The Budget process should be fiercely on for its presentation on February 28. Many changes or amendments in the Income Tax Act should not be expected because of the new Income Tax Bill, which is likely to be introduced in the Budget session of Parliament.
However, it is hoped that some important aspects would be taken care of in the Finance Bill concerning income-tax matters, which cannot wait till the passing of the new Income Tax Act. Some of these are as under:-
Standard Deduction
The Finance Minister, in the past, had been most unfair to the salaried employees by withdrawing Standard Deduction (SD), which was given in a lump sum way to the employees in lieu of employment-related expenses.
It cannot be said that in present time of great competition in the service sector, employees are not required to spend any expenses to keep themselves updated only to continue in their jobs for improving their efficiency, when professionals and businessmen are allowed deduction for full expenses relating to their professions/business, it is most unfair to deny even limited deduction for employment-related expenses by way of SD.
Further, discontinuing SD, saying that it is was given for personal expenses, is the travesty of the highest order, causing hardship to a significant disciplined segment of taxpayers. Hence, it needs to be restored forthwith.
Firm policy regarding exemptions and deductions
Ever since Chelliah & Kelkar Committee reports came, there is constant talk about making income-tax law exemptions free and curtail other tax benefits given by way of deductions. Recently, even the Prime Minister (and Finance Minister also) reiterated that exemptions and tax benefits should be removed from the Income Tax Act. But, despite this, each year's Finance Act provides fresh doses of exemption to the taxpayers, withdrawing only few of them.
(a) Finance Act, 2004:
Exemption for European Investment Bank
Tax holiday was provided for Agro processing industry
Extension of time limit for tax benefits was given (i) in cases of renovation and modernisation of transmission and distribution lines in power sector; (ii) for carrying on scientific research and development; (iii) for providing telecommunication services; (iv) for setting up of industries in the State of J & K and few others.
(b) Finance Act, 2005:
Revival of exemption for interest on Foreign Currency Deposits
Extension of weighted deduction for expenditure on in-house R & D
Extension of tax benefits for (i) developing, operating and maintaining an infrastructure facility; (ii) extension of tax holiday u/s 80-IB to any company carrying on scientific research and development.
Revival of exemption on lease rentals paid while acquiring an aircraft.
(c) Finance Act, 2006:
Exemption of the constituency allowance of MLAs
Exemption from levy of dividend tax to close ended equity oriented funds
Extension of exemption for lease rentals of aircraft.
Extension of tax benefits for power sector
[The examples given are only illustrative - not exhaustive]
A firm policy regarding exemptions needs to be followed realising the fact that it is not possible to make the tax law totally exemption-free. What is needed is that when a tax benefit becomes inevitable, it should be made time bound as in the case of Sections 10A & 10B. Requests for extension of time limits for the operation of these sections need to be rejected firmly to indicate Government's determined policy that tax exemptions and benefits cannot continue forever.
EET concept
As a consequence of the declaration in the Budget speech of the year 2005 in regard to Exempt-Exempt-Taxed concept in regard to tax treatment of savings, considerable uncertainty has set in the minds of taxpayers, affecting investments by the taxpayers. It is necessary that final position in this regard may be declared in this year's budget proposals.
Tax expenditure budget
By the last year's Budget, a beginning was made to mention about the loss of revenue consequent to departures from the normal tax regime. It was said that the exercise started for the first time last year would be finetuned in the years to come. It is hoped more details would be available also on account of loss consequent to `tax give aways' in this year's Budget.
Rationalisation of TDS provisions
Rates for TDS vary from 1 per cent to 20 per cent in respect of various kinds of payment. This causes considerable work for those who have to deduct tax at source and pay it to the Government. Only one or two rates should be prescribed for the purpose of tax deduction at source. Some sections can be grouped together also to avoid repetition of same words and phrases in different sections to bring simplicity.
Distinction between unabsorbed depreciation and unabsorbed loss needs to be removed to bring simplicity in the law.
A firm decision regarding Section 53EC should be announced. In the current year, considerable uncertainty remained consequent to wagering policy in regard to exemption under this section because of issue of Notifications in piece meals regarding bonds for short-term periods and for limited amounts.
T.N. Pandey
The author is a former Chairman of CBDT.
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