Direct tax changes unlikely to impact govt revenue

TAXING MATTERS

Ever since the possibility of an early Lok Sabha elections gained currency, finance minister Jaswant Singh started having an itch for an interim Budget.

In fact, he made a statement that there should be no vote-on-account, but there should be an interim Budget if the Lok Sabha elections were held early and there was no time for presenting a regular Budget in February.

To fulfil his desire for presenting a mini (interim) Budget, the finance minister announced a number of concessions concerning Customs duty, central excise, service tax and direct taxes.

In case of direct taxes, the changes announced relate only to Income-Tax and are merely of a procedural nature. These are not likely to have any impact on government revenue.

There could have been no problem if the finance minister had announced the changes.

1. The first important change concerns salaried employees. Employees, who get their income only through salary (and from no other source) up to Rs 150,000 and correct tax at source has been deducted from the income, will not be required to file Income-Tax returns. The tax deduction certificate issued by the employers and duly signed by the employees "" in token of acceptance that they have no other source of income "" will be treated as closure of assessment proceedings in cases of such taxpayers.

This would also reduce the work load for the Income-Tax Department.

There is nothing new in this proposal and it was already in vogue earlier in the form of Sub-Section (IA) of Section 139, which was in force during the assessment years 1975-76 to 1992-93.

In fact, the provision was more liberal in the sense that it provided that it would not be necessary for an individual to furnish under Section 139(1) a return of his income if his total income consisted only of income chargeable under the head 'salary' or of income chargeable under that head and income of the nature referred to in any one or more of the (then) Clauses (I) to (ix) of Section 80L(I) i.e. interest on securities, dividends, etc., if it had been deducted at source correctly and the income did not exceed the prescribed limit (which has now been fixed at Rs 150,000). There was no reason to withdraw this provision. In fact, the withdrawal lead to unnecessary work without any revenue gain for the government.

It should be expected that the liberal provision contained in earlier Sub-Section (IA) of Section 139 would be restored and the new provision would not be applied to income from salary only.

The second important change concerning Income-Tax relates to pensioners for whom it has been provided that they will not come under the purview of the one-by-six scheme if they do not have taxable income. Such persons will not be required to file returns.

The facility of non-filing of returns if the pension is up to Rs 150,000 per annum and tax has been correctly deducted from such pension, should apply in cases of pensions also as pension is considered salary for Income-Tax assessments.

The other changes announced included:

1. For perquisite valuation, a change long overdue in the interest rates for housing loans etc., has been affected. In many cases, like bank employees, loans were obtained at much lower rates than 10-13 per cent, but for perquisite valuation, such higher rates were charged. Because of this, many employees were not willing to take loans from their employers. It was prima facie unfair to use the 10-13 per cent bench-mark for valuation of cost of loan facility for perquisite when loans were available from banks and financial institutions at 6-7 per cent. This anomaly is now proposed to be rectified by amending the relevant Income-Tax Rule. As a matter of fact, this change is not a matter of Budget exercise and could have been made by the Central Board of Direct Taxes (CBDT) long back by amending the relevant Income-Tax Rule.
2. For charitable institutions, life has been made a little easy. Instead of separate certificates to be given to several deductions, there will be just one certificate from the assessing officer for no tax deduction at source (TDS), which would do away with the multiplicity of certificates.
3. Infrastructure projects will now be granted one-time approval for the purposes of exemption under Section 10 (23G), which will replace the present system of seeking periodic renewals.

However, the tax department will have powers to review such cases and withdraw the exemption where the same is found to be misused.

Other procedural aspects include:

1. Furnishing of paper-less Income-Tax returns by the introduction of direct filing through the Internet under digital signatures for salaried taxpayers, professionals like doctors, accountants etc.
2. A computer network will now cover 501 Income-Tax offices spread across the country by June, 2004.
3. The number of challan forms for deduction of tax will now be reduced from the existing 4 to one. The changes concerning Income-Tax will come into effect from April 1.

The changes are welcome as these will make life for the taxpayers easy. However, there is nothing radical about the same and no benefit in the form of tax reduction will result from such changes except those relating to interest rates, which should have been made long ago. The changes concerning the interest rates need to be made effective immediately.