Public Provident Fund (PPF)
The rate of interest on the PPF scheme has drastically dropped and is currently at 9.5 per cent. Many small investors have placed their lifes savings into avenues such as the PPF because it is government controlled and they are keen on safety.
Also, the tax breaks available on investments in PPF gave the scheme that much of an added advantage. It is imperative that for protection of the interests of such small investors, the interest rates should at least not fall from the current level.
But what is more important is that by a notification dated December 6, 2000, certain retrograde provisions have been introduced in the PPF scheme. At present, an individual is entitled to deposit up to a maximum of Rs 60,000 in each one or more accounts standing in different names. Now, however, not more than Rs 60,000 is allowed to be deposited in one or more PPF accounts standing in (a) his own name, (b) in the name(s) of his minor(s), (c) in the name of his HUF and (d) in the name of an association of persons of which he is a member. Surprisingly, the deposits into an account in the name of the spouse would not be taken into account for the purpose of aggregation.
This seems to be a retrograde step. At present, the government is getting small savings in multiple PPF accounts standing in different names. There is no reason why the government should cut itself out of this stream of funds by restricting the aggregate of deposits in this manner.
Dividend tax on equity funds
At present, open-ended equity oriented funds are exempted from payment of dividend tax (currently 10 per cent plus surcharge) for three years commencing from April 1, 1999, to March 31, 2002. Thus, this exemption will end from April 1, 2002 unless it is extended. In view of the share market not having really recovered till date, it would only be fair to extend this exemption for a further period of three years.
It must be remembered that the rates of interest on bonds and fixed deposits have taken a drastic beating.
Investors can now no longer expect to live on their savings which are invested in such fixed income avenues. It is imperative that the avenues of investing in equity-oriented mutual funds should also not be shut out to them. Extending the exemption of dividend tax on such equity funds will help in mitigating the hardships of the small investor arising out of falls in rates of interest on fixed income schemes.
Threshold for taxation
For the year ended March 31, 1982, the threshold for taxation was an annual income of Rs 15,000. The Cost Inflation Index (CII) which has been notified is 426 for the financial year 2001-2002 and may rise to 450 for the financial year 2002-2003. This is on a base CII of Rs 100 in 1981-82.
Given that the CII has been based taking into account 75 per cent of the average rise in the Consumer Price Index for urban non-manual employees, in effect it means that the true inflated figure would be 100/75 of 450 or 600.
Thus, the cost of living is up by six times compared to what it was in 1981-82. Keeping the depressed economy in mind, it would be only just if the threshold for taxation is raised to Rs 1 lakh.
This would help in increasing the disposable incomes of the tax-payer, especially at the lower end.
Surcharge should go
The Gujarat Earthquake surcharge of 2 per cent which is now being charged on incomes in excess of Rs 60,000 per annum should be abolished. I believe that the surcharge must have achieved its purpose by now. This measure too would add to the disposal incomes of the tax-payers.
Raise exemption limits u/s 80L
The exemption limit for incomes from fixed income yielding securities should be raised from Rs 12,000 at present (it was Rs 15,000 last year) to Rs 20,000. This would help compensate for the fall in interest rates.
Interest on housing loans
At present, in respect of self-occupied houses, interest paid on a housing loan is allowed to be claimed as a loss up to a maximum of Rs 1,50,000 per annum. Even this claim is restricted for new properties, that is those acquired or constructed between April 1, 1999 and April 1, 2003.
A shelter above ones head is the basic requirement of any human being. Of course, the house purchased would depend upon ones status in life. Also houses are still in short supply and this shortage will continue in the near future.
Therefore, the restrictive time limits for acquisition/construction should be removed. Also, there is no reason to restrict the availability of loss on account of interest paid in respect of self-occupied property to only Rs 1,50,000. World over, interest paid on acquisition of houses is fully allowed.
(The author is a practising chartered accountant)