The best ways to save tax-
Times of India013th Jan 2014
Before you decide to invest in a tax-saving instrument, go through this guide and rating of the most widely used options under Section 80C.
Multiple options. Contradictory advice. And a deadline that's approaching fast. Many taxpayers find themselves in this situation at the beginning of the year when they have to make tax-saving investments. Are you also confused? Before you make a choice, go through our cover story to know which is the best option for you. We have rated the most common investments under Section 80C on five basic parameters: returns, safety, flexibility, liquidity and taxability. The rating separates the chaff from the grain. Whether you are a novice or a seasoned investor, it will help you cut through the clutter and choose the investment option that best suits your financial situation.
PUBLIC PROVIDENT FUND
RETURNS: 8.7% (for 2013-14)
The PPF is our top choice as a tax saver in 2014. It scores well on almost all parameters. This small saving scheme has always been a favourite tax-saving tool, but the linking of its interest rate to the bond yield in the secondary market has made it even better. This ensures that the PPF returns are in line with the prevailing market rates.
This year, the PPF will earn 8.7%, 25 basis points above the average benchmark yield in the previous fiscal year. The benchmark yield had shot up in July and has mostly remained above 8.5% in the past six months. Although the yield is unlikely to sustain at the current levels, analysts don't expect it to fall below 8.25% within the next 2-3 months. So it is reasonable to expect that the PPF rate would be hiked marginally in 2014-15.
The PPF offers investors a lot of flexibility. You can open an account in a post office branch or a bank. However, the commission payable to an agent for opening this account has been discontinued, so you will have to manage the paperwork yourself. The good news is that some private banks, such as ICICI Bank, allow online investments in the PPF accounts with them.
There's flexibility even in the quantum and periodicity of investment. The maximum investment of 1 lakh in a year can be done as a lump sum or as instalments on any working day of the year. Just make sure you invest the minimum 500 in your PPF account in a year, otherwise you will be slapped with a nominal, but irksome, penalty of 50.
The PPF also offers liquidity to the investor. If you need money, you can withdraw after the fifth year, but withdrawals cannot exceed 50% of the balance at the end of the fourth year, or the immediate preceding year, whichever is lower. Also, only one withdrawal is allowed in a financial year. You can also take a loan against the PPF, but it cannot exceed 25% of the balance in the preceding year. The loan is charged at 2% till 36 months, and 6% for longer tenures. Till a loan is repaid, you can't take more.
BRIGHT IDEA
Invest before the 5th of the month if you want your contribution to earn interest for that month as well.
ELSS FUNDS
RETURNS: 17.5% (Past five years)
Equity-linked saving schemes (ELSS) are at second place in our ranking. These funds can generate good returns for investors over the long term. In the past five years, this category has given average returns of 17.5%.
However, this potential to earn high returns comes with a higher risk. There is no guarantee that your investment will generate positive returns after the 3-year lock-in period. Even the best performing funds have churned out disappointing returns in the past three years. The returns will naturally mirror the performance of the stock markets. Therefore, only investors who have the stomach for a roller-coaster ride should consider this option.
Though the ELSS funds invest in equities, they are different from other open-ended diversified equity funds. Due to the lock-in period, the ELSS fund manager does not have to worry about redemption pressure from investors. This gives him the freedom to invest in shares as per his conviction and hold them for longer periods.
ELSS funds offer tremendous flexibility to investors. The 3-year lock-in period is the shortest. Since there is no tax on gains from equity funds after a year, an investor can safely recycle his investments every three years and claim tax benefits on the reinvested amount.
The minimum investment is also very low. You can put in as little as 500 in an ELSS scheme. Unlike a Ulip, pension plan or an insurance policy, there is no compulsion to continue investments in subsequent years.
Since ELSS funds are a high-risk investment and their NAVs are volatile, you need to stagger your investment over a period of time instead of going for a lump-sum investment at the end of the financial year.
ULIPs and NPS
RETURNS: 4.2-11.8% (Past 3 years)
For many policyholders, Ulips denote the costly mistake they made a few years ago. But the 2010 guidelines have reformed the Ulip, turning it into a more customer-friendly investment. Though a Ulip should not be your first insurance policy, you can consider buying one as an investment that also helps you save tax.
We checked Morningstar's data on Ulips and found that the returns have not been very good in the past 5 years. But a Ulip is not necessarily an equity-linked investment. You can also invest your Ulip corpus in debt funds. Instead of investing in the equity option, put your corpus in the debt fund. You can start shifting the money to the equity fund when the prospects look rosier. Only a Ulip allows you to switch from debt to equity, or vice versa, without incurring any capital gains tax.
Like the Ulips, the 3-year returns from the NPS funds are also a mixed bag. While the 4.15% average returns from the E class (equity) funds are in line with the market returns, the 6.62% from the G class (gilt) funds are quite a disappointment. The redeeming feature is the 10.24% returns churned out by the C class (corporate bond) funds.
Its low-cost structure, flexibility and other investor-friendly features make the NPS an ideal investment vehicle for retirement planning. However, even though the fund management charges have been raised from the ridiculously unviable 0.0009% to a more reasonable 0.25%, the pension fund managers are not hardselling the scheme. If you want to save tax through the NPS this year, be ready to do a lot of legwork and paperwork before you can get to invest in this unique pension plan.
One of the most outstanding features of the NPS is the 'lifecycle fund'. Under this option, the investor's age decides the equity exposure. The 50% allocation to equity is reduced every year by 2% after the investor turns 35, till it comes down to 10%.
BRIGHT IDEA
Opt for the liquid or debt fund and then shift to the equity option as per your reading of the market.
NSCs AND BANK FDs
RETURNS: 8.5-10% (for 2013-14)
Many taxpayers think that up to 10,000 interest from bank deposits is tax-free, as announced in the budget two years ago. But the newly introduced Section 80TTA gives a deduction of up to 10,000 on interest earned in the savings bank account, not on FDs and recurring deposits. Also, the nomenclature 'tax-saving deposits' means you save tax under Section 80C. It does not mean that these deposits are tax-free. The interest earned on deposits is fully taxable at the normal tax rate applicable to you. You have to mention this interest under the head 'Income from other sources' in your income tax return. So don't get misled by the high interest rates offered on the 5-year bank fixed deposits. The post-tax yield may not be as high as you think. In the 20% and 30% income tax brackets, it is not as attractive as the yield of the tax-free PPF. The second misconception is that there is no need to pay tax if TDS has been deducted by the bank. You may have to pay tax even if TDS has been deducted. TDS is only 10% (20% if you haven't submitted your PAN details), and if you are in the 20-30% bracket, you need to pay additional tax. The interest on NSCs is also taxable but very few taxpayers include it in their returns. However, with the integration of tax records, a taxpayer may not be able to escape the tax net easily. For instance, if you have claimed tax deduction under Section 80C for investments in NSCs or FDs in one year, the tax department may want to know why the interest earned is not reflecting in your tax returns for subsequent years.
