Revised Direct Tax Code – Areas of Concern to Salaried Class

DTC, direct tax code, direct tax code proposal, income tax, income tax proposal 2010-11, income tax proposal 2011, salaried class, income tax for salaried class, income on house property, tax on retirement benefits, tax on contributions on pension fund

This article is written by Mr. H.S.Govardhana Rao, Superintendent of Central Excise, Bangalore.

The government has released a discussion paper on revised DTC to be introduced in next session of Parliament. On going through the same, the following areas that would attract salaried class are not agreeable. As DTC is still in proposal stage we have to register our opinion categorically before Government. The following web page opened by Ministry of Finance for receiving public opinion will have to be used by us effectively.

Go to this GConnect previous article for the text of Revised Direct Tax Code Proposal and link for website to register your opinions

Chapter II EET V/s EEE. (Exempt-Exempt-Tax Vs Exempt-Exempt-Exempt):

In para 3 proposal says that “In order to achieve the objective of long term savings, the rules for contribution as well as withdrawal will be harmonised and made uniform so that such savings are actually made and utilised by the taxpayer for the long term. Investments made, before the date of commencement of the DTC, in instruments which enjoy EEE method of taxation under the current law, would continue to be eligible for EEE method of tax treatment for the full duration of the financial instrument.”

So it appears that the EEE treatment will be available only for the existing GPF, PPF, RPF (Recongnised Provident Fund), pension scheme approved by PFRDA, pure life insurance products and annuity schemes. It is not clear in the proposal regarding the immunity to these schemes from tax for ever. It will be a bad news to salaried class if any individual subscribe to these products after enactment of DTC will have to pay tax. Situation would be worse if all investments, including the investments made in the above mentioned funds after enactment of Direct Tax Code are taxable.

Chapter III Retirement Benefits:

We could see the only one commitment made in this area that the Contribution to provident fund, New Pension Scheme & superannuation fund by employer are not treated as salary.

There is a clause provided by government that there is a limit for tax free retirement benefit. We do not know why this limit is fixed, when salaried class is paying taxes throughout the service.

Also Medical reimbursement is not fully exempted. There is no point in imposing tax on Medical Reimbursement as the same is not an Income.

Chapter IV Income from House Property:

It could be seen that Status quo is maintained for Interest on Housing Loan. However, there is no proposal about Principle payment which is now exempted along with other savings with a cap of Rs.1 Lakh.

To conclude the following amendments needs to be done by the Government in the interest of Salaried Class in India.

  • 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.

The views expressed in this article are those of the guest author and are not intended to represent the views of GConnect.