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draft Direct Taxes Code (DTC) released by the government on June 15 has cheered the salaried class in some ways for the time being. But one needs to wait until the final picture of DTC is unveiled. DTC proposed to tax most of the salary components like house rent allowance (HRA), leave travel allowance (LTA), children's education allowance, hostel allowance, reimbursement of medical expenses, leave encashment etc. for which some exemption or deduction is available under prevailing tax laws.
Further, introduction of the Exempt Exempt Tax (EET) method of taxation raised the eyebrows of the salaried class, as the retiral benefits such as provident fund (PF), approved superannuation funds (SAF), gratuity, VRS payments, commutation of pension, etc, were proposed to be brought under the tax net.
The salaried class feels relieved with RDP proposing not to tax the employer's contribution to PF, SAF etc. subject to limits and reintroduction of exemption for medical facilities and medical reimbursements with enhanced limits. Proposal of not valuing the rent-free accommodation at market value is largely to benefit the government employees in case perquisite rules are drawn on the similar lines as they exist as of today. Currently, government employees pay the tax on the licence fee fixed by the government, which is significantly lower than the market rental value.
An individual retiring in the next few years will benefit, as RDP has proposed to restore the Exempt Exempt Exempt method of taxation for long-term savings such as PF, SAF and approved pension funds. The proposal to allow a deduction of Rs 1.5 lakh towards housing interest for one not let-out property is also a welcome step but with the soaring real estate prices, this limit could have been raised further.
RDP remained silent on exempting HRA, perhaps a big disappointment, keeping in view the fact that our economy is growing fast and we have a highly mobile work force and there are high rentals in the urban areas. This may force employers to consider to provide rent-free accommodation rather than HRA, which keeping in view the perquisite rules may be more tax-friendly to the employees. There was also expectation of reintroduction of standard deduction as the salaried class virtually pays taxes on gross income as compared to someone earning from business or income from other sources.
There are still several aspects which governments needs to address, such as notifying the perquisite rules and setting/calibrating the limits for the exemptions/deductions. Even the tax rates and slabs may well be re-visited, keeping in view the expected revenue loss from the above proposals. We do hope the focus on simplification should not be lost. Simplification of return forms, timely refunds by the tax authorities, too, remain high on the expectation scorecard of salaried employees.
Source: http://epaper.business-standard.com/
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