BRIGHT IDEA
Don't try to avoid the TDS by investing in FDs of different banks. You will have to pay the tax later anyway.
LIFE INSURANCE POLICIES
RETURNS: 5.5-7.5%
Though the Irda guidelines for traditional plans have made insurance policies more customerfriendly by ensuring a higher surrender value and larger life covers, they are still the worst way to save tax. The tax saving is only meant to reduce the cost of insurance. It is not the core objective of the policy.
Money-back and endowment plans score low on the flexibility scale. Once you buy a policy, you are supposed to keep paying the premium for the rest of the term. This can be a problem if you took the policy only to save tax.
However, these policies are not as illiquid as they appear. You can easily get a loan against your endowment policy from the LIC. The terms are quite lenient and repayment can be done at your convenience.
Insurance companies claim their products offer the triple advantage of life cover, long-term savings and tax benefits. That's not true. Traditional plans give a low life cover of 10 times the premium. For a cover of 25 lakh, you will have to spend 2.5 lakh a year. They also give niggardly returns. The internal rate of return (IRR) for a 10-year policy comes to around 5.75%. For longer terms of 15-20 years, the IRR is better at 6.5-7.5%. As for the tax benefit, there are simpler and more cost-effective ways to save tax, such as 5-year bank FDs and NSCs. If the taxability of the income worries you, go for the PPF.
However, traditional insurance policies still make a lot of sense for the HNI investor who is more concerned about the tax--free corpus under Section 10(10d) than the deduction under Section 80C. Even for such investors, a Ulip will make more sense as they will have control over the investment mix. The opacity of the traditional plan is best avoided, but your agent might not be very keen to sell you a Ulip this year because his commission has been cut to 6-7% of the premium.
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Showing posts with label Income Tax. Show all posts
Showing posts with label Income Tax. Show all posts
Friday, July 4, 2014
Thursday, July 3, 2014
Idea Of ZERO Tax
Zero taxes: Good idea whose time has not come-NITI Central
Over the long run, disinvestment proceeds, auction of scarce resources could provide room for further abolishment of taxes (corporate and indirect tax).
Arun Jaitley is all set to present Modi Government’s first budget. Everybody is glued to news of this super Budget and is waiting anxiously to know what it has in store for him. There are a lot of expectations from the Budget and India’s economic revival is dependent upon measures taken in the Budget.
Subramanian Swamy has been a vociferous supporter of abolishing all forms of taxes. For a country which has been running a current and fiscal deficit for years, is it possible? Let us try to analyse.
The total receipts of Central Government from taxes were $139.3 billion in FY14 (after excluding the state’s share). Income Tax (corporate + individual) accounts for 78.4 per cent and taxes on commodities / services (excise duty, sales tax, service tax) account for 18.1 per cent of total receipts of Government of India (GoI). Taxes form a significant portion of the total receipts of $177.6 billion as detailed below.
Government of India incurred a total expenditure of $265.1 billion, subsidies accounted for 16 per cent, interest 24 per cent, Defence 13 per cent, Central five-year plans 23 per cent and Central assistance to 8 per cent.
Fiscal deficit was $87.4 billion in FY14. This was financed by market loans. If all taxes are abolished, by the looks of it, fiscal deficit will shoot up significantly.
Subsidies should be removed immediately. This will reduce expenditure by $42.6 billion. On the receipts side, this will create room for reduction of similar amounts.
Incidentally, gross individual income taxes were $40.3 billion in FY14. So the good news is that individual income taxes can be abolished easily. Reduction in receipts can be compensated by reducing expenditure (subsidies) of similar amount keeping Budgetary position intact.
Significant money can be raised through disinvestment of public sector units (PSUs). The point is that GoI should have maximum shareholding of 51 per cent in these companies. There are 46 listed Central PSUs, 28 PSU Banks and 11 companies where Central and/or State Governments and/or Government Companies and/or Government Financial Institutions have the single largest shareholding.
Disinvestment in 17 listed PSUs including Hindustan Zinc at today’s rates can fetch $53.4 billion. However, this is a one-off exercise and will not generate recurring income. GoI has to put in a detailed plan and put some PSUs on the block (17) each year and should target reaching 51 per cent stake in all of them in the next five years.
Other areas where money can be raised are privatisation of Railways, Air India, MTNL / BSNL etc. It is very difficult to ascertain how much will be raised through this as all the above companies are making losses. But all of them own huge resources (routes – AI, spectrum – BSNL / MTNL, monopoly – Railways), and should enjoy decent valuations. On top of it is auction of scarce resources like spectrum, coal / iron ore blocks etc. which boost GoI receipts.
So can all forms of taxes be abolished? The answer is yes. Can it be abolished immediately? No. Individual income taxes can be scrapped immediately. The shortfall in receipts can be compensated by removing all subsidies. Over the long run, disinvestment proceeds, auction of scarce resources could provide room for further abolishment of taxes (corporate and indirect tax).
Wednesday, July 2, 2014
Tax Savings Options
Income tax returns: 9 tax saving options other than Section 80C-NDTV
Before you calculate your tax liabilities, remember to analyze the various sections of tax deductions under the Income Tax Act as tax planning does not end with Section 80C.
80D:
Tax deduction under section 80D qualifies for mediclaim policies. The premium, which is paid for medical insurance policy for self and family members to protect them from sudden medical expenses, comes under this section. The maximum amount allowed for exemption annually for self, spouse and dependent parents/children is Rs. 15,000. In case of a senior citizen, the maximum amount extends up to Rs. 20,000. If you are paying the premium for your parents (whether dependent or not), you can claim an additional maximum deduction of Rs. 15,000.
Tax deduction under section 80D qualifies for mediclaim policies. The premium, which is paid for medical insurance policy for self and family members to protect them from sudden medical expenses, comes under this section. The maximum amount allowed for exemption annually for self, spouse and dependent parents/children is Rs. 15,000. In case of a senior citizen, the maximum amount extends up to Rs. 20,000. If you are paying the premium for your parents (whether dependent or not), you can claim an additional maximum deduction of Rs. 15,000.
