Saturday, December 28, 2002, Chandigarh, India

National Capital Region--Delhi


M A I N   N E W S

Kelkar retains harsh proposals
Recommends slashing interest rebate limit on
housing loan to 50,000

Tribune News Service


Following are the highlights of the Kelkar Commitee recommendations on direct tax reforms:

  • Income tax exemption limits should be hiked to Rs 1 lakh from Rs 50,000.
  • Two slabs of 20 per cent for income between Rs 1-4 lakh and 30 per cent beyond Rs 4 proposed.
  • Standard deduction be eliminated and surcharge be removed.
  • Interest payment up to Rs 50,000 on home loans should be exempted and interest subsidy of 2 per cent on housing loans up to Rs 5 lakh be offered.
  • Additional reliefs for senior citizens and widows.
  • Income tax on agriculture.
  • Corporate tax should be 30 per cent
  • Elimination of tax incentive under Section 10A, 10B of I-T Act.
  • Lifting of dividend tax and capital gains tax.
  • Depreciation rate should be reduced to 15 per cent from 25 per cent. 

New Delhi, December 27
The Kelkar task force on tax reforms has reworked some of its original recommendations while retaining the increase in the tax exemption limit to Rs 1 lakh and fixing two slabs of 20 per cent for those earning Rs 1 lakh to Rs 4 lakh and 30 per cent beyond Rs 4 lakh.

It has also scaled down on abolishing all sops by fixing the rebate limit on interest payments towards housing loans at Rs 50,000.

The task force has proposed reducing customs duty to 10 per cent on raw materials by 2004-05 and 20 per cent on consumer durables. It has also desired exemption of domestic companies from paying tax on dividend and long term capital gains.

It has retained some of its earlier harsh recommendations, including those on taxing agricultural income of non-agriculturists despite widespread political opposition to it.

There is additional tax relief for senior citizens and widows, fiscal support for low income groups and encouraging annuity and pension schemes.

On the excise side, the task force has called for zero per cent duty on life-saving drugs, security and food items, 6 per cent for processed food, 14 per cent standard rate for all items and 20 per cent for motor vehicles, air-conditioners and aerated water.

The Kelkar task force was compelled to scale down certain recommendations drastically because of widespread and intense criticism. Union Finance Minister Jaswant Singh and the BJP committee which studied its recommendations had underlined the need for a radical change so that the salaried class, pensioners and senior citizens were not burdened additionally.

Addressing a news conference here today after submitting afresh the two reports on tax reforms to the government, the adviser to Union Finance Minister, Mr Vijay Kelkar, said the tax rebate of Rs 50,000 on housing loan interest payments would continue till the 2 per cent interest subsidy was implemented as 85 per cent of the loanees fell in this bracket. He felt this would help prospective house builders whose income was less than Rs 1 lakh.

The task force sought further reduction on customs duty from 2006-07 with 5 per cent for basic raw materials like coal, 8 per cent for intermediate goods and 10 per cent for finished products other than consumer durables attracting a uniform duty of 20 per cent.

The exemption limit for tax rebate on pension under Section 80 CCC had been doubled to Rs 20,000. The income tax exemption limit for senior citizens and widows had been raised to Rs 1.5 lakh against the earlier suggestion of Rs 1 lakh.

The task force had also retained the earlier proposal of 30 per cent corporate tax from the existing level of 36.75 per cent.

Claiming that the reworked proposals would yield more revenue in the long run, Mr Kelkar said over a period of time the tax-GDP ratio would improve due to better compliance, greater transparency and reduction in rates.

On customs duty, Mr Kelkar said there was a nominal reduction in duty from 60 per cent to 50 per cent, besides withdrawal of countervailing duty on cellular phones. The basic import duty would be brought down to zero in 2003-2004.

The duty reduction to 5.8 per cent and 10 per cent would start only after the introduction of the state VAT so that imported goods were also made subject to the same state VAT instead of the special additional duty.

The task force had suggested 8 per cent duty on crude oil and 15 per cent on petroleum products in 2003-2004. This was to be brought down to 5 per cent and 10 per cent respectively, in the subsequent year.

Mr Kelkar said the proposals on indirect tax was expected to reduce transaction cost by Rs 5000 crore annually along with creating universal green channel and trust-based system.

The tax proposals for the SSI coupled with simplification of procedures would minimise harassment by inspectors and no arrest could be made without magisterial approval. Responding to questions, Mr Kelkar did not agree with the suggestion that raising the income tax exemption limit would lead to a large number of tax payers escaping the tax net. He insisted that the key question was the total income being brought into the tax net and not the number of tax payers.

Then, he said most tax payers with income of up to Rs 1 lakh would continue to file returns on account of the one-by-six scheme. Therefore, the concern that they would drop out of the tax net was misplaced.

On taxing agricultural income of non-agriculturists, Mr Kelkar said it was for the “State governments to consider the suggestions of the task force as per our constitutional provisions.”

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