Here's a look at some some Budget-03 proposals, which are of interest to individual assessees.

Standard deduction

An employee earning a salary of Rs 500,000 or less (before standard deduction and deduction for professional tax) is entitled to a standard deduction of 40 per cent of the salary or Rs 30,000, whichever is less. A salary of over Rs 500,000 attracts a deduction of Rs 20,000.

Comments: This provision was complicated. The current provision is -- a deduction of 33.33 per cent of the salary with a ceiling dependent on salary slabs as per the table.

It became more complicated when FA02 took away the standard deduction from employees with a salary of over Rs 500,000. Perhaps, it has been felt that this deduction is for the specific purpose of employment-related expenses incurred by the employee.

Section 80L

Ceiling on the general deduction will be raised from Rs 9,000 to Rs 12,000 from April 1, 2003. The existing additional deduction of Rs 3,000 in respect of interest on g-secs shall continue.

Comments: This amendment is of a confirmatory nature, ratifying a Central Board of Direct Taxes circular issued earlier.

VRS

Any amount, not exceeding Rs 500,000, received or receivable (i.e. even if received in instalments) by any employee on his voluntary retirement or termination of his service shall not be included in computing the total income of such employee.

The proposed amendment will apply from FY03-04 onwards.

Comments: I strongly feel that this provision is explanatory in nature. The exempt amount was always Rs 500,000, whether paid in one lumpsum or in instalments.

Capital gains tax exempt for UTI

Any income arising from the transfer of a capital asset being an unit of US 64 referred to in Schedule I of the UTI (Transfer of Undertaking and Repeal) Act 2002, and where the transfer of such assets takes place on or after April 1, 2002, will be exempt from tax.

Comments: There is a hidden bomb in this proposal. This proposal is related to UTI-I where all the non-NAV based units are transferred. Income -- capital gains, long-term as well as short-term -- is proposed to be exempt from tax. How many unit holders are there who have earned capital gains in this scheme? Hardly any. Then, what is the purpose of the proposal?

If the gains are exempt, then the loss is also exempt. The loss is, after all, a negative gain. In other words, this loss cannot be set off against any other short or long gain.

Everyone knows that most of the unit holders will incur some loss in May this year, when the old units of the scheme will be redeemed or converted into Government of India tax-free Bonds. If this proposal is passed by Parliament, the unitholders will face a further loss.

Is this Jaswant Singh's intention? I hope not.

Senior citizens and TDS

Residents can avoid tax deducted at source by filing Forms 15-G (for dividend), 15-H (for interest from securities and income from MFs) and 15-I (for NSS withdrawals) respectively. The forms can be filed by an individual, if for the year:

• Income related with Form-G is less than Rs 50,000.
• Income related with Form-H is less than Rs 50,000.
• Tax on his estimated total income is nil, in spite of the total of the above referred incomes being up to Rs 100,000.

This is very confusing and, therefore, Budget-03 has extended a reprieve to senior citizens for whom the tax payable is nil after taking cognisance of the exemptions, deductions and the rebates.

The amendment is with effect from June 1, 2003.

Comments: If this is confusing to senior citizens, it is confusing to the junior ones as well. The responsibility of the finance minister is to make the provisions clear and uncomplicated and not give a reprieve to some special segment of the taxpayers.

Senior citizen rebate

It is proposed to enhance the senior citizen rebate from Rs 15,000 to Rs 20,000.

Comments: Small mercy. Senior citizens need much more support. I wish the medical concessions available to employees were offered to senior citizens as a social measure.

Pension scheme for senior varishta citizens

LIC has been told to introduce a special pension policy called the Varishta Pension Bima Yojna which promises 9 per cent annually. Those over the age of 55 years would be eligible to receive the pension.

The difference between what LIC is able to earn from the corpus of this fund and the outgo of pension at the rate of 9 per cent, will be funded by the government.

Comments: In a system bereft of any kind of social security, at least a pension in the autumn years acts like a security blanket. However, the interest appears to be fully taxable and therefore, this scheme is not very useful to Varishta Citizens in the highest bracket.

I feel a little uneasy. Is the government trying to create yet another monopoly in LIC? I strongly feel that the private insurance entrants in the field should have also been given the opportunity to participate in this pension plan.

Union Budget 2003-04

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