This was one Budget which went along expected lines, at least so far as the provisions related to personal taxation are concerned. Due to the new direct taxes code (DTC) which is expected to be soon enacted, the finance minister refrained from making any major changes to the scheme of personal taxation.
As was expected, the only change made was in relation to the basic tax exemption limit. Given the high rate of inflation, the common expectation was that the general basic exemption limit should be hiked. However, the amendment did not fully meet the expectation that the basic exemption limit would be hiked to Rs2 lakh as proposed under DTC. The finance minister has increased the basic exemption limit by only Rs20,000, which, given the tax rate of 10% (plus education cess of 3%) in that slab, translates into an annual tax benefit of only Rs2,060.
Women tax payers do not get even that benefit. Their basic tax exemption limit, which was hiked to Rs1.90 lakh in the earlier year, remains unchanged. The basic tax exemption limit for senior citizens has been hiked from Rs2.40 lakh to Rs2.50 lakh. However, there are two major changes so far as senior citizens are concerned.
One is that a person will be regarded as a senior citizen if he has completed the age of 60 years on 31 March of the relevant year, as against the age of 65 so far. Such persons between the ages of 60 and 65 will see a significant tax saving of Rs9,270, with the basic exemption limit going up from Rs1.60 lakh (in the current year) to Rs2.50 lakh (in the next year). For women in this age group, the tax benefits would be less at Rs6,180.
The second amendment is the creation of a separate category of very senior citizens, persons who have completed the age of 80 on 31 March of the relevant year. Such persons have been given a significant benefit of enhancement of the basic tax exemption limit from Rs2.40 lakh to Rs5 lakh, resulting in a tax saving of Rs26,780. Of course the benefit will go to only a few people, as there would be few senior citizens of that age having such a substantial taxable income, most of them having retired over 20 years before, when retirement benefits were also comparatively meagre.
The finance minister also made certain “beneficial” announcements in his speech. One such announcement related to the provision of a Web-based facility for interface with the income-tax department to track resolution of refunds and credit for prepaid taxes, while another was in relation to exemption from filing of income-tax returns by salaried employees where tax is deducted at source by employers.
As regards the Web-based facility, one will have to wait and see the actual working, given the major problems currently faced by taxpayers regarding credit for prepaid taxes. Given the defective nature of the entire tax credit system and the problems with its working, which are being glossed over by the tax department, one wonders how effective this interface will really be. It is highly likely that it may really just provide a means of communication, without really addressing the core of the problem of ensuring that the necessary rectifications take place on a speedy basis. Given the lethargy of the tax authorities in carrying out rectifications in relation to applications made by taxpayers, which often lie unattended for years together, one wishes that the finance minister had instead announced an amendment whereby every rectification application by a taxpayer would be regarded as having been accepted, unless an order was passed within a period of such months on such an application rejecting it.
With regard to the scheme of exemption from filing income-tax returns for employees, here too, while it seems an excellent idea on paper, one would need to wait and see the actual rules governing such exemption. Past experience shows that such rules are framed in a very restrictive manner by the bureaucrats, with very few people finally being eligible under the scheme. For instance, if the rules provide that an employee should have no other taxable income to be eligible, in practice, no employee may actually qualify for this exemption from filing, as all employees will be having at least some amount of interest on their savings bank accounts, which is taxable. Over the years, one has seen many such excellent ideas announced in the budget which have not really taken off on account of the extremely narrow approach of the bureaucrats in framing the schemes. The government needs to be a little bit more bold in framing such schemes, to ensure that the schemes are really as good as they sound!
Now that the budget is behind us, we need to see what shape DTC finally takes. Unless there are significant changes made to the DTC Bill, many taxpayers may be worse off under DTC than they are under today’s tax laws.
Gautam Nayak is a chartered accountant. Comments are welcome at email@example.com