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Silly points of tax
July, 26th 2010

Income tax laws have always eluded the common man. The government is making efforts to simplify the tax rules but there are still many provisions that taxpayers feel should either be changed or scrapped.

Lets take a look at some of these silly provisions which, one hopes, will be amended in the forthcoming Direct Taxes Code.

Gift for spouse: Under Section 64 of the Income Tax Act, the income of a wife is clubbed with the income of the husband. This makes it difficult for a husband to give gifts to his wife. This is an unrealistic provision. The law should be amended so that at least a reasonable amount can be given to the spouse without attracting the provisions of Section 64.

Rent rattle: The tax treatment for rent-free accommodation differs for government and non-government employees. The government employees have to pay just the licence fee and are out of the tax net.

Non-government employees, however, are taxed exorbitantly 7.5 per cent or 15 per cent of the salary on the rent-free accommodation, depending on the population of a town. This discrimination should be done away with and a uniform system of taxing salary and perquisites should be introduced.

Taxpayers who do not have a house of their own or employees who do not get accommodation or house rent allowance from employers can enjoy special deduction on rents paid by them under Section 80GG of the Income Tax Act. The deduction is for rent paid up to 25 per cent of the income.

This may sound very good but the limit is restricted to a maximum deduction of Rs 2,000 per month. Its time this limit is raised to benefit more taxpayers.

Relief for senior: The exemption limit for senior citizens is Rs 2.4 lakh per annum. This may be reasonable but as soon as the income exceeds this limit, senior citizens are required to pay tax at the rate of 10 per cent on income up to Rs 5 lakh.

Hence, the tax slabs should be realigned for the benefit of the senior citizens.

Raise the bar: The finance minister generally increases the exemption limit once in a while. The question is why should the initial exemption limit not be realigned with the day-to-day minimum expenditure of a person. In that case, the tax threshold for individual taxpayers should be Rs 2 lakh per annum.

Unrealistic exemption limits are responsible for tax evasions in the country. If the finance minister takes a more realistic view and realigns the rates, tax evasion could be a thing of the past. The fact remains that whenever the tax rates have been reduced, the mop-up has always been higher.

Joy of travelling: Leave travel allowance for employees are eligible for exemption twice in a block of four years. Under Section 10(5) of the Income Tax Act, 1961, the deduction is for travelling to any place within India. However, the concession is not for travel outside India. The law should be amended to allow exemptions on foreign travel. Moreover, the concessions are only for the travel expenses; boarding and lodging is not included.

Deductions should cover the expenses on boarding and lodging. Also, the exemptions should be for every year to be of real use to employees.

Medical help: Salaried employees enjoy tax exemption of up to Rs 15,000 per annum on medical expenses. This limit should be raised to at least Rs 30,000 per annum considering the rise in medical expenses over the last three years.

Expenses on treatment abroad are also eligible for deductions but only if the gross income is up to Rs 2 lakh per annum. This restriction on income for getting tax concessions on medical expenses abroad should be scrapped. In majority of the cases, the expenses on travel for medical purposes are sanctioned only for senior employees. There is hardly a company in India where the expenditure on foreign treatment is incurred for employees having salary below Rs 2 lakh per annum. Hence, this provision must go.

Study time: Under Section 80C, taxpayers can seek deduction within the overall limit of Rs 1 lakh on tuition fees. Expenses directly related to the education of children such as purchase of books, school bus fees and hostel charges should also be made eligible for waivers under section 80C.

Loss hurts: A salaried employee doesnt have the benefit of enjoying tax exemptions in case the company he works in suffers a loss. This is a bit unfair. The law should be amended so that the employees as well as the directors of the companies adjust the tax on their salaries with the business loss.

Asset watch: It is also recommended that the period of holding a capital asset to make it a long-term capital gain should be 365 days for all categories, whether shares or real estate or mutual funds and also for non-listed company shares.

Room for more: At present, an individual tax payer can invest in a residential property to save his capital gains under Section 54 or Section 54F of the Income Tax Act. However, this benefit is only for investment in one residential house. The law should be changed to allow tax payers to invest the capital gain amount in any number of houses. This can help in removing the housing shortage in the country.

Tax laws are for the people. Why not make them more simple so that the provisions are easy to remember? Why not change the rules of the game so that more people are benefited.

One can hope to look forward to the finance minister making the necessary changes in the new Direct Taxes Code.

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