Section 80C
Today, Section 80C is applicable to 24 items in all, ranging from bank and post office deposits to tax saving mutual funds to public provident fund (PPF) and life insurance premiums. The list is long, however, there is no differentiation made between long-term savings such as provident fund, PPF, life insurance, housing loan repayments etc., and short-term investments – both sets of investments qualify for the same amount of deduction.

There is a strong case for encouraging long-term commitment of funds by offering such investments an extra tax incentive over and above the existing Rs 1 lakh.

Tax-free bonds required
This will especially help retired persons and senior citizens who have for long demanded an avenue whereby they could earn income without bothering about the hassles of tax deduction at source (TDS) formalities and the filing tax returns. Take for example the Senior Citizen Saving Scheme. It offers an interest of 9 per cent p.a. However, this 9 per cent is fully taxable and subject to TDS. A much better and efficient way could have been to offer 7 per cent tax-free interest such that investors of an advanced age are not required to get involved with paperwork and run around getting their TDS certificates and having to spend time, effort and energy for filing a tax return.

The exempt-exempt-tax (EET) cloud
Last but not the least, the proposed EET system of taxation hangs like a Damocles sword. First mooted three years ago, so far there is a deafening silence on this count. Once the EET regime is operational, all tax saving investments such as PPF, national savings certificate, equity linked savings scheme, Life Insurance etc. would be taxable at maturity. So effectively, what the government is telling us is that we are going to tax your PPF, NSC, ELSS etc. But we can’t tell you when. We won’t tell you to what extent each instrument will be taxed. We cant even say for sure whether existing investments made already, prior to this announcement will also be taxed or not. If you have invested in any of these instruments but not claimed the tax deduction, will the proceeds still be taxed? We prefer to stay silent. Well, it is about time this silence is broken.

To Sum
We will soon know how much of the above actually comes through. Watch this space for a detailed analysis of Budget 2009.

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e-mail: Sandeep Shanbhag

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