1. The DTC-II document gets released and the tall claim relating to ` 3 lakhs benefits for small savings (vis-à-vis` 1 lakh at present under the Income-tax Act, 1961) needs to be demolished with the instances of provisions contained in DTC-II.
Existing position for tax benefits under section 80C of the Act
2. Section 80C, reintroduced in the Act from the assessment year 2006-07, provides deduction in respect of savings made in specified channels for getting deduction upto ` 1 lakh from the gross total income by individuals and HUFs. By the Finance Act, 2010, extra deduction of ` 20,000 is permissible u/s 80CCF, if the investment is made in infrastructure bonds, bringing total of deductible amount of ` 1.20 lakhs.
The gross qualifying amount presently is to be computed for investments in the following manner:
- Life insurance premium subject to prescribed conditions.
- Payment in respect of non-commutable deferred annuity.
- Any sum deducted from salary payable to a Government employee for the purpose of securing him a deferred annuity (subject to a maximum of 20 per cent of salary).
- Contribution (not being repayment of loan) towards statutory provident fund and recognized provident fund.
- Contribution towards an approved superannuation fund.
- Subscription to National Savings Certificates, VIII issue.
- Contribution for participating in the Unit-Linked Insurance Plan (ULIP) of Unit Trust of India.
- Contribution for participating in the Unit-Linked Insurance Plan (ULIP) of LIC Mutual Fund.
- Payment for notified annuity plan of LIC.
- Subscription towards notified units of Mutual Fund or UTI.
- Contribution to notified pension fund set up by Mutual Fund or Unit (i.e., Retirement Benefit Pension Fund of UTI).
- Any sum paid (including accrued interest) as subscription to home loan account scheme of National Housing Bank or contribution to any notified deposit scheme or pension fund set up by the National Housing Bank.
- Any sum paid as subscription to any scheme of -
- public sector company engaged in providing long-term finance for purchase/construction of residential houses in India.
- housing board constituted in India for the purpose of planning, development or improvement of cities/towns.
- Any sum paid as tuition fees (not including any payment towards development fees/donation/payment of similar nature) whether at the time of admission or otherwise to any university/college/educational institution in India for full time education of any two children of the individual.
- Amount invested in approved debentures of, and equity shares in, a public company engaged in infrastructure including power sector or units of a mutual fund proceeds of which are utilized for developing, maintaining, etc., a new infrastructure facility.
- Amount deposited as term deposit for a period of 5 years or more in accordance with a scheme framed by the Central Government.
- Subscription to any notified bonds of NABARD.
- Amount deposited under Senior Citizens Saving Scheme.
- Amount deposited in five year time deposit scheme in post office.
savings in whose name can be done
The taxpayers are further entitled besides ` 1,20,000 under section 80C& 80CCF, to a deduction of ` 1,50,000 under section 24(b) of the Act in a year since April 1, 1999 on satisfaction of conditions prescribed (now being regulated by clause 74) regarding interest relatable to residential property.Further 15000/- deduction is available u/s 80D for Medical Insurance Policy/ Hence, a total deduction for ` 2.85 lakhs is available presently as against ` 3 lakhs promised in DTC-II with effect from April 1, 2012. Thus, the difference is only of ` 15,000 and not ` 2 lakhs as is being marketed for DTC-II!
Scheme for deduction for savings under the DTC-II for provident funds, insurance premium, etc.
3. These are detailed under the heading ‘Tax incentives’ in Part-IV of Chapter III of the DTC-II and are as under:
- (a) A deduction for deposits upto ` 1 lakh (in aggregate) for investments in the Government approved fund. The amount can be deposited in the names of individual assessee, spouses, and children of such individual (clause 69).
- (b) An individual or HUF shall be allowed deduction in respect of sums paid to keep in force an insurance on the lives of persons specified at (a) earlier or on lives of the members of HUF. However, the premium payment shall not exceed 5 per cent of the capital sum assured. The contribution made to the CGHS will also be eligible for deduction. The eligible insurance shall be in scheme approved by the Insurance Regulatory and Development Authority (IRDA).
- (c) The individuals and HUFs shall be allowed a deduction in respect of any sum paid during the financial year, if the sum is paid–
- (i) as a tuition fee to any school, college, university or other education institution situated within India; and
- (ii) for the purpose of full time education of any two children of such individual or HUF.
In this provision, it has been made clear that the aggregate amount under the above heads shall not exceed ` 50,000.
4. Thus the caveat is that insurance, contribution to CGHS and tuition fee shall not exceed ` 50,000 in all!Summing up
5. The position regarding breakup of ` 3 lakhs deduction could be summed up, thus:
- (i) Contribution to approved Government funds (like PPF, recognized PF, superannuation fund, insurance funds, etc.) expected to be notified ` 1,00,000
- (ii) For payments for insurance premiums, tuition fees, contribution to CGHS scheme ` 50,000
- (iii) Payments towards interest on loan for acquiring residence for self-occupation ` 1,50,000
Critique of the new scheme
6. The taxpayers are being kidded with a nominal extra allowance of ` 15,000 while it is said that liberal deduction for ` 3 lakhs will be available! This is, if one may/say, is misleading!!
New restrictions in the matter of insurance policies have been imposed without mentioning any justification while presently insurance premium upto ` 1 lakh can be claimed as deduction singly within the limit of ` 1 lakh. Premium admissible as a percentage of capital value is upto 20 per cent of the sum assured against 5 per cent now proposed!
The major issue is as to why the taxpayers’ choice should be circumscribed to 4 or 5 approved funds, when presently the choice extends to 19 investments (see para 2.1). The Government’s overzealousness in this regard is likely to curb incentive for investment as taxpayers want to invest in areas where there are no hassles in instruments like NSCs, fixed deposits, etc., which are under their control. Why they should be denied this freedom is difficult to appreciate!
It is an accepted position that the taxpayers have no right to claim exemptions and concessions and the Government can give these on its terms and conditions! But the issue is whether the Government can be arbitrary in giving or varying these? It has to be rational while giving or withdrawing the incentives which have been in vogue since umpteen years.
The way the changes regarding incentive provisions concerning savings have been made, smacks of autocratic attitude in a democratic set up which needs to be deprecated as it can be fatal to voluntary compliance. Hence, re-look regarding savings incentives is needed.
By : T.N. Pandey(CHARTERED ACCOUNTANT)