It was a historic day. The morning served us the budget followed by the ton of tons by Sachin and the day ended with the euphoric dawn of a young cricketing nation in Bangladesh. Two Bengalis had sandwiched a Mumbaikar's feat. But could the budget have achieved the same goals with reforms too was a question that tickled my mind and led to this inaugural blog of the year.
The high inflationary tendencies had forced the Finance Minister to look out for ways of mopping up surplus funds which could be utilised for the common good. A noble intention but here are some ways by which the same could have been achieved/
The personal tax reforms could have been pushed ahead keeping in view the Direct Taxes code which is likely to come into force in the near future. The threshold limit for taxation could have been raised to a sum of Rs 2.50 lakhs leaving a sum of Rs 7210 uniformly in all hands. This would have acted as a bridge to reach the Rs 3 lakhs mark in the coming year. The slab of 20% may have been left untinkered or moved to Rs 9 lakhs to compensate the loss across board. The senior citizens could have been given relief till Rs 3 lakhs and the very senior citizens left at the same mark of Rs 5 lakhs.
As a compensation for these losses a relook could have been had at the deductions given. These deductions could have been classified into three classes namely the savings oriented, the investment oriented and the relief on expenses incurred.
Considering the fact that the least outflow towards tax is at 10% and it is this class which would be conservative in investments and expenditure, as a measure to promote savings, the deductions linked to savings such as the present section 80C may have been converted as a rebate at the rate of 10% subject to a ceiling of Rs 20000 effectively incentivising a saving of Rs 2 lakhs. This would mean that the classes suffering taxes at 20% and 30% would have to look at better avenues or in the event of they plumping for savings they would part a 10% or 20% extra to the exchequer.
Certain expenses such as medical expenses are incurred and are incentivised in the form of deductions. The move to bring in preventive health care into the ambit of tax relief is welcome. The charities are also a welcome outflow. These deductions which relate to 100% deductions on charity without a ceiling and medical expenses on preventive health care could be moved to a rebate of 20%which would promote the class in the top bracket to be charitable to causes of national interest such as defence, education etc. . They would still be parting an added sum of 10% to the exchequer vis a vis a deduction regime. This should have a cap of 10% of the total income
The investment climate would be bettered in respect of such relief being provided as a rebate @ 30% motivating the lower classes also to invest to gain additional tax relief. This methodology would ensure a balance between savings and expenditure as well as infuse the markets with the much required funds which are now spiralling a demand oriented inflation. The infrastructure bonds and other bonds could also be brought under this scheme
A vexed issue of capital gains on immovable properties could have been effectively addressed with the new provision for taxation at source. Let us take a scenario wherein the sale consideration is 25 lakhs. In case the seller is a builder he would ordinarily tinker his accounts to offer 8% of the same as his income which amounts to Rs 2 lakhs. The tax liability at the highest slab works out to Rs 61800. The tax liability to turnover ratio is 2.47%. In case of capital gains, most assessees do not reflect these transactions or claim that the same is deposited in capital gains scheme account or is eligible for an exemption. The whole issue becomes a matter for interpretations and litigations in a handful of cases while the rest go scot free. The removal of all these exemptions as well as the capital gains tax on immovable properties would be an ideal situation wherein all cases wherein the transaction is below Rs 50 lakhs the same could be subjected to 1% and any sum in excess of Rs 50 lakhs subjected to 2% tax thus removing administrative costs on this issue. Further, in cases wherein agricultural lands are obtained and later converted for commercial or residential purposes the same tax needs to be imposed. The scheme also needs to be looked at from point of implementation and the sub registrars should be the persons who should remit these taxes using their Tax Deductors account numbers and file returns. The entire tax should be on par with STT with no further tax or refunds arising from such collection. This would effectively nip the litigations in the bud as well as be a money spinner for the Government.
An opportunity lost at the time of presenting the budget could be made good now but who is to bell the cat?
