Has Modi govt dumped Direct Tax reforms?

Three-crore taxpayers in India will certainly not quibble over the NDA government having broken convention to bestow pre-poll income tax sops. But economists will have concerns about the regression in direct tax reform as the government’s vow to do away with tax exemptions goes for a toss.There is no devil in the fine print in the first ever Interim Budget with direct tax policy changes. It is fairly simple. The government has offered a full tax rebate for a person who earns upto Rs 5 lakhs a year. She will have an extra Rs 12,500 to spend now.With additional deductions (loosely tax-exemptions) such as interest on home loan up to Rs 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens and so on, those having even higher income will not have to pay any tax, said interim finance minister, Piyush Goyal.Add to that a slew of sops for housing. Earlier, a person had to pay income tax on notional rent if she had more than one self-occupied house. But now she is spared from paying tax on the notional rent on a second self-occupied house. The icing on the cake is also the capital gains tax exemption for a second house. If a person sells property and makes a gain of upto Rs 2 crore, she can buy two houses and will be spared from paying capital gains tax.The revenue loss to the government is estimated at about Rs 18,600 crore. This is not small change though the cost could have been much higher had the government showered these sops across the board to all tax payers.The government has not given tax breaks to corporates, barring one for developers of affordable housing projects: they get a tax holiday for one more year. Again, this goes against the principle of eschewing exemptions that distort the tax system.What is intriguing is that a panel of experts is putting together a new, reform oriented direct tax code to overhaul India’s income tax law. The report will be presented to the government by the month end. Will the committee comment on the changes made in this interim Budget, and suggest course corrections, if any? Thats unclear.Ideally, the NDA government should have waited for the DTC panel to present its report. An income tax amendment bill, based on the recommendations of the expert panel on DTC, was also doable. This would not have been a break from convention, and marked propriety as well.

from Economic Times http://bit.ly/2TsgQrM