80DD:
According to the Income Tax Act, if you are paying a premium to LIC or any other insurance company (approved by the Income Tax board) for the medical treatment of a dependent physically disabled person, you can avail exemption under the section 80DD. Here, the dependent should be none other than your spouse, children, parents or sibling. If the person is suffering from 40 per cent of any disability, a fixed sum of Rs. 50,000 can be claimed in a year. Similarly, if the disability is 80 per cent, the fixed sum goes up to Rs. 1,00,000 per year. For initiating the process of deduction you need to submit the medical certificate issued by a medical authority along with the return of income.
According to the Income Tax Act, if you are paying a premium to LIC or any other insurance company (approved by the Income Tax board) for the medical treatment of a dependent physically disabled person, you can avail exemption under the section 80DD. Here, the dependent should be none other than your spouse, children, parents or sibling. If the person is suffering from 40 per cent of any disability, a fixed sum of Rs. 50,000 can be claimed in a year. Similarly, if the disability is 80 per cent, the fixed sum goes up to Rs. 1,00,000 per year. For initiating the process of deduction you need to submit the medical certificate issued by a medical authority along with the return of income.
80DDB:
If you have incurred expenses for the medical treatment of self or your dependents, you can claim a deduction of up to Rs. 40,000 or the actual amount paid, whichever is less, under the section 80DDB. For a senior citizen, the maximum exempted amount is Rs. 60,000, or the amount actually paid for medical expenses. To claim a deduction under this section, you need to submit a medical certificate from a doctor working in a government hospital.
If you have incurred expenses for the medical treatment of self or your dependents, you can claim a deduction of up to Rs. 40,000 or the actual amount paid, whichever is less, under the section 80DDB. For a senior citizen, the maximum exempted amount is Rs. 60,000, or the amount actually paid for medical expenses. To claim a deduction under this section, you need to submit a medical certificate from a doctor working in a government hospital.
80E:
The interest paid on loan taken for pursuing higher education of self or any dependent is exempted from tax under section 80E. An education loan can be taken for wife, children and minors for whom you are the legal guardian. This deduction is applicable for a period of eight years or till the interest is paid, whichever is earlier. The deduction is only approved for higher studies, which means full-time graduate or postgraduate courses in engineering, management or applied sciences, pure sciences including mathematics or statistics. However, from 2011 onwards, the scope of this exemption has been extended to cover all fields of studies including vocational studies pursued after completing the senior secondary examination or equivalent. No exemption is applicable for part-time courses.
The interest paid on loan taken for pursuing higher education of self or any dependent is exempted from tax under section 80E. An education loan can be taken for wife, children and minors for whom you are the legal guardian. This deduction is applicable for a period of eight years or till the interest is paid, whichever is earlier. The deduction is only approved for higher studies, which means full-time graduate or postgraduate courses in engineering, management or applied sciences, pure sciences including mathematics or statistics. However, from 2011 onwards, the scope of this exemption has been extended to cover all fields of studies including vocational studies pursued after completing the senior secondary examination or equivalent. No exemption is applicable for part-time courses.
80G:
One often donates on philanthropic grounds to help the destitute. Such an amount can be donated to trusts, charitable institutions and approved educational institutions, and qualifies for deduction under Section 80G. The exemptions can be up to 50 per cent or 100 per cent of the donations made. Funds in which the donations are eligible for tax exemptions include the National Defence Fund, Prime Minister Drought Relief Fund, National Foundation for Communal Harmony, National Children's Fund, Prime Minister's National Relief Fund, etc.
One often donates on philanthropic grounds to help the destitute. Such an amount can be donated to trusts, charitable institutions and approved educational institutions, and qualifies for deduction under Section 80G. The exemptions can be up to 50 per cent or 100 per cent of the donations made. Funds in which the donations are eligible for tax exemptions include the National Defence Fund, Prime Minister Drought Relief Fund, National Foundation for Communal Harmony, National Children's Fund, Prime Minister's National Relief Fund, etc.
80GG:
If a salaried or self-employed person staying in a rented house does not receive any kind of HRA, they can claim a deduction under this section. However, you cannot avail any such benefit if you, your spouse and/or your child owns any residential accommodation in India or abroad. You can claim the least of the following under Section 80GG: 25 per cent of the total income, or Rs. 2000 per month, or excess of rent paid over 10 per cent of total income.
If a salaried or self-employed person staying in a rented house does not receive any kind of HRA, they can claim a deduction under this section. However, you cannot avail any such benefit if you, your spouse and/or your child owns any residential accommodation in India or abroad. You can claim the least of the following under Section 80GG: 25 per cent of the total income, or Rs. 2000 per month, or excess of rent paid over 10 per cent of total income.
80GGC:
Any monetary contribution to any political party or electoral trust is eligible for tax exemption. Thus, your contribution, as a matter of appreciation for their work, will serve both the purposes.
Any monetary contribution to any political party or electoral trust is eligible for tax exemption. Thus, your contribution, as a matter of appreciation for their work, will serve both the purposes.
80U:
A resident of India suffering from any kind of specified disability is eligible to claim tax deduction under this section. In order to enjoy this opportunity, one should be suffering from not less than 40 per cent of the following diseases: blindness, low vision, mental illness, mental retardation, hearing impairment. The deduction provided is flat Rs. 50,000, irrespective of the expense incurred. If the disability is severe, the deduction can be up to Rs. 1 lakh. One needs to provide a copy of all the certificates issued by a medical authority in order to avail this benefit.
A resident of India suffering from any kind of specified disability is eligible to claim tax deduction under this section. In order to enjoy this opportunity, one should be suffering from not less than 40 per cent of the following diseases: blindness, low vision, mental illness, mental retardation, hearing impairment. The deduction provided is flat Rs. 50,000, irrespective of the expense incurred. If the disability is severe, the deduction can be up to Rs. 1 lakh. One needs to provide a copy of all the certificates issued by a medical authority in order to avail this benefit.
80CCG:
The Finance Act 2012 introduced a new Section 80CCG to offer 50 per cent tax break to new investors who invest up to Rs. 50,000 and whose GTI is less than or equal to Rs. 10 lakh. It has been introduced for budding investors entering the equity markets for the first time and is a once-in-a-lifetime benefit.
