An average retired middle level mercantile employee would have an annual income from his total terminal benefits of approx. Rs. 1,000,000 invested in NSB and/or a reliable Finance Company of around Rs. 150,000. Under the current tax structure applicable up to 31.03.2002, which allows him an allowance of Rs. 144,000, he will be liable to pay as income tax a total of Rs. 600 only.

Under the proposals in the Budget Speech of 22nd March 2002, a non-refundable tax of 10% will be imposed on his income, though the Minister of Finance has raised the threshold of Rs. 144,000 to Rs. 240,000! The Minister has later announced that only total deposit yielding income of over Rs. 72,000 per annum will be subject to this 10% tax. The actual fact is that as far as the small saver is concerned the allowance has been effectively reduced to Rs. 72,000! He will incur a loss of Rs. 14,400, as due to the non-submission of tax return there will not be an effective procedure to afford the rebate of Rs.72,000. The case of persons with lower levels of income will be even more pathetic. The Govt. must please bear in mind that costs of living are escalating very sharply, and the elderly have to incur essential additional expenditure on medicines, doctor’s bills, nutritious food supplements, etc.

On the other hand, take the case of a super rich person, who has fixed deposits of over Rs. 10,000,000 yielding an annual income of Rs. 1,500,000. Under the current tax structure, his taxable income will be Rs. (1,500,000 – 144,000) or Rs. 1,350,000. His tax liability will be Rs. 50,000 on the first Rs. 300,000 plus 35% on the balance Rs. 1,056,000 which works out to a total of Rs. 419,600. Under the new proposals, he will have to pay only Rs. 150,000 deducted at source. In addition he will receive a further allowance of Rs. 240,000 on his other income (income of professionals such has lawyers, doctors, top company executives, estate owners, gem mudalalis, etc.) before incidence of income tax. Since he would have been liable at 35% under the current tax structure, he thus receives a further benefit of Rs. 84,000. His total benefit under the new proposals is hence Rs. (419,600 – 150,000+84,000) = Rs. 353,600. Since the tax slabs have also been increased from the current Rs. 100,000 to Rs. 180,000 further benefits will accrue to these upper income earners.

The low and middle income earners are not envious of the massive benefits that are being given to the super rich, and are only pleading that they should not be destroyed. The Government can easily achieve both objectives by instructing banks, finance houses and other handling interest yielding securities not to impose any deductions until the total income yield exceeds Rs. 240,000 per annum or Rs. 20,000 per month and to deduct at 10% for amounts in excess of these limits. Investors should be required to make a declaration (giving NIC No.) when making deposits that their total interest income from all sources does not exceed Rs. 240,000/- per annum. If a declaration is not given 10% of the interest paid should be retained and remitted to the Dept. of Inland Revenue. Severe penalties should be applicable in cases of default. No increase in documentation will result as in any case banks and other institutions will have to send a return to the Dept. Of Inland Revenue when remitting monies deducted. The exemption of Rs. 20,000 per month will actually result in reduction of documentation.
Investment Consultant