It is imperative for the tax administration should come up with the exactamount of tax collected from those who had filed Form No.2-C under theOne-by-Six scheme during the last two years. Unless this figure is madeavailable to the public, or at least to the Finance Minister, the efficacyof the new scheme initiated by the former Finance Minister P. Chidambaramcannot be gauged. It has to be emphasised that what the country sorely needstoday is an increase in the number of tax payers and not an increase in thenumber of tax return filers who merely add to the administrative burden ofthe tax department.

The proposals of the Finance Minister offer a mixed package of tax andreliefs. While the increase in the surcharge from 10 to 15 per cent forindividuals who have a taxable income of more than Rs 1.5 lakh will impose atolerable burden, it will make India compare less favourably with othercountries of the world where the rates of taxes are much lower. Moreimportantly, the top slab of income in other countries is much higher thanthe threshold of Rs 1.5 lakh at which India imposes the maximum marginalrate of 34.5 per cent.

To illustrate, China imposes the maximum marginal rate of 45% (much higherthan the proposed rate of 34.5% in India) but this high rate is applicableto a Chinese citizen only when his income exceeds around Rs 45 lakh.Likewise, Germany and some European countries impose higher rates of tax butthey become applicable only when the level of income of their citizensexceeds more than Rs 30 lakh.

For women, the Finance Minister has been gracious in allowing, a tax rebateof Rs 5,000 with effect from the financial year 2000-2001. Thus, a woman whois less than 65 years of age will have to pay no tax so long as her taxableincome is Rs 80,000 or less. Once she reaches the age of 65, her limit ofta- free income goes up to Rs 1,30,000.

As far as senior citizens are concerned, the Finance Minister has showngreat sensitivity by relieving them of the need to filing tax returns byincreasing the tax rebate under section 88-B. The rebate has been increasedfrom Rs 10,000 to Rs 15,000. The implication of this is that a person who ismore than 65 years of age will, hereafter, beginning with the financial year2000-2001, not be liable to pay tax on taxable income up to Rs 1,30,000.Thus, in his case, the initial exemption limit stands increased from Rs50,000 to Rs 1.3 lakh.

For students who have taken loans for higher education, the tax benefitunder section 80-E has been increased from the present level of Rs 25,000 toRs 40,000. This would cover loan amount of Rs 3 lakh and above.

Another benefit given to individuals is for repayment of housing loans. Thetax rebate of 20% under section 88 has been increased from Rs 10,000 to Rs20,000. This is in addition to the general limit of Rs 60,000 which coversinvestments in certain government securities and recognised mutual funds aswell as LIC premia, provident fund contribution etc.

The capital gains tax exemption which is available under sections 54-EA and54-EB in respect of long-term assets is sought to be discontinued. Under thefirst provision, a person who has made capital gains has the option toinvest the sale consideration of the long-term assets in the bonds notifiedunder section 54-EA for which there is a lock-in period of three years.Under the second provision, the investor may invest the capital gains onlyin the bonds notified under section 54-EB for which there is a lock-inperiod of seven years.

It is now proposed to introduce section 54-EC with effect from April 1, 2000to provide a uniform lock-in period of five years in bonds which are to benotified under this new provision. Moreover, only capital gains are nowrequired to be invested and not the sale proceeds of long-term assets.Further, only Nabard and National Highways Authority of India will beeligible to issue the new bonds. If such bonds are converted into monieswithin the five-year period or any loan or advance is taken on the securityof these bonds, the capital gains tax exemption would be withdrawn.

Under the existing provisions contained in the proviso to section 112(1) ofthe Income Tax Act, tax on long-term capital gains arising out of transferof listed securities will not exceed 10% of the capital gains beforeallowing adjustment for Cost Inflation Index. The definition of securitiesfollows the definition given in section 2(h) of the Securities Contract(Regulation) Act, 1956. The status of units of Unit Trust of India and unitsof Mutual Funds is not clear under the above definition.

It is, therefore, proposed to amend the proviso to sub-section (1) ofsection 112 to provide that tax on long-term capital gains arising fromtransfer of units of Unit Trust of India and units of Mutual Funds specifiedunder section 10(23-D) of the Income-tax Act alongwith securities as definedin Securities Contract (Regulation) Act, 1956 shall not exceed 10% of thecapital gains before allowing adjustment for Cost Inflation Index. Section54-F of the Income-tax Act exempts levy of tax on long-term capital gainsarising from transfer of any long-term capital asset (not being aresidential house), if invested in a residential house. There is, however, astipulation that the above exemption cannot be availed of, if there is ahouse in existence on the date of transfer or if the person goes for asecond house within the stipulated period. The above condition stands in theway of a large number of tax payers from availing of the deduction undersection 54-F. The existing house may be a small house or a tenanted housewhich is difficult to sell in view of the stringent tenancy laws or a housewhich cannot be sold because of non-availability of buyers or slump inmarket prices.

Therefore, it is proposed to amend section 54-F of the Income-tax Act toprovide that the deduction under this section may be available to anindividual or Hindu undivided family as long as he has one and not more thanone house existing on the date of transfer. Other conditions would remainthe same.