Standard deduction for salaried class should be reintroduced: PwC

The limit for medical reimbursements for not being taxed is Rs. 15,000. This limit was last revised almost 14 years ago and in light of the soaring medical and hospitalisation costs, needs to be revisited, PwC India Executive Director Sandeep Ladda said

February 19, 2013 1:59 IST | India Infoline News Service
GAAR (General Anti-Avoidance Rules) is an essential part of dealing with international taxation and will affect everyone, Mumbai-based consultancy firm PwC House said on Wednesday.

The Shome Committee describes GAAR as ‘an extremely advanced instrument of tax administration’. The Finance Minister has proposed in a press conference to defer GAAR till 2015-16, which is a welcome move, PwC India Executive Director Sandeep Ladda said.

Mr Laddha was speaking at a media workshop organised by PwC called Joining the dots, to discuss major concerns related to the Union Budget 2013—which is due on 28 February.

Investment made before 30 August, 2012 will be grand-fathered. GAAR will be attracted if the main purpose (and not one of the purposes) of a transaction or a part of the transaction is to obtain a tax benefit.

A grandfathering clause will spare existing investments from capital gains tax and make GAAR applicable only on new inflows on and after the date the rules come into force. Grandfathering refers to respect a particular structure as it is on a given day—i.e. prior to 30 August 2012. Under GAAR, the government will not touch those structures such as ownership, holding, acquisition, merger, etc, that are done prior to August 2012. 

Any tax benefit that arises as a result of change to the structure of a company or entity after GAAR comes into effect, then tax authorities can choose and apply GAAR on that tax benefit. The term tax benefit has been defined quite openly to even include a case where there is reduction of losses. GAAR is not naturally applicable but it has to be “triggered” or “invoked” by revenue authorities only for transactions where tax benefit arises.

Merger of two companies is considered tax neutral. Similarly, it is recommended that mergers of two LLP (limited liability partnership) should also be made tax neutral, Mr Laddha added.

A large part of the direct tax collections done by the Government of India is done via the TDS (Tax Deducted at Source) route. However, no specific audit for instance by a practicing CA (chartered accountant) is done on withholding related transactions undertaken by a company/entity during a fiscal year. To address any leakages and smoothen the overall TDS related process (and appropriate crediting mechanism) it would be ideal to have a new audit process to be enabled.

Infrastructure sector needs to be given its due credit. There is a strong need of incentivizing this sector. More infrastructure bonds should be launched by the government. The infrastructure companies should be exempted from MAT (minimum alternative tax) or levy lower level of MAT to facilitate the growth of public-private partnership projects in the country. Also, government should incentivise manufacturing sector to do more R&D in India. The government should offer specific research and development (R&D) tax incentives to the manufacturing sector. 

Standard deduction for the salaried class—that was done away in 2006—should be reintroduced. Currently, an individual gets the deduction u/s 80C of the I-T Act, 1961 which is limited to Rs. 1 lakh per annum for different investments during a year (like contribution towards employee provident fund, Public Provident Fund, payment of life insurance premium, tuition fees, etc.) This limit for investments savings is quite low in today’s environment keeping In view of increasing inflation. Therefore, it is recommended to raise this limit to Rs. 2 lakh per annum. The exemption of additional Rs. 1 lakh can be made significantly towards education.

At present, the limit for medical reimbursements for not being taxed is Rs. 15,000. This limit for reimbursement of medical expenditure was last revised almost 14 years ago and in light of the soaring medical and hospitalisation costs especially for private hospitals, needs to be revisited. Hence the current limit of Rs. 15,000 per annum should be increased to at least Rs. 50,000 per annum.

As per section 24(b) of the I-T Act, a deduction up to a maximum limit of Rs. 1.5 lakh is currently available from taxable income towards interest on loan taken for acquisition of self occupied house property. This deduction may be increased to at least Rs. 3 lakh per annum so that more people invest in real estate.

Finance Minister P Chidambaram is scheduled to present his Budget on February 28 and he has a tough task in hand to rein in fiscal deficit which he had said would be capped at 4.8% next fiscal and 5.3% of GDP this fiscal.

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