The Finance Act 2012 introduced a new Section 80CCG to offer 50 per cent tax break to new investors who invest up to Rs. 50,000 and whose GTI is less than or equal to Rs. 10 lakh. It has been introduced for budding investors entering the equity markets for the first time and is a once-in-a-lifetime benefit.
Hence, there are several sections apart from 80C that can help an individual benefit from tax exemptions. It is time to start looking beyond 80C for tax savings.
Highlights of Income Tax amendment announced In Budget March 2013 which are applicable for Financial Year 2013-14 and Assessment Year 2014-15
Click Here to read details of changes for Assessment Year 2014-15
TAX REBATE & RELIEF
7.1 Introduction
The total income of an assessee is determined after deductions from the gross total income are made as discussed in the previous chapter. It is on this total income that the tax payable is computed at the rates in force. The Income Tax Act further provides for rebate from the tax payable as computed above, if certain investments or payments are made. Rebates provided u/s 88 of the Act must be distinguished from deductions provided in Chapter VIA of the Act. While the latter reduces the gross total income, rebate is a reduction from the tax payable.
- Rebate u/s 88 is available @ 20% on certain investments. For author, playwright, artist, musician, actor, sportsman, a higher rate of 25% is available.
- The maximum amount of investment qualifying for rebate u/s 88 is Rs. 60,000. However, additional rebate on investment upto Rs. 20,000 is available in respect of subscription to specified infrastructural equity shares/ debentures.
- Further, the Finance Act, 2001 has provided that an individual whose income under the head 'Salaries' is below Rs.1 lakh during the previous year and constitutes atleast 90% of his gross total income, shall be entitled to rebate @ 30% on the investments/ payments specified u/s 88.
- Section 88B: An assessee, being an individual resident in India, who is of the age of 65 years or more at any time during the previous year shall be entitled to a deduction from the amount of income tax (as computed before allowing the deductions under this Chapter VIII) on his total income, of an amount equal to 100% of such income tax or an amount of fifteen thousand rupees, whichever is less.
- Investment qualifying for rebate u/s 88 must be out of income chargeable to tax in the relevant previous year.
- With effect from assessment year 2001-02 onwards a new section 88C has been inserted. It provides that in case of an assessee being a woman resident in India and below 65 years of age, tax rebate of an amount of Rs. 5,000 or 100% of tax, whichever is less, shall be available. The above rebate is to be allowed from the amount of income tax computed before allowing for tax rebate u/s 88 as discussed below :
- The Drawing and Disbursing Officer should satisfy himself about the actual deposits / subscriptions / payments made by the employees, by calling for such particulars / information as they deem necessary before allowing the aforesaid rebate. In case the DDO is not satisfied about the genuineness of the employee's claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith to the satisfaction of the assessing officer.
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The details of investments qualifying for rebate are being given below :-
NATURE OF INVESTMENT
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REMARKS
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| Life insurance Premium | For individual, policy must be in self or spouse's or any child's name. |
| Sum paid under contract for a deferred annuity | For individual, on life of self,spouse or any child. |
| Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self/spouse or child | Payment limited to 20% of salary, |
Contribution made under Employees' Provident Fund Scheme.
| - |
| Contribution to PPF | For individual, it can be in the name of self/spouse, any child and for HUF, it can be in the name of any member of the family. |
| Contribution by employee to a Recognised Provident Fund. | - |
| Sum deposited in 10 year/15 year account of Post Office Saving Bank. | - |
| Subscription to any notified securities/notified deposits scheme |
e.g. NSS
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| Subscription to any notified savings certificates. Unit Linked Savings certificates | e.g., NSC VIII & NSC VI issue accrued interest on these issues is deemed investment and also qualifies for rebate. |
| Contribution to Unit Linked Insurance Plan of UTI. | |
| Contribution to Unit Linked Insurance Plan of LIC Mutual Fund | e.g., Dhanraksha 1989. |
| Contribution to notified deposit scheme/pension fund Scheme | e.g., pension fund setup by mutual set up by the National Housing fund notified u/s 10(23D), pension fund set up by UTI or of National Housing Bank. |
| Certain payments made by way of instalment or part payment of loan taken for purchase/ construction of residential house property The income from which is chargeable to tax under the head income from House property | Qualifying amount limited to Rs. 20,000. Repayment of loan should be towards self finance scheme of development authority housing board etc or towards loan borrowed from Govt, any Bank. LIC, National Housing Bank or loan from the employer which a public sector company university local authority etc. |
| Contribution to notified annuity Plan of LIC (e.g. Jeevan Dhara) or units of UTI/notified Mutual Fund. | If in respect of such contribution, deduction u/s 80CCC, has been availed of, rebate u/s 88 would then not be allowable. |
| Subscription to units of a Mutual Fund notified u/s 10(23D). | |
| Subscription to deposit scheme of a Public Sector Company/ Authorised Authority providing long term house financing | |
| Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions | In respect of it, a higher limit of qualifying investment of Rs. 70,000 (Rs. 80,000 w.e.f., A.Y. 2001-2002) is available as against Rs. 60,000 in case of other investments. |
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7.2 RELIEF UNDER SECTIOIN 89(1)
Relief u/s 89(1) is available to an employee when he receives salary in advance or in arrear or when in one financial year, he receives salary of more than 12 months, or receives 'profit in lieu of salary' covered u/s 17(3). W.e.f. 1.6.89 89(1) relief can be granted at the time of TDS by employers in the following conditions :
| (1) | If the employee is a Government Servant. | ||||||||||||
| (2) | He is employee in a | ||||||||||||
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The employee may furnish to the DDO or the person responsible for making payment such particulars in Form 10E (read with Rule 21 AA) which should be duly verified by him. Thereupon the DDO/Person responsible for making payment is required to compute the relief u/s 89(1) on the basis of such particulars and take into account this relief while making tax deduction u/s 192. In case of an employee of category other than the stated above, such relief can only be allowed by the Assessing Officer.
Click Here to read details of changes for Assessment Year 2014-15
Income Tax Relief In Budget
Little tax relief on the cards-Business Standard
Finance Minister Arun Jaitley may not raise IT exemption limit to Rs 5 lakh
When Finance Minister Arun Jaitley turns to part-B of his Budget speech on July 10, the common man may be left disappointed. Taxpayers expecting the income tax exemption limit will be raised to Rs 5 lakh or the deduction limit to Rs 2 lakh might have to settle for a marginal adjustment in the slabs.
While reports have said ahead of Assembly elections in a few states, the government wants to give some tax relief to individuals, the disposable incomes of whom have been depleted by the high inflation, the trade-off between this and keeping the government's fiscal deficit low will be difficult.
