BackWhy so many conditional deductions and exemptions?
Most exemptions and deductions come with many strings attached
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One of the unfortunate features of our tax laws is that most exemptions and deductions come with many strings attached. In order to claim the benefit, very often, so many conditions are laid down that it becomes practically impossible for most taxpayers to claim the benefit of the deduction or exemption. Old habits die hard, especially for bureaucrats. Even the recent budget had a few such provisions.
Take the case of the deduction of 30,000 proposed to be allowed for medical expenses of very senior citizens under section 80D. Firstly, this deduction is to be allowed only for very senior citizens (above the age of 80), and not for senior citizens (above the age of 60). Even senior citizens incur sizable medical expenditure. Restricting the deduction to very senior citizens ensures that it is available to very few persons.
Secondly, this deduction is allowed only if there is no medical insurance policy on the health of the very senior citizen. Therefore, if a person has been prudent and taken a medical insurance policy, she will get the deduction only for the premium that she pays, and not for the expenditure that she incurs. Even if such premium is less than 30,000, the deduction available is only to the extent of the premium, and the balance unutilized limit of 30,000 cannot be used towards medical expenditure.
Again, one needs to keep in mind that a medical insurance policy only covers hospitalization and domiciliary hospitalization, and not other medical expenditures. Therefore, a very senior citizen has to choose between financial prudence in taking a medical insurance policy, whereby one ensures that the outflow on medical expenditure is minimized, and the benefit of the tax deduction, which is not available if one has a medical insurance policy. Obviously, most very senior citizens would opt for the prudent option of having a medical insurance policy, rather than claim a deduction for medical expenses of 30,000. Therefore, the benefit is available only to such persons who have not been prudent enough to take a medical insurance policy.
Thirdly, the deduction is within the overall limits of 30,000 each available for the person and her family or her parents. Therefore, there is no substantial additional deduction available in most cases.
Ultimately, all these conditions with such minimal additional benefit are for such a small number of taxpayers. Is it worthwhile at all to have such a deduction, that too, with so many conditions attached to it?
Another such classic example in the recent budget is the provision relating to location of fund managers in India of foreign funds. The conditions laid down are so many and impracticable, that most funds would prefer not to take the risk of locating a fund manager in India, and being exposed to tax in India, and would prefer to just appoint a fund manager outside India, with the certainty of not being taxed in India.
The reason for this approach of laying down so many conditions is very clear. The bureaucrats think that some taxpayers will misuse the provisions and claim a deduction, which they were not intended to get. Hence, these multiple conditions are laid down to try and ensure that it is difficult for such persons to claim a benefit. In the process, many genuine taxpayers, for whom these benefits are intended (who may be far larger in number than those seeking to obtain undue advantage of the provisions), will also be denied the benefits.
If one looks at our tax laws, the reasons why they have become so complicated and difficult to understand, as well as comply with, is on account of this eagerness of the tax department to plug each and every loophole that may be noticed. Sometimes, the misuse is so small and by so few taxpayers, that one wonders whether the majority of taxpayers should suffer such harsh consequences of misuse by such a small number. Unfortunately, it is the exceptions that make the rule in India, rather than the need of the majority.
Perhaps, the government needs to identify and remove some of these complexities and conditions, and simplify the process of claiming deductions and exemptions, rather than make any big ticket amendments to tax laws. One such good beginning has already been made this year—the condition of obtaining a certificate from a specialist doctor working in a government hospital for claiming deduction for medical treatment of chronic diseases under section 80DD, has been modified by doing away with the requirement of the doctor being employed with a government hospital.
One hopes that, just as the government is identifying and removing unnecessary laws from the statute book, it will try and remove the clutter from tax laws, so as to make life easier for taxpayers.
Gautam Nayak is a chartered accountant.
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