New Tax Law and Senior Citizens

New Tax Law and Senior Citizens. M.V.Ruparelia.

Finance Minister has notified the Draft of New Tax Law on 12-8-09 for suggestions and comments of the Citizens. This Law is a unified law for all Direct Taxes and main aims of this proposed Law are:-

i) Removal of various exemptions.
ii) Removal of ambiguity in Law.
iii) Checking of erosion of tax through tax evasion.
iv) To improve Tax-GDP Ratio by facilitating voluntary compliance.

Salient features of the proposed Law are:-

i) Single code for all Direct Taxes.
ii) Use of simple language.
iii) Reducing the scope of litigation.
iv) Flexibility.
v) To reflect the Law in a form.
vi) Consolidation of Provisions.
vii) Elimination of Regulatory Functions.
viii) Providing stability.

As far as Senior Citizens are concerned, the proposed Law gives the benefit of exemption of same limit of Rs 2.40 lakhs (Women: Rs 1.90-Others: Rs 1.60) with other common benefits of investments including tuition fees paid for children up to Rs 3 lakhs (as against Rs 1 lakh at present) with condition that roll over will not be admissible of any amount received, withdrawn from one account with the permitted Savings intermediary to any other account with same or other permitted intermediary. All savings will have to be in Permitted Savings Intermediaries approved by Pension Fund Regulatory & Development Authority (PFRDA) and will be governed by EET scheme. Under E (Exempt), E (Exempt) and T (Tax) scheme, savings to the extant of permissible limit will be exempted in that year and accumulated savings with interest in subsequent years will remain exempted till not withdrawn. All savings and interest will be taxable in the year of withdrawal to the extent of withdrawal. Contributions of employee and employer to approved Provident Funds, approved Superannuation Funds, Life Insurers and New Pension System Trust will also be taxed at the time of withdrawal for any purpose including retirement, death etc under ` Income from Residuary Sources`. However, this will apply to new contributions made after 31-3-11 after commencement of this New Law and balances as on 31-3-11 will remain exempt (even if withdrawn after 31-3-11?) in GPF, PPF, recognized PFs & Employees` PFs. If the amount received or withdrawn is invested in permissible Intermediaries, such withdrawal will not be taxed.

According to proposed Law, Compensation under Voluntary Retirement Scheme; Gratuity on retirement or death and commutation of Pension are taxable but can be exempted to the extant these are deposited immediately in Retirement Benefits Account. Amounts received from approved Superannuation Funds will also be treated in this manner. As and when amounts are withdrawn from R.B.A. that will be taxed in the year of withdrawal.

Income from Salary (Pension) will include leave encashment, value of leave travel concession, if any, medical reimbursement or value of free or concessional medical treatment paid or provided by employers. Income from House Property will be taxable except for one self occupied house. There will be no separate Short Term and Long Term Capital Gains. All Capita Gains shall be taxable, except that invested in `Capital Gain Saving Scheme` and one used to purchase one house for self-occupation. Withdrawals from CGSS will be taxable in the year of withdrawal.

Any payment including Bonus received for recognized Life Insurance on maturity/death shall be exempt except that such amounts received from policies, where premium in any year exceeds 5% of the capital sum assured will be taxed under Income from Residuary Sources.

The following are the slabs of tax:-

Rs 2.40 lakhs to Rs 10 lakhs: (against present 3 lakhs): 10%.
Above Rs 10 lakhs to 25 lakhs: 76 thousand + 20%.
Above Rs 25 lakhs: 3,76,000 + 30%.

Wealth Tax: Nil up to Rs 50 crores.

Rebates to the extent of:-

i) Health Insurance Premium: Rs 20000. (For others: Rs 15000. If they pay premium for parents, who are Senior Citizens: Rs 20000. For other parents: Rs 15000.)
ii) Medical Treatment for specified diseases: Rs 60000 for Senior Citizens less Mediclaim received, if any. (For others Rs 40000).
iii) Maintenance of Disabled dependents: Severe disability: Rs 1 lakh. In other disability: Rs 50000.
iv) Deduction to the handicapped: Rs 50000 (75000 in case of sever disability).
v) Deduction for interest on loan taken for higher education for self, spouse and children to the extant of interest paid, provided loan is taken from recognized Bank/Organization.
vi) Self employed will be given reduction up to Rs 2000 p.m.for rent paid in excess of 10% of his income.
vii) Dividend is exempted.
viii) Donations: To Organizations in Part A of XVI th Schedule: 1 ¼ times.
To organizations in Part B: 100%. Part C: 50%. Total Donations should not increase 10% of the Total Gross Income of that year.