Skip to main content

Tax Planning: Why some tax concessions make economic sense

 

THE Budget is around the corner and like every year, there is lot of expectations from all sections of the society to see that their demands are met in the Budget. It is pertinent to note that over the years, tax concessions — deductions/exemptions available to the individuals have been cut/reduced to bare minimum. In this context, there are a few tax concessions which have a strong case to be continued and even be enhanced in scope and quantum.

Housing Deductions

One of the popular deductions claimed by the individuals is in respect of the interest deduction on housing loan up to Rs 1.5 lakh for a self occupied property.
Similarly, a deduction of up to Rs 1 lakh could be claimed U/S 80C of the Income-Tax Act, 1961 (the Act), for repayment of the principal amount of the housing loan.


   The realty/housing sector provides employment to millions of people, including unskilled workers across the country. Further, a growth in the housing sector has a direct bearing on the cement and steel industry, which are the key industries for the overall development of the economy. Therefore, there is a strong case to continue and rather enhance the housing loan deductions to ensure that a demand-led pull factor from individuals provides the necessary stimulus to these key sectors. Therefore, it may be appropriate to increase the deduction for interest on housing loan interest to Rs 3 lakh and in respect of repayment of the principal amount to Rs 2 lakh.

Education Deduction

Currently, the deduction available in respect of expense incurred on education of children is clubbed with other investment-related deductions U/S 80C of the Act. Further, any specific education allowance if paid by the employer is exempt up to Rs 100 per month per child for a maximum of two children.


   Education is one of the key requirements of our country to grow and prosper. The very reason the government had levied education cess was primarily to collate and channelise funds for the education sector. It is imperative that education be encouraged by providing meaningful concessions/relief at the grass root level. In this context, a separate deduction for expenses incurred on education up to Rs 2,500 per month per child for a maximum of two children would make economic sense. In order to bring in economic parity, this deduction may be restricted to individuals having annual income of less than Rs 10 lakh.


   Further, instead of government subsidising schools and education institutions as at present, it is high time that the government empowers the individuals/parents to decide in which school/education institution their children should study. Therefore, education deduction, coupled with education vouchers, is probably the need of the hour.

Leave Travel Allowance (LTA)

Currently, a deduction is available for travel to any place in India for a maximum of two journeys in a block of four calendar years by economy class economy air fare/first class rail fare, etc.


   Travel and tourism is an important industry which has the potential to grow if necessary support is provided to this sector. Therefore, a simple measure of enlarging the scope of LTA provisions namely, allowing for deduction every year for journey to any place in India and not restricting the deduction to travel expenses alone but also to cover the hotel/guest house stay expenses could help provide the necessary stimulus to this sector.

A small step taken in the form of tax concessions at the micro level could help trigger the demand-led growth in the above sectors and could yield desired results at the macro level. Therefore, a few tax concessions, besides providing relief to the common tax payer, do make good economic sense!

 


Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now