While the Government has yet to decide on whether or not to implement the recommendations of the Vijay Kelkar Task Force on direct taxes, the Task Force will provide relief to most sections of tax-payers, barring a few. However, if these recommendations are implemented in the coming Budget, then the savings culture would just become extinct in years to come. It is a reality that at present most tax payers go in for investment either in Public Provident Fund, Insurance or in Infrastructure Bonds just to save a sizeable amount of income-tax payment. Hence, with the recommendation of doing away of deductions as well as tax rebates, the biggest sufferers would be all those tax payers who believe in the theme of saving and investment for the purposes of tax saving. Now when no tax benefit would be available on investments so made, it is true that after payment of income-tax more funds would be available with the tax payer which he would just spend away. Thus, if the report is implemented, then it would be increasing the spending power. It is expected that people would spend more on consumer items because ‘investment’ would cease to be binding force as no tax shelter would be available in respect of amount invested from the current year’s income. The tax laws would definitely become simple and easy but surely would bring a big shock to all those tax payers who were interested to save tax by planning their investment strategy. The investment in postal schemes as also the investment in life insurance would suffer a big jolt in view of the report because these investments by and large are tax shelter oriented. Case Study III: All types of Individual tax payers having non-salary income and not making any investments for tax rebate income. (graphic 3). Basically all taxpayers who do not make investments today for purposes of tax savings, will benefit from the Kelkar recommendations. Take an individual earning Rs 10 lakh. Under the current tax laws, this individual would pay a total tax of Rs 2,87,000. Under the Kelkar recommendations, however, the tax burden will go down by Rs 47,700. The reason is simple. On the first lakh of income, there will be no tax at all (under the current law, he has to pay an income-tax of 10% on the income from Rs 50,000 to Rs 60,000, and a 20% tax on the income from Rs 60,000 to Rs 100,000). On the income between Rs 1 lakh and Rs 4 lakh, the tax outgo will be 20 per cent— again, this was 30 per cent for income levels above 1,50,000. Senior citizens who have a total income upto Rs 1,30,000 would, however, stand to suffer extra tax of Rs 6,000. The author is a leading tax and investment consultant and can be contacted at slakhotia@satyam.net.in
