The Hindu Business Line : Budget: Illusory gains for pensioners

Democracy is a system of lobbies, for lobbies and by lobbies. It comprises vested interests who influence policy-making. Among those without a lobby are senior citizens and unorganised labour — groups whose voices are rarely heard.

APPEARANCES can be deceptive. Budget 2005-06 has been hailed by the media as one that will restructure taxation, particularly income-tax. But a dispassionate review will reveal that it is no different from the run-of-the-mill Budgets that have been presented over the years. Raising the exemption limit, rearranging the slabs, removing deductions, rebates and exemptions, and introducing new ones are part of every Budget.

The only radical restructuring and real reform is the introduction of flat tax. Under this system, exemptions, deductions and rebates can be removed, and the income pitched at the minimum taxable figure ; it does not affect the current position of the majority of the tax-payers and there isonly one rate for all. Increase in tax receipts will come from the growth in GDP.

Impact on the pensioner

Here is another instance of how appearances are deceptive. The exemption limit for senior citizens has been fixed at Rs 1.5 lakh. At the outset, this seems like a substantial benefit. Excluding other concessions, a pensioner until now was entitled to a standard deduction of Rs 30,000, a Rs 15,000 deduction from income from interest (including that from government securities) and a Rs 20,000 rebate, under Section 88 for being a senior citizen.

Including the basic exemption limit of Rs 50,000, the total income free from taxation has been Rs 1,98,333. With abolition of deductions and the rebate, it is going to be reduced to Rs 1.5 lakh. There is, of course, a deduction for savings of Rs 1 lakh, which would mean that the tax-free limit is Rs 2.5 lakh.

But how many senior citizens, or for that matter even others, are in a position to save, even smaller amounts, when they are barely able to survive in a society that has witnessed the break-up of the joint family and the social security it afforded. Income from interest has fallen by half in recent years due to the fall in interest rates, and it must be remembered that pension is only half the amount of salary that was drawn many years ago.

Even if the pension is refixed, as recommended by the latest Pay Commission, it will not make up for the loss in income over the last years. At a recent meeting of the Reserve Bank of India Retired Employees' Association, we were told that many pensioners had given up their telephones despite concessions available to senior citizens.

Democracy: System of lobbies

Democracy is a system of lobbies, for lobbies and by lobbies. It comprises vested interests who influence policy-making.

Such a system is alright, so long as it works on the principle of pareto optimum (one is better off without making another worse off).

The farmers lobby influences the price and procurement policies, the lobby for organised labour keeps a watch on such areas as wages and interest rates on provident fund, and so on.

The industrial lobby seeks to influence policies on, among other things, direct and indirect taxation. Bankers and traders have their respective groups. Thus, among those without a lobby, such groups as the senior citizens and unorganised labour are without a voice.

The population of senior citizens is rising fast. According to the 2001 Census senior citizens comprise 7 per cent of the population. The percentage is expected to grow in the coming years. This section of the society is cared for neither by the family, nor the government.

The Dignity Foundation (DF), an enterprising group of senior citizens led by Ms Sheilu Srinivasan, is an attempt to fill this void and to promote `productive ageing'.

In the US there is no age for retirement and a person can work as long as he wants. In the US Constitution, bar on discrimination in employment has been extended to include age.

We are not likely to reach this happy position for many years. In the meantime, the DF is opening up channels for the productive use of the time and expertise of senior citizens.

Based on the feedback of a recently organised meeting of tax experts, DF has prepared a memorandum, addressed to the Finance Minister, pointing out the injustices to the senior citizens in the Budget.

The memorandum illustrates how at different levels of income, either the senior citizen pays more income-tax than before or the reduction in tax is much less than what the junior citizen gets.

For instance, at an income of Rs 1,53,333 a senior citizen who did not have to pay tax, will now have to pay Rs 667, This is not a small amount for an old man with depleted sources of income at a time when a dozen bananas cost Rs 20.

It is the equivalent of depriving him of one banana a day — the only `breakfast' that many poor citizens can afford in a high price regime. And we are referring only to the pensioners, not reckoning with the many millions who do not have the pension benefit.

(The author is a former officer-in-charge in the Department of Economic Analysis and Policy of the RBI.)

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