Even if the tax exemption limit is increased to Rs 3 lakh, the loss to the exchequer will be Rs 30,000 crore. Similarly, if the deduction limit under section 80C of the Income Tax Act is doubled to Rs 2 lakh, there will be an additional loss of about Rs 30,000 crore.
Tax experts say the government might not increase both the limits substantially, though a total increase of at least Rs 1 lakh crore is needed, as persistently high inflation had eroded household savings. "The government should give some benefit to people; there might be other ways to offset the revenue loss by cutting subsidies, higher disinvestment or improving compliance. If it is raised to Rs 3 lakh, it is a nominal increase," said Divya Baweja, senior director, Deloitte.
Vikas Vasal, partner, KPMG, said either the exemption limit or deduction limit should be raised. He added the latter would serve the dual purposes of providing relief to taxpayers and giving a push to the infrastructure sector. Currently, the government allows tax-free investment up to Rs 20,000 in infra bonds.
Besides infrastructure, the government might also consider increasing the limit for health insurance. Currently, deduction is allowed for health insurance premium up to Rs 15,000 for self, and an equal amount for dependent parents. While the government will aim to give tax relief to the inflationstruck small taxpayer, an across-the-board increase in the exemption limit will benefit all taxpayers.
As such, the finance ministry
While reports have said ahead of Assembly elections in a few states, the government wants to give some tax relief to individuals, the disposable incomes of whom have been depleted by the high inflation, the trade-off between this and keeping the government's fiscal deficit low will be difficult.
Even if the tax exemption limit is increased to Rs 3 lakh, the loss to the exchequer will be Rs 30,000 crore. Similarly, if the deduction limit under section 80C of the Income Tax Act is doubled to Rs 2 lakh, there will be an additional loss of about Rs 30,000 crore.
Tax experts say the government might not increase both the limits substantially, though a total increase of at least Rs 1 lakh crore is needed, as persistently high inflation had eroded household savings. "The government should give some benefit to people; there might be other ways to offset the revenue loss by cutting subsidies, higher disinvestment or improving compliance. If it is raised to Rs 3 lakh, it is a nominal increase," said Divya Baweja, senior director, Deloitte.
Vikas Vasal, partner, KPMG, said either the exemption limit or deduction limit should be raised. He added the latter would serve the dual purposes of providing relief to taxpayers and giving a push to the infrastructure sector. Currently, the government allows tax-free investment up to Rs 20,000 in infra bonds.
Besides infrastructure, the government might also consider increasing the limit for health insurance. Currently, deduction is allowed for health insurance premium up to Rs 15,000 for self, and an equal amount for dependent parents. While the government will aim to give tax relief to the inflationstruck small taxpayer, an across-the-board increase in the exemption limit will benefit all taxpayers.
As such, the finance ministry
could replicate a step taken in last year's Budget, when the government had proposed to provide a tax credit of Rs 2,000 to every person with a total income of up to Rs 5 lakh, benefiting 18 million taxpayers. The exchequer, however, took a hit of about Rs 3,600 crore.
If tax slabs are adjusted according to the recommendations of a standing committee - Rs 310 lakh (10 per cent tax), Rs 1020 lakh (20 per cent), and Rs 20 lakh or more (30 per cent) -, the government will take a hit of Rs 60,000 crore. This recommendation was turned down by the finance ministry under the previous regime. A concern is the move will further erode the already-low (about 33 million) tax base. If the slab is raised to Rs 3 lakh, 87 per cent taxpayers will escape the tax net, against the current 72 per cent (with annual income of up to Rs 2 lakh).
"Given the high inflation, the tax exemption limit should go up by Rs 1 lakh. I recognise the fact that a huge number of taxpayers will go out of tax net, but they don't contribute much to the total tax collections," said Amarpal Chadha, partner, EY.
If tax slabs are adjusted according to the recommendations of a standing committee - Rs 310 lakh (10 per cent tax), Rs 1020 lakh (20 per cent), and Rs 20 lakh or more (30 per cent) -, the government will take a hit of Rs 60,000 crore. This recommendation was turned down by the finance ministry under the previous regime. A concern is the move will further erode the already-low (about 33 million) tax base. If the slab is raised to Rs 3 lakh, 87 per cent taxpayers will escape the tax net, against the current 72 per cent (with annual income of up to Rs 2 lakh).
"Given the high inflation, the tax exemption limit should go up by Rs 1 lakh. I recognise the fact that a huge number of taxpayers will go out of tax net, but they don't contribute much to the total tax collections," said Amarpal Chadha, partner, EY.
The tax collected from the Rs 210 lakh income bracket is about Rs 21,094 crore (from about 27 million taxpayers), while that collected from about 335,000 taxpayers in the Rs 1020 lakh income group is Rs 10,185 crore. About 185,000 taxpayers in the income group of more than Rs 20 lakh contribute Rs 53,170 crore.
What worries the finance ministry more than a section of taxpayers going out of the tax net is the fact that it won't get a lot of information that comes with returns. And, if the ministry makes it mandatory for everyone to file returns, there won't be a fall in administrative costs.
To cut the government's administration costs and focus on higher income-group taxpayers, a parliamentary standing committee headed by Bharatiya Janata Party leader Yashwant Sinha had suggested four slabs. It had also proposed the deduction limit for investment in long-term savings be increased from Rs 1 lakh to Rs 1.5 lakh, while the deduction limit towards life insurance premium, health insurance premium and tuition fee be increased to Rs 1 lakh. Currently, deduction is allowed for health insurance premium up to Rs 15,000 for self and Rs 20,000 for dependent parents.
What worries the finance ministry more than a section of taxpayers going out of the tax net is the fact that it won't get a lot of information that comes with returns. And, if the ministry makes it mandatory for everyone to file returns, there won't be a fall in administrative costs.
To cut the government's administration costs and focus on higher income-group taxpayers, a parliamentary standing committee headed by Bharatiya Janata Party leader Yashwant Sinha had suggested four slabs. It had also proposed the deduction limit for investment in long-term savings be increased from Rs 1 lakh to Rs 1.5 lakh, while the deduction limit towards life insurance premium, health insurance premium and tuition fee be increased to Rs 1 lakh. Currently, deduction is allowed for health insurance premium up to Rs 15,000 for self and Rs 20,000 for dependent parents.
