The Hindu Business Line : Tax incentive on PPF

Why does the Direct Taxes Code want to do away with Public Provident Fund (PPF) which, to my mind, is an excellent social security net for the middle class?

Ricky D’Souza, Panaji

The PPF scheme has not been done away with; only the tax incentive thereto is sought to be done away with. It would have been better had the DTC condescended to allow the tax benefit in respect of contributions made into PPF account of existing participants given the fact that the scheme matures after 15 years. The Government perhaps feels that PPF is a white elephant calling for huge tax sacrifice. Moreover, its recently launched New Pension Scheme (NPS) has been languishing with very few takers for it. Therefore, it might have thought that greater interest would be shown in NPS only if PPF is made that much more unattractive. Maybe, it is an act of cannibalisation with the noble motive of promoting the culture of investing for one’s pension.

Share market gains

Will taxing capital gains from the share market not deter investments?

Sharmila Bannerjee, Hooghly

I don’t think so. The same apprehension was voiced when there was a clamour for taxing the FIIs who were using the Mauritius route to avoiding capital gains tax with which we have an obnoxious Double Taxation Avoidance Agreement (DTAA) that allows a resident of Mauritius to get away without paying tax in India on what is admittedly an Indian income.

Investors are enamoured by prospects of making profits and if the profit after tax is attractive enough, they would invest. At any rate, letting off one source of income is highly objectionable as it goes against horizontal equity. It is good that the DTC proposes to treat all incomes on par.

Wealth tax

I understand the wealth tax law was amended in 1992 to tax only unproductive assets. Why does the Direct Taxes Code then want to set the clock back?

Rita Madan, New Delhi

The 1992 amendment was done at the behest of the recommendations of the Raja Chelliah Committee which opined that wealth tax had outlived its utility because it was neither garnering revenue for the Government nor was it used by tax authorities in tandem to unearth unaccounted money.

And hence either should be abolished or used only to tax unproductive assets. Ever since, there has been criticism against the law on the choice of the so-called six items of unproductive assets which admittedly was subjective. It is good that the Government has shed this selectivity. There is no earthly reason why shares should not be taxed when a house can be taxed.

The liberal tax-free threshold of Rs 50 crore is also a good move in that only the really wealthy would be called upon to pay a soft tax of 0.25 per cent on their net wealth. Hopefully, the move would enable the tax authorities to make a proper assessment of income of those who have taxable wealth as well even if the wealth tax does not garner much revenue for the exchequer.

S.MURLIDHARAN

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