Mukesh Patel.in
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international tax expert / columnist / author / speaker

DEAR FM, GRANT US TODAY WHAT IS LONG OVERDUE!

Rationalize Tax Breaks for Health, Housing, Education and Savings prays every ‘Aam Kardaata’ on this B-Day!

UPA won its mandate in 2009 on the backing of ‘aam aadmi.’ In the tax parlance, the FM’s ‘aam kardaata’ is represented by the common salaried earner, small investor and senior citizen, the largest in number amongst the constituency of income-tax payers. This class of taxpayers is thus rightfully entitled to ask the FM, on this Budget Day, to grant them what is infact overdue!

PLEA FOR STANDARD DEDUCTION FOR SALARIED

Ironically, it is the common salaried earner, who not just honestly pays but infact pre-pays all his taxes by way of TDS and still is most ill-treated when it comes to receiving meaningful reliefs from the FM. To illustrate, it is strange and ridiculous that the exemption limit of transport allowance in case of a salaried employee has still remained static at Rs.800 per month since 1997.

Capital market investors earn their dividends and long term gains free of tax. Rent-earners enjoy a flat 30% standard deduction. Businessmen and professionals can write-off a host of expenses while offering their taxable income. It is high time that a reasonable standard deduction for the salaried is reinstated and several age-old limits of exemptions for their allowances and terminal benefits are rationally revised.

CALL FOR A HEALTHY HIKE


In respect of reimbursement of medical expenses given by an employer to his employee, the exemption limit of Rs.15,000 has remained stagnant for over 13 years since 1998 and the same needs a healthy hike of upto Rs.50,000 per annum. Infact, this is the revised limit as proposed under the Direct Taxes Code (DTC) and the FM should announce its implementation right away.

And a fervent plea for Indian senior citizens, who unlike their counterparts in many other countries, are not assured of any social security or free health cover in the present Indian scenario. The Budget should provide them atleast affordable health insurance to maintain their quality of life in their sunset years.

The current age limit criteria of 65 years for senior citizens under the Income-tax Act should also be reduced to 60 years, harmoniously aligning the same with the common age of retirement, so that all retiring employees can start availing tax benefit of the higher exemption limit without any wait.

RATIONAL TAX BREAKS FOR EDUCATION

Every taxpayer is expected to pay education cess, but most ironically, he can hardly save any tax on the education of his own child! Just consider the provisions for deduction in regard to children’s education under Section 80C, which suffer from severe limitations. Such deduction is available only in respect of ‘tuition fees’ paid to any university, college, school or other educational institution within India. The FM should earnestly consider covering several other legitimate heads of expenditure for education such as books, stationery, school transportation, extra coaching, etc. within the scope of tax breaks for children’s education. Moreover, expenditure for overseas education of children should also find place for deduction.

The current provision for deduction u/s. 80E in respect of interest payable on loans for higher education is indeed welcome; however, banks and financial institutions must be encouraged to offer such loans at concessional interest rates as against the prevailing rates of 12% to 13% per annum.

What can be virtually termed as a mockery of salaried tax payers, are the puny exemption limits of per child education allowance of Rs.100 per month and hostel allowance of Rs.300 per month. These limits prescribed u/s. 10(14), way back in 1997, merit immediate and logical revision.

Under Section 17, expenditure upto Rs.1,000 per month incurred by an employer is treated as an exempt perk, only if free educational facilities are provided for study of the employee’s child in an educational institution run by the employer. It is indeed difficult to understand as to why such benefit should not be allowed, where the child is studying in some other institution not owned by the employer and if the employee is reimbursed by the employer for a similar amount.

MORE ROOM FOR HOUSING RELIEF

The limit of Rs.1,50,000 for deduction u/s. 24 for interest paid on housing loan was introduced in 1999, when the personal income-tax exemption limit was Rs.60,000. Keeping in view the steep rise in realty prices over the past 12 years, the same needs to be suitably increased atleast upto Rs.3,00,000.

Moreover, the provision in regard to allowing deduction in respect of repayment of principal u/s. 80C within the overall limit of Rs.1,00,000, has limited room for effective tax benefit. Infact as in many other tax systems, the entire EMI of the housing loan should be treated as eligible for a straight deduction from income, subject to a specified ceiling.

The limit of deduction u/s. 80GG for house rent paid, prescribing a ceiling of Rs.2,000 per month (Rs.24,000 per annum) fixed 14 years ago in 1996 is highly unrealistic in 2010. Even going by the simple cost inflation index parameters, this limit should be raised to atleast Rs.5,000 per month.

ENLARGE SCOPE FOR SAVINGS

Section 80C, which provides tax payers a useful tax incentive linked with specified savings and allocations, has come to be so squeezed by now, that time is ripe to enlarge the scope of the prescribed limit for deduction from Rs.1,00,000 (static since 2001) to Rs.2,00,000 now in 2011.

The FM should also do well to revive the erstwhile Rs.15,000 (Rs.30,000 at current levels of indexation) deduction u/s. 80L for interest income from banks and small savings instruments, with a view to ensure that investment in these key areas is not discouraged and taxpayers get some shelter from inflation, considering their effective post-tax return on interest.

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