All existing income-tax exemptions and deductions, including the politically holy cow of agricultural income, are on the chopping block.
New Delhi : All existing income-tax exemptions and deductions, including the politically holy cow of agricultural income, are on the chopping block.
The government on Tuesday listed all the 162 exemptions and deductions at present available under the Income-Tax Act and said each of those is under a review for their continuance or otherwise.
The finance ministry has sought comments from citizens by July 5 on the abolition or continuance of all existing tax exemptions including those you enjoy on provident fund, life insurance, medical expenditure, house rent, perks, capital gains, inheritance, pension, gratuity, education, housing, interest incomes,savings and investments.
The ministry said all the tax exemptions and deductions being enjoyed by corporates, cooperatives, individuals, members of HUFs and firms are being reviewed as part of the government’s commitment to simplify the tax laws, minimise the distortions within the tax structure and cast the tax net wider.
In this year’s budget, finance minister P Chidambaram for the first time gave out the revenue foregone by the government on account of various exemptions granted from taxes that Parliament has enacted.
He put the revenue loss on account of exemptions granted to corporate tax-payers at a massive Rs 57,852 crore in 2004-05.
In that year, the revenue foregone as a result of tax exemptions and deductions granted to individuals was Rs 11,695 crore. Another Rs 1,534 crore was lost because of tax incentives for the cooperative sectors. Chidambaram had promised to cut down tax exemptions to the minimum.
Clearly, the revenue foregone figures did not include the loss on account of agriculture income being tax exempt. This is because Parliament has not so far enacted a tax on agriculture income. In fact, under the Constitution, agricultural income-tax is a state subject.
The Income-Tax Act, however, makes a specific exemption of agriculture income under Section 10 (1) and any tax assessee is eligible to claim exemption under the Section.
The tax exemptions and deductions being enjoyed by individuals can be broadly categorized under four heads: tax rebate for investment in specified savings instruments; tax rebate for senior citizens, tax rebate for women and tax concessions for interest income on securities, deposits with banks and the like.
Similarly, companies enjoy income-tax benefits under eight broad heads: Exports of profits of software producing units located in software technology parks (Section 10A); export profits of units located in Special Economic Zones, including export processing zones and free trade zones (Section 10A); export profits of units located in export oriented units (Section 10B); profits derived from development of infrastructure facilities, SEZs and industrial parks, generation of power, providing telecom services (Section 80-IA); profits derived from housing projects, etc, etc.
All these and incentives are now in question. An expert group is currently busy drawing up a brand new tax code, which is suppose to make tax law and administration simpler, minimize distortions and encourage tax compliance.
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