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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