Wednesday, June 25, 2014
An Appeal Made By Salaried Class
An open letter to finance minister from salaried class-Hindustan Times-26th June 2014
The patriotic salaried class has a lot of expectations from the Budget.
Finance minister Arun Jaitley is meeting representatives from corporates, banks,
financial institutions etc., to know what their demands are. He hasn't met the
salaried class and did not respond to a tweet that he should meet employee
representatives as well.
The salaried class is being taken for granted by governments day in and day out as they don't represent a big chunk of voters, don't vote en-block and some don't vote at all.
But this time, the salaried class people rallied behind Prime Minister Modi. In one of his election speeches, Modi described the salaried class as the "biggest patriot" ('sabse bada deshbhakt'). The employee class expects a lot from him.
In India, approximately 3.5 crore people (<3% of the population) pay
income tax. Out of these only 0.1% people have reported income of > Rs. 1 crore. This is abysmally low considering the fact
that 30,000 luxury cars (Audi, Mercedes, BMW, Jaguar Land Rover, Volvo) are sold
in the country each year. Further, out of the 3.5 crore tax payers, more than
half pay negligible amount of tax ranging from Rs.
50 to Rs. 1,000.
These include professionals like chartered accountants, doctors, lawyers, architects etc. This reduces the effective tax base to 1.5 crore consisting mostly of salaried class people.
The salaried class must have committed some sin in their previous lives, that's why it is carrying on the burden of the entire individual tax collection target on its shoulder. All governments have treated it as the milch cow to fill its coffers. The salaried class is reeling from high inflation levels and poor hikes/bonuses for past the few years in line with low GDP growth.
The following will demonstrate that there is discrimination against the salaried class.
(i) A salaried person pays tax (employer deducts tax and deposits the same on his behalf with the government of India) as he earns his income (each month in advance). No other category of tax payer -– company or self-employed or businessman -- is required to pay advance tax each month. Advance tax has to be paid on the 15th of September, December and March — in installments of 30%, 30% and 40%, respectively— by the self-employed and businessmen.
Companies need to pay it on the 15th of June, September, December and March. So why does salaried class need to pay tax each month? What is the logic? Can anyone explain? In countries like Singapore, a salaried employee needs to pay tax on income in next financial year, ie., for income earned in CY13, tax needs to be paid in CY14, no advance tax.
(ii) Let's take an example of two chartered accountants A & B residing in Mulund, Mumbai. A works in a bank in Mumbai and B has his own practice (entrepreneur). Both have their offices in Bandra Kurla complex and both of them drive to office. They both spend around Rs. 10,000 on petrol bills. While A (salaried) gets tax benefit of only Rs. 800 out of Rs. 10,000 spent (8%), B can claim the entire amount as a deduction from his income. There is no limit on the amount a professional like B can claim as deduction for conveyance. This is ridiculous though one may argue that this encourages entrepreneurship.
(iii) Let's continue with the same example. A goes to a nearby restaurant for lunch and spends Rs. 150-200 per day. B also has lunch outside but can claim the entire amount as business development expense from his income. That's how these professionals pay almost nil tax.
(iv) A & B both buy Honda City for Rs. 10 lakh and take loan of Rs. 8 lakh. A does not get any tax benefit on the EMI of Rs. 17,000 per month. B can claim the entire interest expense as a deduction from income. Further he can also claim depreciation on car.
(v) Interest on self-occupied house/property is exempt upto Rs. 1.5 lakh per annum. If a company/professional buys a building or a flat financed by a bank, is there a cap on interest it can claim as deduction. Anybody? No cap. So why is this rule for salaried class?
The standard deduction was meant to compensate salaried people for the fact that self-employed small businesspersons or entrepreneurs pay tax only on their net income after deducting business expenditure. This was also done way in 2005-06 by Chidambaram. However, this was very paltry anyways.
The demand of salaried class is to treat them at par with self-employed people and allow all expenses as deduction from income, this will bring parity and improve sentiment. They should be taxed based on net income like corporates/self-employed/professionals.
This is not the only lacunae. Some of the deductions allowed under the head salaries have been unchanged for ages.
(i) Conveyance/transport allowance of Rs. 800 per month was announced in the early 1990s. In Mumbai, if you travel by car you spend minimum Rs. 10,000 per month on fuel. If you travel by train your monthly pass for train (1st class) is Rs. 600-700 plus you need to spend minimum Rs. 50 per day on auto/taxi to reach the station from office/home.
This makes it Rs. 2,000 per month on an average. Even if we assume an average inflation of 5% for the past 2 decades, this allowance should be at least Rs. 2,000 (inflation adjusted).
(ii) Interest on self-occupied house/property is allowed as deduction for upto max of Rs. 1.5 lakh since 1999. Property rates have zoomed up significantly since then (prices in Mulund in Mumbai for example which were Rs. 1,000-1,500 per square feet in 1999 has zoomed upto Rs. 15,000 per square feet currently, 10 times the 1999 figure). By this logic the deduction should be Rs. 15 lakh at least.
(iii) Additionally, Rs. 1 lakh is exempted for principal payment but this is covered under Sec. 80 C with other investments. If you buy property worth Rs. 25 lakh today and take loan of Rs. 20 lakhs (80%), your EMI would total Rs. 2.5 lakh per annum and your entire interest expense plus principal can be deducted from income. Where is a flat available for Rs. 25 lakh in Tier I cities in India today, not even Tier III cities perhaps.
(iv) Medical expenses upto Rs. 15,000 is exempt from tax for the family. This was introduced almost 15 years ago. This is too low considering in cities like Mumbai where one visit to a doctor costs Rs. 1,000 excluding cost of medicines. Again here, taking into account inflation, this should easily be doubled.
(v) Child education allowance of Rs. 1,200 per child for maximum 2 children is exempt. This works out to Rs. 100 per month. But even in slums and villages there is no school which has such low fees. In Eurokids, the fee is Rs. 35,000 for play school leave alone school education.
With the government's focus on education, salaried professionals who wish to pursue higher studies (CFA, FRM, PhD etc.) should be given a deduction for the fees paid. This will lead to increase in technical skills of the workforce in India.
The demand of salaried class is to substantially hike the caps for all these allowances just by purely taking into account the inflation aspect.
Not only this, the salaried class suffers from double taxation (indirect taxes) – service tax, sales tax etc -- which makes everything costly for him. Plus, effective tax rates of companies like Reliance and State Bank of India which earn US$ 3.5b+ is 21% and 17% respectively. The effective tax rate is 25-26% for people earning Rs. 30 lakhs and above. How is this justified?
