A silver lining in Kelkar panel's tax plan

PRIYA RANJAN DASH & PRABHAKAR SINHA
NEW DELHI: Manjit earns Rs 33,000 a month. He lives in a flat bought last year, financed by a Rs 5-lakh home loan. And, manages to save about Rs 80,000 a year in instruments like LIC, national saving certificate and others. Now, Manjit has reasons to cheer.
Under the tax reforms proposals drawn up by an expert panel last week, people like Manjit will not enjoy the tax exemptions on repayment of housing loans.Nor will they have the tax rebates on savings.
Despite this, they will pay Rs 9,631 less in tax every year. Manjit will, thus, have a higher disposable income and little difficulty in complying with the tax regime.
Analysts agree that the proposals made by the Kelkar task force on direct tax reforms promise a personal income-tax regime that is simple and transparent, putting more money in people''s pockets after tax payment.
The tax reforms suggested: Nil tax on incomes up to Rs one lakh, a cut in the tax rate from 33.5 per cent to 20 per cent for incomes up to Rs 4 lakh, and an end to "exemption raj".
This will leave more money with middle-income earners to spend, save or invest as they decide without any need of being "guided" by the maze of tax exemptions and rebates.
Analysts also agree that the proposed system will be progressive. It will check tax evasion, ensure better tax administration and provide incentive to pay tax.
"The proposed system will make e-filing of tax return possible as the form will be simple to fill in and the need for documentation will be minimum in the absence of tax exemptions", a senior tax official said.
The income-groups of Rs one lakh, Rs 2 lakh, Rs 3 lakh and Rs 4 lakh would benefit from the proposed tax structure without the exemptions. Moreover, all income-groups, including those above Rs 5 lakh, will have the added advantage of no dividend tax and no long-term capital gains tax.
There will be no tax on provident fund at the time of withdrawal nor will insurance benefits be taxed. So, overall, you gain.