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More on Kelkar panel's tax proposals

A N Shanbhag

India's tax laws need to be rationalised and the Task Force under Vijay Kelkar has taken the first steps in the right direction.

Following are the proposals for individuals:

Agricultural income: Agricultural income should be taxed at normal rates. Taxpayers with an agricultural income should fill in a different form.

Capital gains: Long-term capital gains will be taxed at normal rates. However, tax on long-term capital gains on equity will be exempt.

Dividend paid to shareholders will be exempt. No tax on distribution of dividends.

The exemption for capital gains roll-over is abolished for all schemes other than investment in-house or the bonds of National Highway Authority of India until completion of the Golden Quadrilateral and the North-South & East-West corridors.

Interest on housing loans: Deduction for mortgage interest on loans to buy a owner-occupied dwelling should be reduced to Rs 100,000 in AY 2004-05, to Rs 50,000 in AY 2005-06 and to nil in AY 2006- 07.

Deletion of tax concessions: Tax concessions are now available in terms of: a) 'Exemptions' under Sec. 10; b) 'Income Deductions' under Chapter VI-A and c) 'Tax Rebates' under Chapter VIII.

The committee appears keen to eliminate all deductions. Some essential deductions will be converted into rebates but the rebate will be at the minimum marginal rate of personal income tax - 20 per cent.

The following concessions will be withdrawn :

Sec. 16(i): Standard deduction available to employees.

Sec. 88: Tax rebates on investments in specified assets such as NSC, NSS, EPF and PPF, tax saving units of mutual funds, premium paid on life insurance, repayment of housing loans, and infrastructure bonds of IDBI and ICICI.

Sec. 80L: Interest income and dividends from specified sources.

Sec. 88B: The Rs 15,000 tax rebate to senior citizens. Currently, a senior citizen should have completed 65 years on the last date of the FY.

Henceforth, senior citizens will be taxpayers who are more than 65 years in age on the first day of the financial year.

Sec. 88C: Tax rebate of Rs 5,000 to non-senior female citizens.

Sec. 10(15i) : Income by way of interest, premium on redemption or other payment on notified securities, bonds, annuity certificates, savings certificates, other certificates and deposits issued by the central government.

Sec. 10(15ii-b): Interest on notified capital investment bonds. Note that no bonds can be notified after first day of June '02.

Sec. 10(15ii-c) : Interest on relief bonds.

Sec. 10(15ii-d) : Interest on notified bonds.

Sec. 10(15iv-h) : Interest on notified public sector bonds.

Sec. 10(15iv-i) : Interest on deposits out of money received by an employee on retirement.

The following income deductions will be converted into tax rebates.

Educational expenses: Sec. 80E provides for deduction up to Rs 40,000 on repayment of a loan taken for higher education.

This concession should be converted to a tax rebate at the rate of 20 per cent with the maximum restricted to Rs 4,000.

Medical expenses: Sec. 80D provides for a Rs 15,000 deduction on medical insurance premium and Sec. 80DDB provides Rs 40,000 for medical treatment.

The tax benefit under Sec. 80DDB is to be retained only for senior citizens but as a rebate @ 20 per cent subject to a maximum of Rs 4,000.

Further, Sec. 80D should be converted to a tax rebate @20 per cent subject to maximum of Rs 3,000.

Handicapped dependent: Sec 80DD provides for an income-based deduction of Rs 40,000 in respect of maintenance including medical treatment of handicapped dependents.

Maintenance includes payment to any LIC or other insurance scheme for the maintenance of the handicapped.

This deduction depends on the expenditure actually being incurred. This should be converted to a tax rebate @ 20 per cent of expenses incurred.

Handicapped person: Sec. 80U provides for an income-based deduction of Rs 40,000 if the taxpayer suffers from permanent physical disability (including blindness).

This provision should be converted to a tax rebate @ 20 per cent.

The category of Resident but Not Ordinarily Resident (RNOR) status must be deleted.

Eliminate 80P that entitles a cooperative society to 100 per cent exemption in respect of profits/income from activities and makes the rate of schedule for personal income tax applicable to cooperatives.

Wealth tax will be abolished.

The committee says that its recommendations should be fully accepted to be effective. There could be long battles ahead.

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