The more things change, the more they remain the same... The bill to give effect to the new direct taxes code (DTC), unveiled in Parliament on Monday, makes it evident that the government has largely failed to deliver on the basic premise of what it promised — simplified provisions which could be comprehensible to assesses, easier filing procedures so that the average taxpayer did not need expert help, and specific clauses to ensure accountability — of the enforceable kind — by the tax authorities. The bill offers none of that.
One of the big surprises was the unexpected blow to women taxpayers: for the first time the principle of “gender equality” worked against women as they lost the preferential treatment they had been enjoying for several years in a higher income-tax exemption limit. Till now, the basic I-T exemption limit for male taxpayers was `1.6 lakh, while for women it was `1.9 lakh. The new DTC has erased this difference: from April 1, 2012, when it goes into effect, all taxpayers will get an exemption limit of `2 lakhs. Surprisingly, one more category of people slightly miffed are home loan borrowers — as the new proposals take away the benefit on the principal repaid on the housing loan. But since the interest is the major part of the repayment, the effect is not really all that negative for the borrower. Yet another uncertainty removed on Monday will the DTC bill’s introduction was the question of taxing capital gains. The stock market had, in fact, been acting a little subdued, so when the clarification came that capital gains would not be taxed if the securities in question were held for more than a year, the market perked up a bit.
As regards encouraging investments in pure insurance schemes, the new proposals will surely gladden the hearts of officials of the Securities and Exchange Board of India, who were recently involved in a very public spat with the insurance regulator over insurance agents selling mutual fund products such as ULIPs instead of pure insurance products. The new proposals now provide for tax exemptions only on insurance investments in which the premium is just five per cent of the sum insured — which according to experts means that in order to qualify for tax exemption, the investment period has to be around 20 years. A five per cent dividend tax on ULIPs is also being proposed.
Yet a cursory look at the 300-page DTC document indicates that overall the new proposals do not in fact encourage investments. Quite the contrary. Tax benefits are reduced for small savings schemes favoured by ordinary citizens — to cite just one instance, middle-class India’s LIC premiums, which were tax-deductible upto `1 lakh a year, will now be deductible only upto `50,000 — and this includes mediclaim. But if the aam aadmi feel they have got a raw deal, they should pause to consider the plight of the seriously wealthy. While the wealth tax limit has been enhanced from `15 lakhs to `1 crore, the rich are in a tizzy because this includes assets like watches which cost over `50,000, pieces of art, sculpture, paintings and property such as multiple flats — all items of what is considered conspicuous consumption. One wonders why the finance minister has left out fancy mobile phones which cost over `50,000 — these are sometimes more like jewellery than communication devices.
The government is also delaying the rollout of DTC till April 1, 2012, a year later than scheduled, on the plea that everyone needs time to study the code. But as the revenue secretary has himself said — until the bill is passed, nothing can be considered final.