By Balwant Jain, CFO, ApnaPaisa
The present Income Tax laws allow you deductions under Section 80 C along with Section 80 D for certain items of expenses incurred by you. The present list of avenues available is suitable for people of all the ages. It allows younger persons to plan for their retirement or future and invest in Provident Funds, Public Provident Funds or pay for their life insurance premiums. It also allows you to repay the installments of home loan.
Like younger persons it has options for senior citizen to invest money for short duration and claim income tax benefits by way of investments in Fixed Deposit with banks or post office or deposits under the Senior Citizen Scheme. But this is going to change once the Provisions of Direct Tax Code come into operation w.e.f. 1st April 2012. However these provisions in the Direct Tax code are quite unfair to senior citizens.
A senior citizen who has retired from active life is dependent on his earnings from various savings, he has done during his active earning days, for meeting day today expenses during the period of his retirement years. With basic income exemption limits being so low, a senior citizen also has to pay tax on his incomes from his investments/savings. So what are these provisions which presently allow a senior citizen to utilize the present avenues to save taxes vis a vis provisions which are proposed in the Direct Tax Code. .
Benefits of tax savings available under present tax regime:
There are various options of investments available under present tax regime, which are suitable for senior citizens considering the time horizon available with them. Presently a senior citizen can use the following options available to him for claiming the benefits available upto Rs. 1 lakh under Section 80C:
Deposit under Senior citizen scheme: The Senior Citizen Saving Scheme 2004 is exclusively designed for senior citizens. A senior citizen can claim deduction upto Rs. 1 lakh in respect of deposits made by him in this scheme. The deposits are locked in for a period of five years. The senior citizen has an option of extending this scheme for another period of three years.
Fixed Deposits with a Scheduled Bank or deposits with Post offices: Deposits under Post office Time Deposit rules 1981, as well deposit with scheduled banks made tax purposes offers another option which a senior citizen can use for availing the tax benefit available under Section 80 C. These deposits also have a tenure of five years for which the money is locked.
Equity Linked Saving Schemes: Though the ability of a senior citizen to take risk get substantially reduced after he retires from active earning phase, ELSS still offers them tax benefits with prospects of capital growth with a lock-in period of three years so as to suit the time horizon available to a senior citizen. Normally ELSS schemes have performed reasonably well in the past and is the avenue which is used by senior citizen also to avail the tax benefits under Section 80 C. There being a lock in period of three years, this avenue is an avenue with lesser risk.
National Saving Certificates: The national saving certificates also have shorter tenure of six years so as to suit the time horizon of senior citizen.
What is proposed in the Direct Tax Code Bill 2010?
The Direct Tax code bill proposes to bifurcate the deductions into two parts. First part which is contained in Section 69 of the bill deals with deductions in relation to savings whereas the other part which is contained in Section 70, 71 and 72 deal with deductions in respect of items in the nature of expenses. Let us discuss their suitability of these two deduction for Senior Citizens.
Saving based deductions:
Section 69 proposes to allow a deduction of Rs. 1 lakh in respect of savings of a very restrictive nature. All the savings which are covered in the proposed section 69 are in the nature of saving for the retirement planning. The contributions in respect of very few schemes are proposed to be covered in Section 69. The schemes covered are Provident Fund, Superannuation Fund, Gratuity Funds and Pension fund. In addition to these schemes the Section proposes to include contribution to any other fund which is approved in accordance with scheme framed by the central government. This will cover contributions to Public Provident Fund.
From the list enumerated above, it becomes amply clear that of all the schemes covered for deduction under Section 69, the minimum tenure is in respect of Public Provident Fund, which is 15 years.
This deduction under Section 69 to a senior citizen under the DTC bill 2010 is virtually proposed to be denied.
Expenses based deductions:
Section 70, 71 and 72 of the DTC bill proposes to allow deduction in respect of items which are primarily in the nature of expenditure. All these three sections put together propose to allow a deduction up to Rs. 50,000 in respect of amounts spent /paid in respect of Life Insurance Premium, Health Insurance Premium and Tuition fee paid for full time education of two children.
From the above list of items which are included in the second part of deductions, it is apparent that a senior citizen can only claim the deductions in respect of health insurance premium. He cannot claim any deduction in respect of life Insurance as he is supposed to have retired from active earning phase and buying life insurance at this age does not make any sense for him or his dependents. The deduction in respect of tuition fee normally can not be claimed by the senior citizen at this age, as their children would have completed their full time education.
Revision in the basic exemption limit
In addition to the above changes in respect of tax benefits for tax deductions, the DTC proposes to revise the basic exemption limit. The bill provisos to enhance the basic exemption limit for individual from Rs. 1.60 lakh to Rs. . 2 lacs thus increasing it by Rs. 40,000. For senior citizen there is only marginal increase of Rs, 10,000 and the limit is proposed to be raised from rs. 2.40 Lakhs to 2.50 Lakhs. This is second area where senior citizen are treated unfairly.
From the above discussion it becomes clear that the senior citizens will not get fair treatment under the DTC bill 2010. At this age they need to preserve their capital. The proposed provisions in no way would help a senior citizen in this endeavor. It would be unfair on the part of the government of the day to erode their capital in the form of taxes while denying them the appropriate avenues to save taxes at the cost of non senior citizen tax payers.
The law makers can keep some deductions exclusively available for senior citizen so as to ensure that they are also able to claim the deductions proposed from income in the DTC 2010.