The real motive behind introducing DTC sops in this budget session
Apr 03, 2013

Author: PersonalFN Content & Research Team

With the political scenario in the country portraying an uncertain picture and threat of an early election apparent due to political backlash and double-standards, the Government in power is ready to shower some goodies vide some DTC (Direct Tax Code) sops in an attempt to woo taxpayers. Many of you may be aware that due to the persistent twin deficit problem (a result of ballooning fiscal deficit and widening Current Account Deficit (CAD)), the Government in the Union Budget 2013 refrained from doling out any populist proposals on the direct tax front, barring a tax relief being provided to taxpayers in first tax bracket and additional interest deduction for new home buyers. Expectations that the Government may increase the present exemption limits for conveyance / transport allowance, medical reimbursement, children education allowance and a separate deduction limit should be set up for tuition fees paid for children’s education; were not met and left many disappointed.

But now fearing early election, the Government is ready with the DTC bill and has on menu the following:

Taxable income	Tax rate
Upto Rs 3,00,000	Nil
Rs 3,00,001 to Rs 10,00,000	10%
Rs 10,00,001 to Rs 20,00,000	20%
Above Rs 20,00,000	30%

Allowance	Tax benefit
Conveyance allowance	Rs 800 per month
Children education allowance	Rs 100 per month per child, but upto maximum of two children
Medical reimbursement	Rs 15,000

Increase in base exemption limit: The former Finance Minister, Mr Yashwant Sinha headed standing committee on finance that vetted the code has already suggested that the basic exemption limit be raised to Rs 3 lakh, from Rs 2 lakh at present. The taxable income slabs and the income tax rates thereto as suggested by the standing committee on finance are as under:

Increase in conveyance allowance, children’s education allowance and medical reimbursement: It is said that these allowances which have remained unchanged for several years too would be increased, thereby facilitating bigger incentive to savings. While the quantum of allowance is not mentioned at present, it is estimated to meet expectations. At present these tax benefit on these stand as under:

Increase in deduction limit: The standing committee has also suggested that the limit for savings be increased to Rs 1.5 lakh and that for life insurance, health insurance and education to Rs 1.5 lakh.

The Finance Minster, Mr P. Chidambaram has already said that he would want to introduce the bill in the budget session of the Parliament, the second leg of which will begin on April 22, 2013 and lasts for a month.

We are of the view that, vide the Finance Act 2012 we moved step to closer to the DTC, since the then Finance Minister brought forward a substantial portion of DTC proposals. Also with some of the radical provisions of DTC being dropped and introduction of substantial portion of other provisions in the Finance Act 2012, we think there’s not left much in the DTC. So, even though if the Government introduces the DTC sops now, we believe it would be just play as a trump card to woo taxpayers which could protect the Government, which faces the threat of an early election. By introducing the aforementioned populist proposals, it would be quite contradictory to the commitment shown by the Government on walking tight on the path of fiscal consolidation.

It is noteworthy that for one to optimally do his/ her tax planning exercise, even the current provisions are quite respectable. But it is imperative not to keep tax planning towards the end of the financial year, and instead begin the same right from the beginning of the financial year, since that can help you plan more thoughtfully and not be confined to only availing deduction under section 80C, but also explore other deductions available under the Income Tax Act, 1961. Starting early would also facilitate you to allocate your assets wisely considering your risk appetite in the tax planning exercise.