The taste is sour

Updated: May 18 2006, 05:30am hrs
Just after completion of the Assembly elections, the tax paying public has received a shock as a result of a recent circular issued by the Central Board of Direct Taxes (CBDT) calling upon them to explain their views on the removal or continuance of exemptions and deductions.

There are some two dozen important exemptions/deductions which, in any case, should not be removed. These should continue because they fulfil other important objectives like providing more employment opportunities and encouraging investors to continue to maintain the habit of savings.

The following exemptions should continue:

Exemptions relating to salaried employees, for e.g., leave travel concession, retirement benefits, VRS, retrenchment compensation, leave encashment on retirement, etc.

Exemptions relating to investment, for instance investment in PF, PPF, NSC, Infrastructure Bonds, etc.

Exemptions relating to investment income like interest from tax-free bonds, etc.

Exemptions to boost the stockmarket, for e.g., dividend inco-me, mutual fund income and the long-term capital gains exemption on equities.

Exemptions to boost the housing sector. For instance, the deduction for interest on loans up to Rs 1,50,000 and deduction for repayment of housing loan under Section 80C up to Rs 1 lakh.

Exemption relating to medical upkeep. For instance, mediclaim payments, deduction for specified diseases, etc.

Tax exemptions for industrial units in backward states, SEZs and other incentives to the business community should continue as such exemptions will inspire tax payers to carry on nation-building activities. While these will provide more employment on the one hand, it will go a long way in increasing our GDP.

Take away the following exemptions:

Agricultural income: Let it be taxed. No logic for exempting agricultural income in the case of big corporates.

Daily allowance and other allowances of members of Parliament and legislative assemblies should be at par with the exempt allowances of salaried employees.

Income of Sebi, Irda, local authorities, European Union, etc. Let these organisations contribute to the exchequer.

Income of political parties. Yes, let political parties also get a taste of income-tax payment.

Finally, if the government is really serious about reducing exemptions and deductions, it should also cut down tax payment to 10-12% only.

Also, it should extend a helping hand in providing social security cover and old age care facilities. Only then would it be logical to do away with all exemptions and deductions.

The writer is a noted tax and investment consultant