Simpler tax laws remain a pipe-dream, still

Parvatha Vardhini C | Updated on July 05, 2019 Published on July 05, 2019

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A rewritten I-T Act that rationalises taxation is still some way away

Though the Centre has been announcing piecemeal simplification of tax laws in the last few Budgets, the Direct Taxes Code envisaged for this purpose as a replacement to the Income-Tax Act , 1961, still remains a distant dream. The Direct Taxes Code (DTC) Bill 2010 lapsed when the NDA 1.0 came to power in May 2014. The NDA set up a task force to review and rewrite the Income-Tax Act in end-2017, and the panel is expected to submit its report by the end of this month. Hopefully, the task force will deliver what the Budget did not.

For individual tax-payers though, nothing much has been lost since the DTC was first mooted. On personal taxation, the DTC spoke of an enhanced Section 80C deduction limit of ₹1.5 lakh, with ₹50,000 specifically set aside for expenses on life insurance premiums, children’s tuition fee and health insurance premiums. Besides, it proposed that life insurance premium paid is deductible only if it does not exceed 5 per cent of the capital sum assured, against the then existing 20 per cent cap. The idea was to provide a fillip to savings by separating investment from insurance and other expenses.

Following this, Budget 2012 moved the cap on eligible premium payment to 10 per cent of sum assured. This tilted the scales in favour of term insurance which provides pure life cover over fancy money-back /endowment /market-linked policies. The Sec 80C deduction limit was raised to ₹1.5 lakh in the July 2014 Budget. While deduction for expenses was not carved out separately, an additional ₹50,000 deduction (Budget 2015) was given solely for investment in the NPS, a long-term savings product. Budget 2017 announced a 5 per cent tax rate for the ₹2.5 -5 lakh income slab, lower than DTC’s proposal. Over the years, 80D deduction limits for health premiums have also been enhanced.

National Pension Scheme

DTC also called for a tax on long-term capital gains in equities. Budget 2018 implemented it by taxing long-term gains on equites above ₹1 lakh at 10 per cent.

The NPS was virtually granted ‘Exempt-Exempt-Exempt’ tax status (a proposal in the erstwhile DTC) by word of mouth in end- 2018. This move has been notified now. What remains for the task force are a few decisions on the personal taxes front — one, on whether short-term savings products such as ELSS, five-year tax saving deposits and NSC qualify for Sec 80C deduction.

Clearly incentivising only long-term investments such as the PPF and NPS, the DTC had removed 80C deduction for short-term products. Second, the standing committee report on the DTC Bill, which submitted its report in 2012, recommended a return to higher basic exemption limits for women as well as the automatic adjustment of tax slabs for inflation by indexing them to the consumer price index.

We may have to wait till the end of the month for an answer.

Published on July 05, 2019
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