leave travel concession.
The amount received on encashment of un-availed earned leave or retirement or otherwise.Medical reimbursement.The value of free or concessional medical treatment paid for or provided by the employers.
To equate government and other employers is, prima facie, irrational as it treats unequals as equals. Article 14 of the constitution permits a reasonable classification. Covernment employees constitute a well defined class of taxpayers. In matters of emoluments and perquisites, they are far behind the private sector employees. The highest salary in the government is Rs 90,000/- pm (of the Cabinet secretary) but many new recruits from the business schools start career with a lakh of rupees or more per month. Then how the government employees can be equated with them? No reasons have been given for making change in a position prevalent from decades.
Likewise, taxing medical reimbursements and medical benefits provided by employers would be unjustified. These payments are made to keep the human machinery fit (for which no depreciation is permissible under the tax law) so that the work could be performed energetically and efficiently. When businessmen can get deduction of any amount on repairs of plant/machinery, etc., which are also eligible for depreciation (even additional depreciation), there seems to be no ground for taxing medical benefits in the hands of the employees. This proposal merely shows inhuman face of the tax department, which can cause more damage in various forms vis-à-vis meagre revenue generated.
Not permitting deduction of various expenses, which have become essential in the present competitive times to keep oneself updated for retaining his present job and future advancement, other than commuting expenses, is harsh and is tantamount to shutting the eyes towards real-life situations. A tax code, which ignores this basic aspect concerning nearly 4 million taxpayers, cannot be considered as a model Code. One more measure that is likely to hit salaried employees is the one about self-occupied house. Deduction for interest and principal loan payment that is presently available, is to be withdrawn. Also, withdrawals from PFs are to be taxed under the exempt-exempt-tax (EET) regime. As against the above, considerable benefits are being proposed for big taxpayers viz.Losses can be carried for set off against future incomes for unlimited number of years; Wealth-tax limit is being raised from Rs 30 lakhs to Rs 50 crore; Rate of wealth-tax is being reduced from 1% to 0.25%; Financial assets, like shares/bonds, etc, are to be valued at lower of cost or market value. This blatantly favours high-net worth taxpayers. The new tax Code is to be for many years to come. Regrettably, it lacks vision, fairness, and balance of approach and justice for all.
(The author is former chairman, CBDT)
Courtesy: Economic Times Dated 25th Aug 2009.
For umpteen years, VRS payment, commuted pension and retirement gratuities, received by employees on retirement have been considered exempt without any conditions. These are now to be considered as salary income and should be subjected to tax, if these are not invested in permitted savings/intermediary in accordance with the scheme framed and prescribed by the central government. Also, the retirees will have to keep such amounts locked in the account indefinitely as any withdrawals made or amounts received, under whatever circumstances from this account, are to be included in the income of the persons.
A person saves during his service period so that when he retires, the drop in his income may be made up, to some extent, by accumulated savings invested in the manner he thinks appropriate. Also, money may be required to meet the family obligations like marriages of the children, their education, unexpected illness, etc. Once the code comes into force, this would be possible only after the payment of income-tax, which could be as high as 30%. This amounts to autocratic decision-making.
Under the new Code, the salary will also include, inter-alia, the following:-
The value of rent-free or concessional accommodation provided by the employer, irrespective of whether the employer is government or any other person. The value of rent-free accommodation is to be determined for all employees in identical way.
The values of any leave travel concession.
The amount received on encashment of un-availed earned leave or retirement or otherwise.Medical reimbursement.The value of free or concessional medical treatment paid for or provided by the employers.
To equate government and other employers is, prima facie, irrational as it treats unequals as equals. Article 14 of the constitution permits a reasonable classification. Covernment employees constitute a well defined class of taxpayers. In matters of emoluments and perquisites, they are far behind the private sector employees. The highest salary in the government is Rs 90,000/- pm (of the Cabinet secretary) but many new recruits from the business schools start career with a lakh of rupees or more per month. Then how the government employees can be equated with them? No reasons have been given for making change in a position prevalent from decades.
Likewise, taxing medical reimbursements and medical benefits provided by employers would be unjustified. These payments are made to keep the human machinery fit (for which no depreciation is permissible under the tax law) so that the work could be performed energetically and efficiently. When businessmen can get deduction of any amount on repairs of plant/machinery, etc., which are also eligible for depreciation (even additional depreciation), there seems to be no ground for taxing medical benefits in the hands of the employees. This proposal merely shows inhuman face of the tax department, which can cause more damage in various forms vis-à-vis meagre revenue generated.
Not permitting deduction of various expenses, which have become essential in the present competitive times to keep oneself updated for retaining his present job and future advancement, other than commuting expenses, is harsh and is tantamount to shutting the eyes towards real-life situations. A tax code, which ignores this basic aspect concerning nearly 4 million taxpayers, cannot be considered as a model Code. One more measure that is likely to hit salaried employees is the one about self-occupied house. Deduction for interest and principal loan payment that is presently available, is to be withdrawn. Also, withdrawals from PFs are to be taxed under the exempt-exempt-tax (EET) regime. As against the above, considerable benefits are being proposed for big taxpayers viz.Losses can be carried for set off against future incomes for unlimited number of years; Wealth-tax limit is being raised from Rs 30 lakhs to Rs 50 crore; Rate of wealth-tax is being reduced from 1% to 0.25%; Financial assets, like shares/bonds, etc, are to be valued at lower of cost or market value. This blatantly favours high-net worth taxpayers. The new tax Code is to be for many years to come. Regrettably, it lacks vision, fairness, and balance of approach and justice for all.
(The author is former chairman, CBDT)
Courtesy: Economic Times Dated 25th Aug 2009.
