February 14, 2013 / 20:25 IST
Let's start with what could be expected in the budget and what could be different but may not happen. One of the things that is awaited with bated breath in the budget is about individual taxation. A bit of background now… Government is seriously reeling under the fiscal deficit, which is above 5% now. Tax collections are not meeting expectations. Economy is not what it should be. All in all, it is not a very conducive environment for expecting a tax rate cut. Expect at best tinkering at the edges.
However, there are some wishes I do have in regard the tax rates, though I confess, it may not see the light of the day. Senior citizens are offered exemption only till Rs.2.5 Lakhs. Only super senior citizens are offered exemption upto Rs.5 Lakhs. But the number of people in the super senior citizen category is expected to be just over 80,000. So, this exemption is not benefitting many people.
Senior citizens have paid taxes all their lives. When they do not have an income and they are living from the corpus, why not give them a wider leeway? Especially so, when we do not have a social security of any sort, in our country. It is only fair to treat all those above 60 years as one block and exempt them all till Rs.5 Lakhs. As far as normal citizens are concerned, the exemption can be till Rs.3 Lakhs. These have been inflationary times and some categories like food have experienced hyperinflation. Hence, citizens should be given relief by increasing the slab upward to Rs.3 Lakhs from the Rs.2 Lakhs at present.
Another wish – Agricultural income needs to be taxed. There is a reason why I say this. Most farmers earning agricultural income anyway do not come under the tax bracket, in view of their measly earnings. This particular loophole is however exploited by the unscrupulous elements in our society, which includes most politicians.
This is used as a money laundering vehicle. Buy agricultural land first; show all ill-gotten gains ( like bribes, kick-backs etc. ) as income from the agricultural land and, lo and behold, it is now white money! Now, many politicians are doing a further backward integration. They take unsecured loans for themselves or their relatives, who buy property at sharply undervalued prices and then sell a part of it to repay the loan. Then the land can generate “income” as mentioned above.
Taxation on Agricultural income is unlikely to take place and is expected to remain a wish as this is going to affect our law makers, who are the principal beneficiaries of this scam.
The other pertains to tax savings sections. Incomes have gone up and so have taxes that citizens pay. They require further expanded tax shelters to help the reduce tax incidence. One of the expectations is that the saving under Section 80C is expanded to Rs.2 Lakhs, from the current Rs.1 Lakh. There are just too many items which come under Sec 80C and Rs.1 Lakh is inadequate. Infact, the additional Rs.1 Lakh proposed, can be for the Principal portion of the home loan or Infrastructure bond. This will help the honest tax payers as also in nation building. We can reasonably expect some changes with respect to Sec 80C.
Sec 80D seems to be adequate for the moment.
Rajiv Gandhi Equity Savings scheme ( RGESS ) has not taken off due to the way it has been structured. There is no clarity on who is a “new investor”. Also, the scheme is for those earning below Rs.10 Lakhs. This shows that we are still stuck in the socialist era. If the intention is to increase participation in equity, why not incentivize those who have participated even without the incentives? This will bring in a lot of money into Equity markets.
There are two changes which I would propose. Making PSUs FPO/IPOs eligible is a way of off-loading government holdings to public. Many of these companies are of questionable merit and will harm investors who subscribe to these issues. If government is really serious about bringing in the equity culture, they should look genuinely at investor’s interest – not see how they can meet their sell-off targets. Secondly, under RGESS one should impose a lock-in period of three years and not allow to sell, after a year. This way, long-term investment in equities can be promoted. Also this will be good for investors as equities tend to perform in the long-term and they will not face disappointment.
It will be great if some of these see the light of the day. I need to remind myself about the serenity prayer. Lots of things may not change for the better and we have to accept it. What we can change is how we invest our money in the most tax-efficient manner. What we can also change is our notions of where to invest and where not to. Wisdom comes from making mistakes and learning from them. The key word is learning. Meanwhile you can also say the prayer once more and imbibe the import of the legendary prayer.