Fewer taxes would increase the disposable income in the hands of salaried people. What would they do with this high income, they would spend the same or invest. Either ways it is good for economy.
The efforts of the government should be to increase the tax net and not milk the cow in their hands (salaried class). Any shortfall in income tax collection from salaried class should be made up by taxing more people who are paying zero taxes and leading lavish lifestyles including politicians.
By the way, income of MPs and MLAs is exempt.
The government is believed to be thinking of increasing the income exempt from tax from Rs. 2 lakh to Rs. 3 lakh. But this is merely a lollypop given to assuage the feelings of the salaried class. This will lead to savings of only additional Rs. 10,000 p.a. (< Rs. 1,000 per month).
Salaried class needs to be taxed in a similar manner in which self-employed professionals are taxed, that is all expenses should be allowed as deduction from income and only net income should be taxed. All exemptions should be done away with.
This could be contested by people who don't own a house or a car. Their tax liability would increase. So, one could have two methods, one based on actual expenses (like professionals) and the other based on current system with hike in allowances to adjust for inflation.
Employees should have choice which one they want to adopt for their taxation purposes. Is the government listening?
Views expressed by the author are personal.
Link Hindustan Times
The salaried class is being taken for granted by governments day in and day out as they don't represent a big chunk of voters, don't vote en-block and some don't vote at all.
But this time, the salaried class people rallied behind Prime Minister Modi. In one of his election speeches, Modi described the salaried class as the "biggest patriot" ('sabse bada deshbhakt'). The employee class expects a lot from him.
These include professionals like chartered accountants, doctors, lawyers, architects etc. This reduces the effective tax base to 1.5 crore consisting mostly of salaried class people.
The salaried class must have committed some sin in their previous lives, that's why it is carrying on the burden of the entire individual tax collection target on its shoulder. All governments have treated it as the milch cow to fill its coffers. The salaried class is reeling from high inflation levels and poor hikes/bonuses for past the few years in line with low GDP growth.
The following will demonstrate that there is discrimination against the salaried class.
(i) A salaried person pays tax (employer deducts tax and deposits the same on his behalf with the government of India) as he earns his income (each month in advance). No other category of tax payer -– company or self-employed or businessman -- is required to pay advance tax each month. Advance tax has to be paid on the 15th of September, December and March — in installments of 30%, 30% and 40%, respectively— by the self-employed and businessmen.
Companies need to pay it on the 15th of June, September, December and March. So why does salaried class need to pay tax each month? What is the logic? Can anyone explain? In countries like Singapore, a salaried employee needs to pay tax on income in next financial year, ie., for income earned in CY13, tax needs to be paid in CY14, no advance tax.
(ii) Let's take an example of two chartered accountants A & B residing in Mulund, Mumbai. A works in a bank in Mumbai and B has his own practice (entrepreneur). Both have their offices in Bandra Kurla complex and both of them drive to office. They both spend around Rs. 10,000 on petrol bills. While A (salaried) gets tax benefit of only Rs. 800 out of Rs. 10,000 spent (8%), B can claim the entire amount as a deduction from his income. There is no limit on the amount a professional like B can claim as deduction for conveyance. This is ridiculous though one may argue that this encourages entrepreneurship.
(iii) Let's continue with the same example. A goes to a nearby restaurant for lunch and spends Rs. 150-200 per day. B also has lunch outside but can claim the entire amount as business development expense from his income. That's how these professionals pay almost nil tax.
(iv) A & B both buy Honda City for Rs. 10 lakh and take loan of Rs. 8 lakh. A does not get any tax benefit on the EMI of Rs. 17,000 per month. B can claim the entire interest expense as a deduction from income. Further he can also claim depreciation on car.
(v) Interest on self-occupied house/property is exempt upto Rs. 1.5 lakh per annum. If a company/professional buys a building or a flat financed by a bank, is there a cap on interest it can claim as deduction. Anybody? No cap. So why is this rule for salaried class?
The standard deduction was meant to compensate salaried people for the fact that self-employed small businesspersons or entrepreneurs pay tax only on their net income after deducting business expenditure. This was also done way in 2005-06 by Chidambaram. However, this was very paltry anyways.
The demand of salaried class is to treat them at par with self-employed people and allow all expenses as deduction from income, this will bring parity and improve sentiment. They should be taxed based on net income like corporates/self-employed/professionals.
This is not the only lacunae. Some of the deductions allowed under the head salaries have been unchanged for ages.
(i) Conveyance/transport allowance of Rs. 800 per month was announced in the early 1990s. In Mumbai, if you travel by car you spend minimum Rs. 10,000 per month on fuel. If you travel by train your monthly pass for train (1st class) is Rs. 600-700 plus you need to spend minimum Rs. 50 per day on auto/taxi to reach the station from office/home.
This makes it Rs. 2,000 per month on an average. Even if we assume an average inflation of 5% for the past 2 decades, this allowance should be at least Rs. 2,000 (inflation adjusted).
(ii) Interest on self-occupied house/property is allowed as deduction for upto max of Rs. 1.5 lakh since 1999. Property rates have zoomed up significantly since then (prices in Mulund in Mumbai for example which were Rs. 1,000-1,500 per square feet in 1999 has zoomed upto Rs. 15,000 per square feet currently, 10 times the 1999 figure). By this logic the deduction should be Rs. 15 lakh at least.
(iii) Additionally, Rs. 1 lakh is exempted for principal payment but this is covered under Sec. 80 C with other investments. If you buy property worth Rs. 25 lakh today and take loan of Rs. 20 lakhs (80%), your EMI would total Rs. 2.5 lakh per annum and your entire interest expense plus principal can be deducted from income. Where is a flat available for Rs. 25 lakh in Tier I cities in India today, not even Tier III cities perhaps.
(iv) Medical expenses upto Rs. 15,000 is exempt from tax for the family. This was introduced almost 15 years ago. This is too low considering in cities like Mumbai where one visit to a doctor costs Rs. 1,000 excluding cost of medicines. Again here, taking into account inflation, this should easily be doubled.
(v) Child education allowance of Rs. 1,200 per child for maximum 2 children is exempt. This works out to Rs. 100 per month. But even in slums and villages there is no school which has such low fees. In Eurokids, the fee is Rs. 35,000 for play school leave alone school education.
With the government's focus on education, salaried professionals who wish to pursue higher studies (CFA, FRM, PhD etc.) should be given a deduction for the fees paid. This will lead to increase in technical skills of the workforce in India.
