| Source – Vyasamoorthy, P |
| Sri P. Chidambaram Hon. Union Minister for Finance Government of India North Block Secretariat New Delhi 110 001 March 22, 2005 Sir, Sub: Personal taxation of Senior Citizens in Finance Bill 2005 Your masterful presentation of Budget 2005 has been widely acclaimed by the print and electronic media, leaders of industry and large sections of the public. Indeed, as a budget meant to push the economy upwards and simplify taxation procedures it is a trailblazer. We would like to join the general approbation and congratulate you for presenting such a fine budget. But it is painful to note that Senior Citizens who are the most vulnerable segment of the community and who are some how managing to survive through the twilight years of their lives have been treated in a very callous manner. The enhanced basic exemption limit of Rs.1.5 lakh will, in totality, work to our detriment on account of the scrapping of the Rs.20,000/- rebate u/s 88B, Standard deduction of Rs 30,000/- u/s S16 and tax exemption under u/s S 80L of interest up to Rs 12000/- At present, a Senior Citizen with an income of Rs.1.98 Lakh does not have to pay any tax, but the new provisions will result in a tax liability of Rs.9,600/- on the same income, The Rs. 1.0 lakh savings relief will not be of much use to us as we do not have much scope for large savings. Actually, we live/survive on our past savings and pensions, rather than making substantial further savings in our twilight years. Therefore, we will not be able to make any use of the Rs. 1 lakh savings relief. The following table will clarify the position. Pre-Budget Post Budget Pension/Salary Income 1,83,000 1,83,000 Interest income including Rs 3000.-on Govt.Securities 15,000 15,000 Gross Income 1,98,.000 1,98,000 Less Standard Deduction 30,000 Nil Less U/S 80L 15,000 Nil Total Taxable Income 1,53,000 1,98.000 Tax on Total Income 19,900 9,600 Less rebate U/S 88B 19,900 Nil Tax Payable Nil 9,600 It is inconceivable, Sir, how you feel that senior citizens are twice blessed while in effect we are triply cursed with the reduction in the relief, removal of standard deduction and elimination of section 80L. The proposal to follow the EET model that is, to tax the withdrawals is a big blow to the senior citizen’s efforts to sustain himself in view of the society’s inability to do so. Secondly this does not take into account the effect of inflation. EET is in reality a deferred tax scheme, which is reasonable when the point of tax is neutral in time. But this is not so when the inflation rate is 7%. Reference is made to other countries following the EET model. The rationale for such policies in Europe is given in the EC directive as an attempt to see that savings do not shift from one country to another. New Zealand has made a point that the interest rates have become positive over the inflation rate there, which justifies the EET model. That is not the case in India . It is well known that government policies are meant to influence savings behaviors and outcomes. The effect of the proposal to follow EET model for PPF in the budget 2005 would be to drive the senior citizens to the equity market for enhancing their savings. The result is that at a vulnerable age they are driven to take unforeseen risks, which may deprive them of their hard earned savings. Though the reason given for EET model is tax neutrality, there is a great favour shown to equity by exempting dividends and capital gains. The senior citizens who wish to remain in secure environment by sticking to bank fixed deposits are forced to pay tax thus reducing their returns while those who choose to gamble in the equity markets even at advanced age can get away with the entire earnings without tax. Is it fair? If the EET model is applied only to PPF then it is discriminatory because only the unorganized sector is punished for looking after itself. The Public Provident Fund is the greatest pillar of security for senior citizens founded by a socially conscious government as a welfare measure, in 1968. It is a pity that the same government should think of cutting at its foundation If at all, the EET model is to be applied, it has to be applied only prospectively. It is, therefore, suggested that to protect the interests of senior citizens, the exemption limit for senior citizens may be pegged at 2.5 lakhs instead of at 1.5 lakhs as proposed in the finance bill 2005, or in the alternative the benefit of rebate under section 88(H) may be continued. Unless this relief is provided, senior citizens alone will be worse off in the new dispensation. This will be contrary to the Government’s National policy of Older Persons. Sir we would also like to take this opportunity to make following additional suggestions for your kind consideration, 1] The criteria for determining a person as Senior Citizen should be 60 years instead of 65years. 2] Senior Citizens Bonds’ should be issued with an assured rate of return of 10% with a cap of 30 lakhs as maximum investments and persons above the age of 60 years should be eligible to subscribe. 3] PPF should not be modified or scraped and should be allowed to continue on the present form carrying interest exemption U/s. 10 of the Income Tax act and contribution to be eligible for deduction U/s. 80 C upto Rs.1,00,000/- p.a. 4] Contributions by individuals, companies to charitable institutions running approved old age homes should be given 100% deduction U/s. 80 G of the Income Tax Act. 5] The proposed amendment of Sec 139 making it mandatory for filing the returns for persons having income above Rs.50000/- before availing exemption U/s. 10 and deduction under Chapter VI A of Income Tax Act should be relaxed in favour of Senior Citizens. 6] We would also like to recommend that where the Karta of a HUF happens to be a senior citizen, that HUF may be given all the facilities extended to a senior citizen. This will encourage HUFs, which are a unique institution of Hindus, particularly at a time when joint families are breaking up. NPOP document – Plan of Action 2000-2005 – under the section relating to Ministry of Finance lays emphasis on: “taxation policies will take cognizance of the heavy liabilities on older persons to meet their survival, health, and other needs in old age” .We hope this directive will be kept in view while finalizing the proposals concerning personal taxation of senior citizens. With regards Yours faithfully |