Te Finance Minister has announced that the Direct Taxes Code 2010 (DTC) will come into force from April 1, 2012. Thus the Finance Bill 2011 would be the last one before the operation of DTC. In view of this, large-scale changes need not be made by the Budget 2011 as the same will have to be incorporated in the DTC.
Minimal changes that are absolutely necessary because of present situation need to be introduced. One aspect that is most worrying for the large number taxpayers who are in middle and lower income groups is inflation.
The general inflation rate is nearly 8-9 per cent and food inflation about 17-18 per cent. This has considerably eroded the purchasing power and made monetary limits, tax brackets and rates in the income-tax system unrealistic and hard hitting. Hence taxpayers need relief which can be possible by indexing the tax system. But this is not possible in the short time and for one year.
Hence relief can be provided by advancing the rate schedules, tax brackets and monetary limits proposed in the DTC and incorporating the same in the Budget. For example the exemption limit for individuals proposed at Rs 2 lakh (as against Rs 1.60 lakh presently) can be made applicable by the Budget.
Similarly the tax brackets and rates proposed in the DTC ( Rs 2- 5 lakh –10 per cent; exceeding Rs 5 lakh and up to Rs 10 lakh — 20 per cent; and exceeding Rs. 10 lakhs — 30 per cent) can be made operative from the Assessment year 2011-12 with similar adjustments for senior citizens and other categories of taxpayers. Such a measure will give some relief from inflation for which no immediate solution by other measures is expected in the near future.
Internal checks
Another worrying factor much talked about is black money. No ready solution for this is possible. What is unfortunate is that because of focus shifting to such money in bank accounts abroad, , the emphasis for checking it internally is getting neglected. This focus needs to be revived. The Government can make its intentions clear by making it known that those who have evaded or found evading will be strictly dealt with through heavy penalties and early prosecution via fast track courts and by attaching disqualifications such as making such persons ineligible for elective posts, directorships of companies and other positions of status and importance, for loans/credit from banks etc. This is very necessary to send out a message that tax evasion would no longer be tolerated as civil delinquency or condoned by amnesty schemes. Even demonetisation of high value notes of Rs 500 and Rs 1,000 can be thought of.
One injustice meted to vast number of taxpayers by Mr P. Chidambaram in 2005 was withdrawal of deduction for employment-related expenses by way of standard deduction. This is being continued since then. In the present competitive world, the salaried employees have to incur many expenses such as on computers, Web sites, training, books and journals, travelling etc. not only for future advancements but also for continuing in their present positions. Not giving deduction for such expenses when other assessees are getting deduction for expenses relatable to earning of incomes is prima facie wrong and unjust to a majority of taxpayers who, by and large, comply with tax rules.