No additional tax benefits for women, elderly

CHAT ROOM

In his Budget speech, the finance minister announced certain concessions for senior citizens and women taxpayers. Could you elucidate how exactly will the changes benefit these two sections?

The benefits announced are more cosmetic than real. The enhanced exemption limit will provide little benefit to women taxpayers and senior citizens will actually be at a disadvantage.

For the assessment year 2004-05, women taxpayers are not required to pay any tax up to an income of Rs 1.25 lakh because income up to Rs 50,000 is exempt and tax on the next Rs 50,000 gets rebate under Section 88D. On the next Rs 25,000, the tax at the rate of 20 per cent works out to Rs 5,000, which is reduced to zero because of relief available under Section 88C.

Thus, the proposal of an exemption of Rs 1.25 lakh for women taxpayers below 65 years yields no real benefits.

For senior citizens, the tax liability for the AY 2004-05 can be calculated thus: the basic exemption will be Rs 50,000; tax on next Rs 50,000 becomes nil because of rebate under Section 88D. The tax on income ranging between Rs 1 lakh and Rs 2 lakh too falls under Section 88B.

If the senior citizen happens to be a pensioner with an income of Rs 1 lakh, total income on which no tax is payable rises to Rs 2,13,333 because of the Rs 30,000 standard deduction (which is being removed from the AY 2005-06).

Now for AY 2005-06. A non-pensioner with an income of Rs 1,83,33 will pay a tax of Rs 6,666 and a pensioner with an income of Rs 2,13,333 (which includes pension of Rs 1,00,000) will pay tax of Rs 12,666 after accounting for the new exemption limit of Rs 1.5 lakh for senior citizens. Thus, senior citizens will be paying more tax on incomes up to the limits mentioned earlier, on which presently the tax liability is nil.

Hence, the hearts of women taxpayers and senior citizens are not likely to be "warmed" as presumed by the finance minister.

What are the changes proposed concerning the savings, which are hitherto covered by Section 88. Are the new provisions more beneficial than the existing ones?

The answer to the last part of the query has to be in the affirmative. The system has been changed to allow deduction from the total income instead of giving rebate in the form of tax at the rate of 20 per cent.

Further, instead of the government dictating the limit up to which investment can be made and the channels where investment should be made, the choice has been left to the taxpayers. The state has decided to be neutral between one form of saving and another.

Henceforth, for savings in addition to the basic exemption limit, every taxpayer will be entitled to a consolidated deduction of Rs 1 lakh for savings, which will be deducted from total income before the tax is calculated.

The Rs 1 lakh limit on savings will include all savings schemes presently covered by Section 88, Sections 80CCC (deduction up to Rs 10,000 in respect of certain pension funds) and 80CCD (deduction in respect of contribution to pension scheme of Central Government).

Thus, if an assessee has an income of Rs 3.5 lakh and saves up to Rs 1 lakh, he will be required to pay tax only on Rs 1,50,000, which will work out to Rs 25,000.

The following six deductions are over and above the limit of Rs 1 lakh:

interest paid on housing loan for self-occupied property

medical insurance premia

specified expenditure on disabled dependent

expenses for medical treatment for self or dependent or member of a HUF

deduction for interest on loans for pursuing higher studies; and

deduction for a disabled person.

Since old the Section 80C is being brought back, the condition that deduction will be available only if the investments are made from the income earned during the previous year will be applicable.

There does not seem to be any justification for doing so when the Finance Act, 2002, removed this condition in Section 88 recently.