Click to play videoGurgaon: In the countdown to Budget 2007, CNN-IBN along with all the viewers, through the campaign called Axe the Tax, decided to focus on some taxes that are unreasonable and unjustified.
The focus of the show was on top five taxes, which people believe should be done away with or should be changed in some way of form.
Eminent tax guru Subhash Lakhotia joined the show that was held in Mega City Mall in Gurgaon.
The first tax law taken up for discussion was on LTA. Tax benefit on LTA is allowed only once in every two years (or twice in a block of four years). But if you go abroad for travel, you actually can’t claim that tax exemption.
Subhah Lakhotia explains that in four years, two times, anywhere in whole India, for me and my family, Leave Travel Assistance – and not Leave Travel Allowance, which is fully taxable – is allowed as deduction.
First deficiency the audience pointed out in LTA law was that, twice in four years is not enough.
On the issue of foreign travel, the point raised was that a Singapore trip costs about Rs 25,000 and a Kerala trip costs about Rs 60,000, and Kerala trip is exempted but Singapore trip is not.
Lakhotia on the issue said, “If you are really honest and you go only to Singapore, exemption is limited to Rs 15-20,000 only, I think the Government should amend the law.” He also pointed out that, as we work hard for 24x7, unlike USA, where they work for only five days a week, we deserve at least one holiday in every year.
The audience demands that foreign travel should also be exempted under LTA.
One person from the audience said, he is self-employed and work hard, but not allowed to claim LTA.
Lakhotia pointed out that self-employed persons spend everything from their pockets and no deductions at all makes the law for self-employed people simple.
The second law taken up for discussion was the Fringe Benefit Tax (FBT).
Lakhotia explains, “If you provide any benefits to your employees, you pay some extra tax known as FBT. It is okay, but when you look into the list, you find that various expenses you incur, which has got no relation at all, even then you are called upon to make payment of FBT. That is something which is going to pain the tax payers.”
Lakhotia also pointed out that FBT is also payable by small enterprises and loss-making firms even on dealer meets and sales promotions.
One person from audience pointed out that new businesses generally incur losses in first few years but they need to motivate employees by giving some extra benefits. So, there is no justification of FBT as it will increase the losses further and hence FBT should be abolished.
Lakhotia also pointed out that the main drawback of FBT is that, even if there are losses, it is payable, so the Government should at least exempt FBT when there are losses.
But for new businesses, to avoid FBT, Lakhotia said, “Start the business as proprietor, because no FBT is payable right now if you are a proprietor”.
The third tax law taken up for discussion was on medical exemptions. According to this law, the medical expenses claim limit is Rs 15,000 only. And not only that, treatment abroad is fully taxable if income is more than Rs 2 lakh per annum.
One person from audience questions the practicability of the law, as it is impractical that a person earning less than Rs 2 lakh will go abroad for treatment.
Acknowledging the impracticability of the law, Lakhotia said that no company spends lakhs of rupees on an employee who earns less than Rs 2 lakh per annum and the situation is reverse. Companies usually send high-level officials for treatment abroad and spend lakhs of rupees on them.
But the tax on the amount spent are not taxable at the hand of the company, but on the hand of the employee.
For example, if a company spent Rs 10 lakh for treatment abroad on an employee, the employee has to pay the tax on the expense said Lakhotia, adding, “I think, when he will hear this, he will have the second heart attack”.
Lakhotia also said that the expenses incurred on the treatment abroad are added to the CTC of the employee and become taxable. And as employees earning more that Rs 5, 10 or 20 lakh per annum are only send abroad for treatment, the tax law should be amended and the figure of Rs 2 lakh should be deleted.
Pointing out that no exemption is available to self-employed persons and the salaried persons only get the benefits, Lakhotia said, that the Rs 15,000 limit is too low and the earlier law, which allowed the deduction up to one month’s salary, should be brought back.
The fourth law taken up for discussion was higher tax rate for senior citizens. For senior citizens, the minimum tax rate is 20 per cent, while for others it is 10 per cent.
One person from audience pointed out that his father is a retired person, whose only income source is savings. He has already paid taxes in his earning days and why he has to pay taxes now out of savings.
Saying it is a very, very valid point, Lakhotia said, “As the situation stands today, the exemptions for senior citizens is Rs 1,85,000 only. But then you may say that you have got Rs 1 lakh further to invest and claim the benefits of 80C. But in practical life, please imagine, those persons who are dignified, our senior citizens, our parents, they will like to stay on their own and depend on their income only. Where will they have the income to make the investment for Section 80C? And more about that, over Rs 1,85,000, straight 20 per cent income tax – that’s pretty very, very heavy.”
The fifth and last tax taken up for discussion was on house rent for self-employed persons. For self-employed persons, the deduction is up to 25 per cent (of income) on house rent paid subject to a maximum limit of only Rs 2,000 per month.
The audience said that the limit of Rs 2,000 is very low for urban areas, specially for metros and questioned the merit of discriminations in tax laws for salaried and self-employed persons.
Agreeing that the Rs 2,000 limit is too low, Lakhotia said, “To be realistic, Government should say, deduction up to 25 per cent of the salary (income) and that’s it. Why limit the amount of Rs 2,000? Or in the alternative, let the Government provide us accommodation by paying Rs 2,000 only as it is provided to Government servants.”
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