The liberal increase in the slab rates along with the tripling of the limit for savings should bring a smile to the face of the salaried man; but the smile may be less wide owing to the silence on the limit for interest on housing loan.

Mohan R. Lavi

When buying a new car, apart from technical specifications such as engine capacity, turning radius and so on, one generally takes a decision based on the look and feel of the vehicle.

The Draft Direct Taxes Code has a plethora of proposals to simplify the present gargantuan Income Tax Act but its overall look and feel seems excellent. One reason for this could be the fact that such a major overhaul has been attempted after decades as against the bits-and-pieces we were treated to regularly.

Besides, both the Department and the taxpayer have matured enough to use a simplified law instead of dragging each other to the nearest Appellate Authority.

Income from employment

The salaried class would look at its taxation structure with interest.

The very usage of ‘Income from Employment’ has an international feel to it. As in the present, gross salary will form part of the tax base on due or receipt basis, whichever is earlier.

It will include the value of perquisites and profits in lieu of salary.

The only deductions permitted from salary are professional tax paid, transport allowance to the extent prescribed, prescribed special allowance or benefit to meet expenses wholly and exclusively incurred in the performance of duties to the extent actually incurred, compensation under voluntary retirement scheme, amount of gratuity received on retirement or death, amount received on commutation of pension, and pension received by gallantry awardees.

The liberal increase in the slab rates along with the tripling of the limit for savings should bring a smile to the face of the salaried man; but the smile may be less wide owing to the silence on the limit for interest on housing loan.

Retirement Benefits A/c

Exemption for compensation under voluntary retirement, gratuity and pension is subject to opening a Retirement Benefits Account (RBA) maintained with any permitted savings intermediary in accordance with the scheme framed and prescribed by the Central Government in this regard.

The permitted savings intermediaries include approved provident funds, approved superannuation funds, life insurer and New Pension System Trust.

The accretions to the deposits will remain untaxed till such time as they are allowed to accumulate in the account.

Any withdrawal made or amount received, under any circumstances, from this account will be included in the income of the taxpayer during that period. Accordingly, it will be subject to tax at the appropriate personal marginal rate.

In effect, the tax department is giving the taxpayer an opportunity to save his parting benefits till such time as he is prepared to cough up the tax.

With more profitable investment options available, it appears that a retiree with a bounty would choose the mid-path — keep some portion in the RBA and earn more on the rest.

There were meek requests to exempt gratuity received on death but the theme of the Code seems to be to avoid such pick-and-choose options.

Other Provisions

Income from employment would include the value of rent-free accommodation, value of leave travel concession, the amount received on encashment of earned leave on retirement or otherwise, medical reimbursement and the value of free or concessional medical treatment paid for, or provided by, the employer.

Taxing medical reimbursement appears to be unnecessary as it was one of the provisions considered practical for an employer.

The employment taxation provisions sign off by stating that the new regime of comprehensive taxation of perquisites across employees in all sectors of the economy will improve both the horizontal and vertical equity of the tax system.

In effect, the salaried class should have little to complain as what has not been provided in the tax-on-employment sections has been provided elsewhere.

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

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(This article was published in the Business Line print edition dated August 14, 2009)
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