No, the savings as a result of preferential taxation are marginal but a concession would acknowledge the significant contribution of women to economic growth
GEETA JANI
Tax Partner, Ernst & Young
Preferential taxation to encourage women to work is less relevant today as they have the requisite qualifications and skills to rise to the highest echelons of a company
India is one of the few countries where taxes have been used as an affirmative action policy for women — in India, women are explicitly advantaged by some aspects of the tax system and reforms. The question, however, that remains unanswered is whether a differential tax treatment has been effective and if this really benefits women.
The income tax regime in India provides preferential tax treatment to women by providing them with a higher basic exemption limit of Rs 1.9 lakh under the Income Tax Act, 1961 compared to a limit of Rs 1.6 lakh for men. Although this leads to a reduced tax cost for women, the point that everybody seems to be missing is that the saving in tax cost is marginal.
To illustrate, let us take the case of Ankita and Bhuvan with similar qualifications who work as consultants for a given employer at an annual package of Rs 8 lakh. Given the current slab rates under the Income Tax Act, 1961, Ankita pays an annual tax of Rs 91,000 and Bhuvan pays Rs 94,000. Thus, a higher basic exemption limit saves Ankita only Rs 3,000 in taxes annually. This marginal saving may not make a significant impact on her savings or other decisions.
It may be true that a differential taxation regime is warranted in the formative years of an economy to encourage women to take up employment, but such a rationale is of less significance today because women have the requisite qualifications and skills to rise to the highest echelons of a company.
In today’s equitable times, the criteria for women joining the workforce are driven by far more competitive factors and lifestyle requirements. Tax is a consequence of such a decision and earnings from income. The factors of substantive relevance may include the urge to achieve a specific standard of living and the availability of other on-the-job benefits such as flexible working hours, child-care centres in offices, liberty to work from home and so on. Thus, differential taxation as a policy initiative to encourage women to enter the workforce may not be as relevant today as it was a few years ago.
It is interesting to note that currently in India, around 11 per cent of 240 large companies — Indian-owned as well as multinational, private and state-owned companies — have women CEOs across industries based on their qualifications and skill set.
One wonders whether the debate around the “gender parity” thus achieved is really critical. The fact that women are establishing a strong business presence across industries based on their capabilities indicates that a differential taxation regime is not required for promoting employment among women. Horizontal equity in personal taxation makes more sense today compared to earlier times and parity in taxation between men and women in the Direct Taxes Code Bill is an initiative in the right direction.
There is still room for more women in India’s workforce. Given this, there is a need to structure incentives in a manner that they meet a woman’s requirements. The incentives that may significantly influence a woman’s working decision have to do more with attaining a work-life balance. It is time to invest in realistic reforms like higher education benefits and a conducive work environment that can enable women to take charge of their lives.
In view of this, the government could consider including women-centric incentives like a deduction on medical expenses related to maternity from income, tax benefits of educating the girl child, sponsorship for further education for married women and so on. There is no confusion regarding the capability or willingness of women to work in today’s work environment. It is only the availability of relevant and facilitating opportunities that will enable her to convert those opportunities into a reality.
Views expressed are personal
NEERU AHUJA
Partner, Deloitte Haskins and Sells
Preferential taxation treatment is not so much about the monetary benefits as it is about the support and encouragement to working women of a growing economy
The financial year 2000-01 saw the introduction of a small but important section in the Income Tax Act, 1961: Section 88C provided for a tax rebate of Rs 5,000 for women taxpayers in India. The rebate was small but the statement behind it was significant. The then finance minister said the rebate was being given “as a token of appreciation and recognition of women as productive contributors to the economy”.
The rebate continued in the following tax years. In 2005-06, it was omitted, only to be replaced by an increase in the tax exemption threshold limit for women taxpayers, a benefit that remains in our tax statutes to date. These rebates and exemptions, along with the various other initiatives taken by the government for its women citizens, send a clear message to India and the rest of the world: we are behind our working women, and we will do everything we can, financially and in other ways, to ensure a conducive and encouraging work environment for them.
The Direct Taxes Code of 2009 carried on with this tradition — the proposed tax exemption limit continued to remain higher for women assessee. Although the amount was not significant, the message was indeed inspiring. As the country was hopefully moving towards a simplified tax system, it was heartening to have the government rooting for its women citizens.
And then the Direct Taxes Code Bill, 2010 was introduced in Parliament in August. Quietly and unobtrusively, all mention of any preferential treatment for women taxpayers was wiped out.
What led to such a momentous change? Were women not to be appreciated or recognised any more? Was the government sending a new message to us: no more tax concessions for the ladies; we have done our bit and you are on your own now? Was this removal justified? Other countries like the UK, the US and notably China do not treat their women taxpayers differently. Should India do the same? And the biggest question of all is: do we really need this preferential treatment in the first place?
As expected, the exclusion led to vociferous opposition from various parties and equally strong support from other quarters. Lost in this cacophony of differing viewpoints is the simple fact that the so-called “preferential treatment” was not so much about the monetary benefits or tax savings — a trifling Rs 3,000 a year in the highest tax bracket or a measly Rs 250 a month — as it is about a much bigger issue. It was about the loss of support, encouragement and backing of a government for its working women. The Indian woman may not need the token amount of concession, but she certainly needs the comfort and reassurance of a supportive regime.
It is for the first time in our history that such a huge population of women is part of the workforce and a significant contributor to the 8 or 9 per cent growth — and this number shows every sign of growing exponentially. It is clear that India needs its women to sustain the high growth rate.
Policymakers appear to be at a crossroads. On the one hand, we have a woman president, a separate ministry for women welfare and we celebrate the “girl child”. On the other hand, a token tax benefit to women is callously thrown out without any discussion.
There is still time before the tax code is finalised for better sense to prevail. More than the financial gains that this measure would bring to women, it would be an affirmation of the intention of the lawmakers to continue to stand by this very important and critical section of the economy’s workforce. And tomorrow, India may set the global trend for other countries, teaching them how to empower their working women.
Priyambada Sen, Senior Manager, assisted with this article
