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Letter to BS: Removal of direct tax exemptions is adding to the burden

The finance minister has provided an alternative route of adhering to the existing tax rates to retain the benefit of tax deductions and exemptions.

Business Standard 

tax, income, salary, rupee

This refers to the editorial, “Glide path for direct tax” (February 3). The architecture of direct tax exemptions and corresponding investments have been developed over many years. The purpose of this system is to provide benefits to the related industry. For example, investment in 54EC bonds to save on long-term capital gains tax (LTCG) on the sale of property provides low-cost funds to Rural Electrification Corporation and the National Highways Authority of India. While it can be argued that the structure of exemptions needs simplification, the total obliteration of the existing system doesn’t amount to simplification but points to a mindset of destructive extremism, as it was reflected in the fatal misadventure of demonetisation.

The finance minister has provided an alternative route of adhering to the existing tax rates to retain the benefit of tax deductions and exemptions. However, one doesn’t know if the route would be available in the ensuing years. The finance minister has declared her intent to do away with all exemptions before 2024. This can result in a loss of opportunity for middle class tax payers. Let us take the case of a home buyer.

While it is true that no one buys a home just to save taxes, the now available deductions of Rs 2 lakh per annum for payment of interest (under section 24B) and Rs 50,000 for payment of principal (under section 80C) on home loans facilitate easing of the arithmetic between post-tax income and EMI and enhance loan raising capacity of the home buyer. This improves affordability of the house to be purchased and stimulates demand for home loans as well as for residential units. The equation would now be permanently destroyed not only for the new home buyers but also for the existing home buyers who have availed of housing loans with the belief that the existing tax incentives would continue. This comes as a rude shock more particularly when the real estate sector is in a slump with the mounting burden of unsold residential units.

Pramod Patil, Nashik


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First Published: Mon, February 03 2020. 22:06 IST
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