Sunday, March 6, 2011

Adverse implications of Direct Taxes Code for Sr.Citizens & Pensioners



     In the budget presented on 28.2.2011 the Finance Minister has announced that the exemption limit for ordinary citizens will be increased to Rs.1.8 lakhs, that persons who are sixty and above will become senior citizens and that very senior citizens of the age of 80 and above will be exempt up to Rs.5 lakhs total income.  He has further stated that these changes would entail a great revenue loss for the Government.
   If one were to read the fine print of the Direct Taxes Code as known at present, it will be seen that in the absence of short-term tax saving instruments with the repeal of present section 80C of Indian Income-tax Act, once the Direct Taxes Code comes  into effect, those assessees who at present avail of investment in short-term tax saving instruments and get an exemption of Rs.1 lakh from their total income for tax purposes, and who may not be in a position to avail of investment in long-term tax saving instruments provided for in the Direct Taxes Code, will be deprived of the same once the Direct Taxes Code comes into effect, since short-term tax saving instruments do not find a place therein.  The tables given will indicate how such assessees will be adversely affected despite the Finance Minister’s announcements, and indeed there will be a revenue gain for the Government and not revenue loss per each such assessee.
   As regards revenue loss consequent on senior citizens of the age of 80 and above having an exemption limit of Rs.5 lakhs, since the number of such persons will be very small(Hardly 5000 Tax payer in 80 & above age group), the loss may not be significant.
   Tables are given below to indicate how additional tax liability will have to be borne by all such assessees below 80 years of age, ranging from Rs.1030 to Rs.9270 per assessee as shown therein.
      To remedy the situation, it is suggested that:
(i)                  In the case of senior citizens only, short-term tax saving instruments as at present in section 80C may be continued and included in the DTC.
                                              OR
(ii)                The exemption limit in the case of senior citizens may be fixed at Rs.3.5 lakhs, at least to restore the status quo in their case, at the present level of Taxation.
  




TABLE I
        Tax liability in the case of ordinary assessees below the age of 60       
                      (* The figures are with education cess of 3 %)     
                                   Tax in Fin.Year 2010-11         With no short-term
                                                                                      Tax saving instruments
Total income         Tax without         Tax with benefit     Tax under DTC
                             Benefit of 80C          of 80C             with Rs.2 lakhs basic
                                                                                        Exemption limit

1.6 lakhs                   --                           --                            ---
1.7 lakhs              1030                           --                            ---
1.8 lakhs              2060                           --                            ---
1.9 lakhs              3090                           --                            ---
2.0 lakhs              4120                           --                            ---
2.1 lakhs              5150                           --                           1030
2.2 lakhs              6180                           --                           2060
2.3 lakhs              7210                           --                           3090
2.4 lakhs              8240                           --                           4120
2.5 lakhs              9270                           --                           5150
2.6 lakhs             10300                          --                           6180
2.7 lakhs             11330                         1030                       7210
2.8 lakhs             12360                         2060                       8240
2.9 lakhs             13390                         3090                       9270
3.0 lakhs             14420                         4120                     10300
3.1 lakhs             15450                         5150                     11330
3.2 lakhs             16480                         6180                     12360
3.3 lakhs             17510                         7210                     13390
                                              …………….
5.0 lakhs             35020                        24720                    30900


The figures in bold letters indicate how ordinary assessees who at present avail of 80 C benefits will be adversely affected once the DTC in its present form as known comes into effect, in the absence of short-term tax saving instruments since they will have to pay additional tax of Rs.6180 per assessee, which indeed is a revenue gain for Government.



TABLE II
                 Tax liability in the case of assessees between ages of 60 and 65        
                      (* The figures are with education cess of 3 %)     
                                   Tax in Fin.Year 2010-11             With no short-term
                                                                                      Tax saving instruments
Total income         Tax without         Tax with benefit     Tax under DTC
                             Benefit of 80C          of 80C            with Rs.2.5 lakhs basic
                                                                                        Exemption limit

1.6 lakhs                   --                           --                            ---
1.7 lakhs              1030                           --                            ---
1.8 lakhs              2060                           --                            ---
1.9 lakhs              3090                           --                            ---
2.0 lakhs              4120                           --                            ---
2.1 lakhs              5150                           --                            ---
2.2 lakhs              6180                           --                            ---
2.3 lakhs              7210                           --                            ---
2.4 lakhs              8240                           --                            ---
2.5 lakhs              9270                           --                            ---
2.6 lakhs             10300                          --                           1030
2.7 lakhs             11330                         1030                       2060
2.8 lakhs             12360                         2060                       3090
2.9 lakhs             13390                         3090                       4120
3.0 lakhs             14420                         4120                       5150
3.1 lakhs             15450                         5150                       6180
3.2 lakhs             16480                         6180                       7210
3.3 lakhs             17510                         7210                       8240
                                              …………….
5.0 lakhs             35020                        24720                     25750

   The above table indicates that even persons in the age range 60 to 65 who at present avail of 80C tax saving instruments will have to pay an additional Rs.1030 as tax per assessee, which again is a revenue gain for the government.








TABLE III
                 Tax liability in the case of assessees  between ages of 65 and 80        
                      (* The figures are with education cess of 3 %)     
                                   Tax in Fin.Year 2010-11             With no short-term
                                                                                      Tax saving instruments
Total income         Tax without         Tax with benefit     Tax under DTC
                             Benefit of 80C          of 80C            with Rs.2.5 lakhs basic
                                                                                        Exemption limit

2.4 lakhs                --                            --                            ---
2.5 lakhs              1030                         --                            ---
2.6 lakhs              2060                         --                           1030
2.7 lakhs              3090                         --                           2060
2.8 lakhs              4120                         --                           3090
2.9 lakhs              5150                         --                           4120
3.0 lakhs              6180                         --                           5150
3.1 lakhs              7210                         --                           6180
3.2 lakhs              8240                         --                           7210
3.3 lakhs              9270                         --                           8240
3.4 lakhs             10300                        --                           9270
3.5 lakhs             11330                     1030                       10300
3.6 lakhs             12360                     2060                       11330
3.7 lakhs             13390                     3090                       12360
3.8 lakhs             14420                     4120                       13390
                                      …….and so on
5.0 lakhs             26780                   16480                       25750

   The above table indicates that even persons in the age range 65 to 80 who at present avail of 80C tax saving instruments will have to pay an additional Rs.9270 as tax per assessee, which again is a revenue gain for the government.

    Surely, it is not the intention of Government to rope in even those assessees/senior citizens, who avail of present 80 C short-term tax saving instruments and who at present have no or less tax liability into the tax net, after the DTC comes into effect.
    To remedy the situation, it is suggested that:
(iii)               in the case of senior citizens only, short-term tax saving instruments as at present in section 80C may be continued and included in the DTC.
                                              OR
(iv)              the exemption limit in the case of senior citizens may be fixed at Rs.3.50 lakhs, at the present level of Taxation,  at least to restore the status quo in their case.

                                                                                 
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