The demand of salaried class is to substantially hike the caps for all these allowances just by purely taking into account the inflation aspect.
Not only this, the salaried class suffers from double taxation (indirect taxes) – service tax, sales tax etc -- which makes everything costly for him. Plus, effective tax rates of companies like Reliance and State Bank of India which earn US$ 3.5b+ is 21% and 17% respectively. The effective tax rate is 25-26% for people earning Rs. 30 lakhs and above. How is this justified?
Fewer taxes would increase the disposable income in the hands of salaried people. What would they do with this high income, they would spend the same or invest. Either ways it is good for economy.
The efforts of the government should be to increase the tax net and not milk the cow in their hands (salaried class). Any shortfall in income tax collection from salaried class should be made up by taxing more people who are paying zero taxes and leading lavish lifestyles including politicians.
By the way, income of MPs and MLAs is exempt.
The government is believed to be thinking of increasing the income exempt from tax from Rs. 2 lakh to Rs. 3 lakh. But this is merely a lollypop given to assuage the feelings of the salaried class. This will lead to savings of only additional Rs. 10,000 p.a. (< Rs. 1,000 per month).
Salaried class needs to be taxed in a similar manner in which self-employed professionals are taxed, that is all expenses should be allowed as deduction from income and only net income should be taxed. All exemptions should be done away with.
This could be contested by people who don't own a house or a car. Their tax liability would increase. So, one could have two methods, one based on actual expenses (like professionals) and the other based on current system with hike in allowances to adjust for inflation.
Employees should have choice which one they want to adopt for their taxation purposes. Is the government listening?
Views expressed by the author are personal.
Link Hindustan Times
Monday, June 9, 2014
Tax Break On Bank Deposits
Banks seek tax breaks on deposit income-Times of India
MUMBAI: In a move that is likely to benefit consumers and boost infrastructure finance, bankers will seek tax breaks on deposits and long-term bonds. Public sector banks will submit to the government their capital requirements if credit is to grow by 16% during FY15.
Finance minister Arun Jaitley will meet with CEOs of leading banks, financial institutions and economists as part of his pre-Budget consultations. Sources said that the meeting might not be restricted to just pre-Budget suggestions and that the finance minister might seek feedback on long-term capital requirements and consolidation in the banking industry. Bankers said that bad loan resolution was also one of the issues that they would raise. RBI has provided a special dispensation allowing banks to spread the losses arising out of sale of bad loans at a discount to asset reconstruction companies (ARCs) over the next two years. Banks said that they would seek some fiscal relief as well.
"We have already sensitized the government on a few issues on the direct tax side and a few on the service tax side. We have also given our suggestion on larger policy matters on getting stalled projects up and running," said M V Tanksale, chief executive of the Indian Banks' Association. One suggestion from the banks is that interest income from bank deposits should be subject to indexation benefit. In other words, tax would be paid only on the real returns above the rate of inflation.
Speaking to TOI, a senior banker said that going forward mobilizing deposits to fund growth could be a challenge. Banks are facing competition from fixed maturity plans of mutual funds, government small saving schemes and tax-free bonds of financial institutions. "For tax payers, it does not make sense to maintain fixed deposits which attract tax. Post tax, the returns drop to around 6% which, in real terms, is a negative return after factoring inflation," he said.
The banker also said that creating avenues for long-term funds was imperative. "Given the state of Indian bond markets, the burden of funding infrastructure is going to fall on banks. Allowing banks to float long-term bonds, which are either tax-free or exempt from reserve requirement, would enable banks to provide long-term loans," he said.
The consultation comes close on the heels of the FM's meeting with financial regulators - including Reserve Bank of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory Authority - in Mumbai on Saturday. Although the meeting was part of the quarterly gathering of regulators under the aegis of the Financial Stability Development Council, the finance minister had used the opportunity to obtain feedback from banks.
On Saturday, during his Mumbai visit, Jaitley said that the government would provide its response after it had applied its mind to the recommendations. The committee has suggested that the government transfer its holding in public sector banks to a holding company - a move which will reduce government influence on the management and enable them raise more capital from the markets.
Link times of India
MUMBAI: In a move that is likely to benefit consumers and boost infrastructure finance, bankers will seek tax breaks on deposits and long-term bonds. Public sector banks will submit to the government their capital requirements if credit is to grow by 16% during FY15.
Finance minister Arun Jaitley will meet with CEOs of leading banks, financial institutions and economists as part of his pre-Budget consultations. Sources said that the meeting might not be restricted to just pre-Budget suggestions and that the finance minister might seek feedback on long-term capital requirements and consolidation in the banking industry. Bankers said that bad loan resolution was also one of the issues that they would raise. RBI has provided a special dispensation allowing banks to spread the losses arising out of sale of bad loans at a discount to asset reconstruction companies (ARCs) over the next two years. Banks said that they would seek some fiscal relief as well.
"We have already sensitized the government on a few issues on the direct tax side and a few on the service tax side. We have also given our suggestion on larger policy matters on getting stalled projects up and running," said M V Tanksale, chief executive of the Indian Banks' Association. One suggestion from the banks is that interest income from bank deposits should be subject to indexation benefit. In other words, tax would be paid only on the real returns above the rate of inflation.
Speaking to TOI, a senior banker said that going forward mobilizing deposits to fund growth could be a challenge. Banks are facing competition from fixed maturity plans of mutual funds, government small saving schemes and tax-free bonds of financial institutions. "For tax payers, it does not make sense to maintain fixed deposits which attract tax. Post tax, the returns drop to around 6% which, in real terms, is a negative return after factoring inflation," he said.
The banker also said that creating avenues for long-term funds was imperative. "Given the state of Indian bond markets, the burden of funding infrastructure is going to fall on banks. Allowing banks to float long-term bonds, which are either tax-free or exempt from reserve requirement, would enable banks to provide long-term loans," he said.
The consultation comes close on the heels of the FM's meeting with financial regulators - including Reserve Bank of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory Authority - in Mumbai on Saturday. Although the meeting was part of the quarterly gathering of regulators under the aegis of the Financial Stability Development Council, the finance minister had used the opportunity to obtain feedback from banks.
On Saturday, during his Mumbai visit, Jaitley said that the government would provide its response after it had applied its mind to the recommendations. The committee has suggested that the government transfer its holding in public sector banks to a holding company - a move which will reduce government influence on the management and enable them raise more capital from the markets.
Link times of India
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