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Finance Minister should consider liberalising Section 80C, and increase tax exemption limit

In an election year, the government can be accused of populism for any indulgence shown towards the electorate. But there are long overdue changes accepting which cannot be termed as acquiescence. Linking tax exemption limit to cost inflation index is one such. Since it has been cold shouldered all these years, there is a strong case for doubling the tax exemption limit from the measly Rs 2.5 lakh immediately and for installing a permanent machinery for automatic revision in subsequent years a la cost inflation index for computing long term capital gains.

Likewise, the salaried class was fobbed off with a flat standard deduction of Rs 40,000 by Finance Act, 2018 in lieu of offering all medical reimbursements and transport allowance to tax. The demand was to hike the non-hospitalisation medical bill of Rs 15,000 fixed eons ago. Not only was this measly amount also brought into the tax net but also cruelly all hospital bills of employees and their families met by the employer.

The new standard deduction regime is not only one-size-fits-all but fails to address the medical needs of employees who by and large are untouched by Ayushman Bharat initiative. Rs 40,000 is not enough to meet transport expenses to place of work and back, leave alone meeting medical expenses. It is cruel to tax a person for the hospital bills reimbursed by the employer. It is akin to rubbing salt to injury.

 Finance Minister should consider liberalising Section 80C, and increase tax exemption limit

Image courtesy: Reuters

The other two crying needs are liberalising section 80C and incorporating the idea of number of mouths fed in tax computations of individuals.  Section 80C should be tweaked as follows.  The last time the maximum amount deductible under it was raised was in 2014---1.00 lakh to 1.50 lakh.

First, Rs 1.50 lakh 100 percent deductible as hitherto. The next Rs 1 lakh should qualify for a 95 percent deduction, the next for 85 percent and so on subject to a maximum qualifying amount of say Rs 7.50 lakh. This may be assailed as pro-rich but it comes with a price---sliding rate of deduction.  Why curb the enthusiasm of those wanting to save which indeed is as much a national service as payment of tax.

Senior citizens have their own geriatric needs. Unfortunately, section 80C doesn’t cater to them.  They cannot avail of life insurance at this stage of their lives or the 15-year lock-in period of PPF.  Neither can they look out for a new house at this stage of their lives nor provide tuition fees for children whom they would have educated long ago.  Why not allow them to claim hospital and medicine bills which make huge and unexpected claims on their slender savings and even more slender income?

Malaysia allows family allowance that varies directly in proportion with the number of mouths fed.  In India, a 55 year-old householder burdened with filial responsibilities of looking after his dependent parents in addition to his own three children and wife, all of them not earning and a carefree bachelor with no dependants are taxed alike on their identical hypothetical income of Rs 10 lakh, whereas the former needs to be taxed more humanely---a dependant allowance of Rs 10,000 per dependant.  This is not too much to ask.  Let us not condemn them to stew in their own juice.  Lest this humane regime is misused or abused, there should be a severe and deterrent penalty including a jail term for taking liberties.  Dependants' proof should be furnished along with their Aadhaar and PAN.

(The writer is a senior columnist and tweets @SMurlidharan)

 

 

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Updated Date: Jan 18, 2019 09:53:31 IST