Super seniors and tax planning

At the government level, gender and age-based preferences have always held sway, with none of them ever being seriously contested or begrudged. The Delhi Municipal Corporation for example gives a sizeable property tax rebate to senior citizens and widows. In fact, the Delhi government has taken the step of lowering the stamp duty for properties registered in the names of females. The Direct Taxes Code (DTC) before Parliament wants to restore parity between men and women in the matter of taxation. And this unstated object of the DTC has been partially implemented by the Finance Bill, 2011 by narrowing the exemption differential between males and females to just Rs 10,000 in favour of the latter.

While the DTC seeks to effectively preserve the status quo for senior citizens, the Finance Bill, 2011 proposes something totally unexpected. The proposal would most certainly call for changes in the DTC as well. The age barrier for the status of senior citizen is being lowered to 60 from 65 so as to accord with the Railway norm as explained by the Finance Minister, with a concomitant increase in the tax exemption threshold from Rs 2.4 lakh to Rs 2.5 lakh. Simultaneously, very-senior-citizens - 80 and above - come for an even more considerate tax treatment; they are exempt from tax on the first Rs 5 lakh of their income. In a budget otherwise shorn of any pyrotechnic or significant announcement on the direct taxes front, the tax concession to senior citizens has naturallyhogged limelight and attention. Cynics say there are hardly 15,000 very-senior-citizenson the records of the Department and therefore the tax break is at best a trivia . But others attach meaning and substance to it. With longevity increasing and the Sixth Pay Commission loosening the governmental purse strings, the peak pension levels have now reached unimaginable levels - in the region of Rs 50,000 a month or so. Naturally, beneficiaries of the new tax munificence are happy.

Tax-planning

But to the dyed-in-the-wool tax planner, the heightened relief affords some heightened tax planning - use very-senior-citizens to minimise the tax bill. Self-employed persons have always got away lightly by being able to manipulate their tax affairs. One of the oldest tricks was payment of salary to their senior citizen parents. A salary of Rs 20,000 a month brought down their tax liability with their parents being none the worse for it. Now that the tax exemption to very senior citizens is proposed to be nearly doubled, their salary from their doting wards is also likely to double.

In any case, an upshot of the move is going to be more respect and more activity for them. Also, family members can be counted upon to rally round the venerable very senior citizen if only to guard their income from the ravages of tax.

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

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