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New tax laws need to remove ambiguity among investors
January, 28th 2013

The finance minister, while speaking in South East Asia, promised that India would maintain its record of a stable tax regime in the future. Certainly, for more than a decade now, the tax rates have been stable, especially if one subscribes to the euphemistic notion that surcharges on tax are not actually tax.

If you are a small saver trying to save and invest for the future, then this is a time of considerable uncertainty, all of it emanating from the gap what the government says it’s going to do and what it actually appears to be doing.

The biggest examples are the tax breaks that are available for long-term investments and for retirement savings. At present, tax break investments under Section 80C are completely exempt up to and including the final redemption.

On the one hand, there’s talk of enhancing the amount available under Section 80C, perhaps to R1.5 lakh. On the other hand, if we are to believe authoritative statements made by the current and previous finance minister, then the Direct Taxes Code will replace the current tax laws soon. In fact, at the time of the last budget, the promised date was April 1, 2013.

So which is it going to be? Come April 1, will we have a Rs. 1.5 lakh Section 80C or an entirely new law? What’s more, the DTC is supposed to do away with the current style of tax exemptions and bring in a new system whereby the eventual withdrawals from tax-exempt investments will be taxed at whatever tax rate is then applicable.

This completely changes the arithmetic of long-term savings. It could, for example, mean a big hit on your retirement savings when you retire. Certainly, one would need to save at a higher rate if this is to happen. But is it going to happen? No one seems to be sure any more. And that’s a problem.

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