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Tax body moots clubbing exemptions with deductions to eliminate MAT
January, 25th 2008
The Direct Taxes Professionals Association (DTPA), in a recent pre-budget memorandum to Union Finance Minister, Mr P. Chidambaram, has suggested combining of all the Exemptions with Deductions under Chapter VIA of the Income-Tax Act.

The Chapter covers all deductions allowed on gross income.

It is felt that this may help eliminate the Minimum Alternate Tax (MAT) altogether, while ensuring that everyone, including charitable bodies (if they are generating a surplus) paid some amount of income-tax. MAT, under Section 115JB of the I-T Act, has been in existence for nearly 19 years

Mr S.K. Sultania, President, DTPA and Mr N.P. Jain, Chairman, Taxation Research Committee of the Association, said DTPA supported the initiative for gradual withdrawal of exemptions and deductions, and a corresponding decrease in tax rates.

According to Mr Jain, who also happens to be a senior tax lawyer, all exemptions including those under existing Sections 10, 10A, 10B, 10BB, 10BC, 10C, 10CC, 11, 13 and 13A, and the deductions may be combined under Chapter V1A.

He said a ceiling of say 80 per cent of gross total income may be stipulated for making a claim under the new Chapter VI A.

This will mean that every taxpayer will pay tax on at least 20 per cent of his gross income.

Such a measure, it is felt, will lead to real simplification of law as well as procedure.

Provision of MAT, according to the tax experts, will no longer be required as the purpose would have been otherwise achieved not only in the case of companies but also other assesses.

He said this would also raise the effective rate of taxation for improved collections.

Additionally, Mr Jain suggested that deductions claimed under Key-man insurance policies should be restricted to only premiums paid in respect of term insurance policies, and not for any other policies (like whole life endowment etc taken out in favour of the key-man).

Explaining the deductions in respect of premiums paid for such policies, he said the policy is assigned at nominal surrender value in favour of the key-man, and thus the company or the employer is able to avoid tax liability, which would have arisen at the time of its maturity.

Once the policy is assigned in favour of the individual (key-man himself), it becomes a normal policy and the maturity proceeds become exempt under Section 10 (10D) in the hands of the key-man.

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