The Hindu Business Line : Flattering to deceive

For the salaried, the second slab rate of 20 per cent should have started after Rs 1.6 lakh and the maximum marginal rate of 30 per cent after Rs 2.6 lakh.

Budget 2007 has not wooed the aam aadmi in a big way. The across-the-board increase in tax-free limit by Rs 10,000 would have gone down well with the salaried class especially had there been a concomitant scaling up of the slabs. To wit, the second slab rate of 20 per cent should have started after Rs 1.6 lakh and the maximum marginal rate of 30 per cent after Rs 2.6 lakh. Alas that is not to be.

In the event, every non-senior person would knock off Rs 1,000 from his tax liability but a senior citizen can savour a bigger saving, Rs 2,000, given the fact that for him the first slab rate itself is 20 per cent.

Mediclaim deduction

Increase in Mediclaim premium eligible for deduction under Section 80C from Rs 10,000 to Rs 15,000 for a taxpayer with no senior citizen to take care of and from Rs 15,000 to Rs 20,000 for a person with a senior citizen to take care of is but a small relief.

Nothing has been done in the medical reimbursement front for the salaried class — the same piffling limit of Rs 15,000 per annum continues for non-hospitalisation medical expenses and medical expenses incurred in non-approved hospitals. The least that could have been done was to restrict the exemption on this score to one month's salary which, in any case, is what most of the employers reimburse or Rs 15,000, whichever is greater.

The Government should have been bold to say in so many words that the maximum investments in long-term capital gains tax savings bonds under Section 54EC is Rs 50 lakh per annum per person. The Government has found courage to do so. Earlier in December 2006 it said so after leading the taxpayers up the garden path. Having done this, now the Government should place the twin bonds — NHAI and REC — on tap instead of releasing them in fits and starts

LTCG from bourses

But the big disappointment is the Government has not reintroduced tax on long-term capital gains earned through bourses. It seems to be smugly satisfied with the huge collections it is making from what it perceives to be an alternative levy — the securities transactions tax. It has lost an opportunity to shore up its cash position by reintroducing capital gains tax which certainly would have raised the hackles of the investors initially only to see them mellow down in course of time.

The hike in the distribution tax from 12.5 per cent to 15 per cent is going to exacerbate the horizontal inequity built in the regime. Small shareholders, widows and others who are not required to pay tax would now have to pay a vicarious 15 per cent tax from the hitherto 12.5 per cent.

Education cess

The across-the-board hike in education cess from 2 per cent to 3 per cent in the name of carving out something for secondary education was eminently avoidable if only the Government had the courage to rock the share market a bit more. In fact reintroduction of long-term capital gains tax from bourses would have garnered much more than what the additional education cess is going to beget.

(The author is a Delhi-based chartered accountant.)