Shri.Govardhana Rao.H.S, Superintendent of Customs & Central Excise, Bangalore is the author of this article.
In my article Tax code – Bitter for employees and Butter for rich I had requested for removal of tax liability on
- Commuted pension
- Retirement gratuity
- VRS emoluments
- Matured value of GPF, LIC, PLI
- Value of LTC
- Amount of encashment of un availed Earned Leave.
- Medical reimbursement.
Also in my article Revised Direct Tax Code – Areas of Concern to Salaried Class I had suggested for
- EEE method of taxation should be continued without any caveat for long term investments like GPF, PPF, RPF (Recongnised Provident Fund), Pension scheme approved by PFRDA, pure life insurance products and annuity schemes.
- Retirement Benefits like Gratuity, VRS benefit, Commutation of pension & encashment of leave should be exempted in full without any limit.
- Medical Reimbursement at actuals should be fully exempted.
- The principal paid in respect of housing loan should be qualified as allowed deduction from Income.
I am happy to inform that most of the requests have been acceded by the Government
Bill No. 110 of 2010 THE DIRECT TAXES CODE, 2010 was placed in parliament on 28.08.2010.
This is an overview of the bill with respect to individual tax payer like Government employees.
As per Section 6 of the Bill, Income will include the contribution from Government to the pension fund constituted for new recruits. Also in respect of any other fund if the balance accrued exceeds certain limit (the Government has to issue notification prescribing this limit after enactment) it has to be included in the total income.
As per Section 23 following deductions can be made
- Tax on employment (i.e. Professional tax in Karnataka)
- TA/DA benefits
- Any amount of contribution made by an employer, in the financial year, to the account of an employee under an approved pension fund notified by the Central Government, to the extent it does not exceed ten per cent. of the salary of the employee.
- Any amount of contribution by an employer, in the financial year, to an account of an employee in an approved provident fund, to the extent it does not exceed twelve per cent of the salary of the employee.
- Any interest paid on said fund subject to a limit of interest rate to be fixed by Government
As per Section 59 (3) (d), any amount including bonus, if any, received or receivable under a life insurance policy from a insurer on maturity or otherwise can be claimed as deduction from residuary income if & only if
- the premium paid or payable for any of the years during the term of the policy does not exceed five per cent. of the capital sum assured; and
- the amount is received only upon completion of original period of contract of the insurance;
As per Section 69 an amount of up to ` one lakh can be claimed as deduction for making contribution to approved fund. As per definition at Section 314 (18) Approved Fund includes provident fund, superannuation fund or gratuity fund approved by Government
As per Section 70, 71, 72 & 73 up to a maximum of ` . 50,000/- can be claimed as deduction in respect of
- Payment towards a life insurance (with a caveat that the premium paid in any year does not exceed 5% of S.A)
- Payment made to a health insurance
- Tuition fee in respect of Two children with a condition that tuition fee does not include payment to development fee or donations.
As per Section 74 up to ` 1,50,000/- can be claimed as deduction towards interest paid on a housing loan.
As per Section 75 interest paid on educational loan can be claimed as deduction for initial financial year & 7 financial years immediately succeeding the same.( details of these conditions & institution to which interest is paid will be in the notification to be issued after enactment).
As per Section 76 an amount up to ` .60,000/- in respect of senior citizen & Rs.40,000/- in respect of others, amount paid for medical treatment of the prescribed disease (these diseases are yet to be notified although Section itself prescribes many conditions) can be claimed as deduction
Section 77 prescribes deduction of up to One Lakh Rupees to a person with disability & Section 78 deals with Deduction up to Rupees One Lakh for medical treatment and maintenance of a dependant person with disability.
Section 79 deals with deduction in respect of donations made during he year.
Similarly there are other Sections for deduction towards, rent paid when HRA is not received, political contributions, income of investment protection fund, royalty income of authors, royalty on patents.
As per First Schedule Rates of income-tax have been prescribed as follows
(2) where the total income exceeds ` 2,00,000 but does not exceed ` . 5,00,000
10 per cent. of the amount by which the total income exceeds ` .2,00,000;
(3) where the total income exceeds ` 5,00,000 but does not exceed ` .10,00,000
` 30,000 plus 20 per cent. of the amount by which the total income exceeds Rs.5,00,000
(4) where the total income exceeds ` 10,00,000
` .1,30,000 plus 30 per cent. of the amount by which the total income
Rates of income-tax for Senior Citizens
|(1) where the total income does not exceed ` . 2,00,000||
(2) where the total income exceeds ` 2,50,000 but does not exceed ` . 5,00,000
10 per cent. of the amount by which the total income exceeds ` .2,50,000;
(3) where the total income exceeds ` .5,00,000 but does not exceed ` .10,00,000
` 25,000 plus 20 per cent. of the amount by which the total income exceeds ` 5,00,000
(4) where the total income exceeds ` .10,00,000
` 1,25,000 plus 30 per cent. of the amount by which the total income
- As per Sixth Schedule followings Income are not included in the total income
- The amount of accumulated balance in the account of an employee participating in an approved provident fund and any accretion thereto, to the extent provided in paragraph 8 of Part I of the Nineteenth Schedule.
- Any payment from an approved superannuation fund made—
(a) in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or
(b) on the death of a beneficiary
- Any payment in commutation of pension received under any scheme of any employer, to the extent it does not exceed – (a) in a case where employee receives any gratuity, the commuted value of one third of the pension which he is normally entitled to receive; and (b) in any other case the commuted value of one-half of such pension
- payment received by the employee, from one or more employers, as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement, to the extent the aggregate of such amount does not exceed the limit as may be prescribed.
- Any payment received by the employee, from one or more employers, by way of gratuity— (i) on his retirement; or (ii) on his becoming incapacitated prior to such retirement; or (iii) on termination of his employment; or (iv) any gratuity received by the family on the death of the employee, to the extent the aggregate of such amount does not exceed the limit as may be prescribed
- Any sum received by any person from an insurer in respect of a life insurance policy upon death of the insured person.
- Any payment from New Pension System Trust to an employee having an account with the Trust under the New Pension Scheme notified by the Central Government.
Certain drawbacks in the Bill according to me are
- There is no mention of deduction towards LTC availed by an employee. So LTC benefit has to be included in the Taxable Income. My suggestion is that avail the LTC benefit immediately up to December for the prevailing block & avail LTC for the next block before June 2011 & claim the benefit, which will still be exempted since DTC will come to effect only from April 2012.
- The Medical Reimbursement obtained also have to be included in Taxable Income. Although an amount of Rs.60,000 or Rs. 40,000 can be claimed as deduction in respect of treatment of specific disease as per section 76, these diseases are not common. As of now one can not take shelter under Section 76 in respect of Common diseases.
- The limit for senior citizen is paltry ` 2,50,000/- only. It should be Increased to at lest ` 5,00,000/-.
- Also to become a senior citizen one should attain the age of 65 years. This needs to be bought back to 60 years.
- Also gratuity, Commutation of pension are allowed to be tax free only for the limit to be prescribed by the Government. Government should have fully exempted these lump sum amounts since it is used for the welfare & well being of the Individual at their fag end of life.
The views expressed in this article are those of the author and are not intended to represent the views of GConnect