Monday, September 28, 2015

A rate cut will add to the misery of Sr citizens


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With the credit policy statement barely a day away, it might be just right to remind policymakers of the travails of senior citizens in entirety. The expectation is that the Reserve Bank of India will lower the repo rate at least by 0.25 percentage points. Banks are expected to follow suit and lower their commercial rates both on deposits and loans.
Many of the points raised in the following paragraphs are not new but they need to be articulated more vigorously than ever before. The point has been made several times before that senior citizens as a class lack the lobbying power which corporates, chambers of commerce and others have. Moreover, senior citizens are not a homogenous category. For instance, the term includes pensioners and non-pensioners alike.
That is why the categorisation — made by among others the RBI Governor — between savers (the silent majority ) and the borrowers (the vociferous minority) is particularly apt. Especially in today’s context when practically everyone in the establishment is breathing down the governor’s neck to effect a rate cut, a principled stand in favour of savers is to be particularly commended,
We have taken the liberty like many others to view senior citizens and savers as interchangeable expressions. This definitely is not the case always but nevertheless gives enough room to make an analysis.
In the following paragraphs S. Gopalakrishnan, a senior citizen who has held very high positions in public sector banking including the position of Ombudsman, looks at the travails of senior citizens not just in the context of falling deposit interest rates.
Woes of senior citizens
With the ever increasing cost of all consumer items, including medicines, the senior citizens are struggling with their meagre pensions. But the tragedy is that even the pension is treated as salary and taxed like salary. Even the dearness allowance on basic pension, which is given to compensate the ever increasing cost of consumer durables, is taxed by including it in the gross income.
Strangely, dividends received by millionaires, even if it is Rs.500 crore, is tax-free. The argument here is that the companies pay the tax. Does it mean that if the employer decides to pay the taxes on pension, the poor pension receiver will be spared of the tax burden?
From the assessment year 2015-16 even if a senior citizen pays Rs.1.50 lakh under Sec 80cc of the IT act if the total interest from bank deposits exceed Rs.3 lakh, banks will deduct TDS (tax deducted at source) and the assessee has to file the return and claim refund.
Senior citizens are taxed if their taxable income exceeds Rs.3 lakh. Banks are also deducting tax at source (TDS) if the total interest from bank deposits exceed Rs.3 lakh and the assessees have to file the return and claim refund.
Only if the senior citizen reaches the age of 80 he is spared of taxes up to Rs.5 lakh. But the Government can consider taxing senior citizens of over 70 years beyond Rs.4 lakh.
One rank one pension
Only central government employees are lucky to get one rank one pension benefit as their pension is automatically revised. Unfortunately this is not applicable to other public sector undertakings including the RBI.
The corporates and even the government are of the view that the Reserve Bank of India should announce a reduction in lending rate. However, the household savings are coming down steeply since independence.
This is because successive governments are bothered about the cost of borrowing and not the incentive for saving.
With the increase in cost, the savers (mostly senior citizens) are left high and dry. Rightly the interest should be able to cover inflation. But the reality seems to be otherwise.
All consumers including senior citizens are required to pay cost of goods plus excise duty and VAT on the consumer goods purchased by them out of the taxed come (gross income minus income tax ) thereby paying multiple taxes.
It is hoped that the monetary policy review will have a para or two on the saving class and how at the broadest level households need be provided with the right incentives.
crl.thehindu@gmail.com
Pension is treated as salary and taxed like salary. Even the dearness allowance on basic pension is taxed
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