X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Protect small savers and seniors - Outside View by S.S. TARAPORE

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Protect small savers and seniors
May 5, 2014

After the formation of a new government, the regular budget for 2014-15 will be presented by the end of June or early July 2014. Articulate lobbies, like industry, agriculture, banks/financial institutions and economists, will all have an opportunity to air their views. In all this din, the voice of small savers and senior citizens will be drowned and, it is, therefore, important that their concerns are addressed.

Remuneration to small savers

Over the past 15 years, a strong view has emerged that small savers have nowhere to go and that they will meekly accept low rates of return on their savings. This is not only iniquitous, but damaging to the economy, as not only have household sector savings fallen, but there has also been a shift from financial savings to physical savings. One fervently hopes that the new government would give overriding priority to address this issue.

Life cycle of savings

It is important to appreciate the typical life cycle of savings. Individuals build up savings during their working life to enable them to meet their expenditure during their later years. In India, the bulk of individuals do not have any meaningful social security and hence it is important that there is not a hostile tax regime for senior citizens.

At present, on long–term savings like pension funds and provident funds, such investments are exempt from income tax (i.e. a specified amount is deductable from the taxable income), the interest is also exempt and the withdrawal is also exempt (i.e. the EEE system).

There is a threat to savers that while contributions to these specified schemes, as well as interest, are exempt from tax, withdrawal would be added to income in the year of withdrawal (i.e. the EET system).If the balance at the end of the period is withdrawn, about a third would be lost to the saver by way of tax.

In India, a number of retirees relocate and need to deploy their entire retirement funds and they cannot be expected to withdraw only the annual interest. The EET system in India would be tantamount to extreme cruelty and the government should categorically indicate that the EET system has been tossed out and would not be applied in India.

Income tax exemption limit

At present, the income tax exemption limit for individuals is Rs 2,00,000. For senior citizens above the age of 60 years, the limit is Rs 2,50,000 and for those over 80 years, the exemption limit is Rs 5,00,000. In this context, three amendments are desirable.

First, the general exemption limit should be raised to Rs 3,00,000, as recommended by the Standing Committee on finance with Yashwant Sinha as chairman. The argument against this is that a large number of individuals will be out of the income tax net. The pertinent point is that the tax collected from incomes up to Rs 3 lakh is insignificant. Moreover, tax administration would improve and be more effective.

Secondly, the enhanced basic exemption for women was withdrawn a couple of years ago. This was an insensitive measure. Working women have to spend more for household help. It is inexplicable why women Parliamentarians remain silent, instead of storming the citadels of the ministry of finance.

Thirdly, it is necessary to appreciate the life span in India. Relatively few individuals survive into their 80s and hence a higher exemption limit at over age 80 years is an empty gesture. A sensitive government would have an intermediate category at age 70 years, which could be less than the exemption limit for age over 80 years.

Section 80C deduction

At present, under Section 80C, specified savings are deducted from income up to Rs one lakh. In the case of senior citizens, the basic exemption limit should be raised by Rs one lakh, and for senior citizens, there should be no exemption limit under Section 80 C. This would be consistent with the life cycle of savings.

Inflation Indexed Bonds ( IIBs)

While retail IIBs, with indexation to the Consumer Price Index (CPI) have been introduced in 2013-14, there is a major flaw in that interest is compounded half-yearly, but paid only on maturity. This prevents senior citizens from investing in these bonds. A simple amendment for a payout of interest on a semi-annual basis would result in an upsurge in subscriptions particularly as senior citizens would throng to this instrument.

Old age pensions

At present, there is a scheme for old age pensions. The government should put in the public domain the number of persons covered by this scheme. Rather than raising the old age pension amount, there should be a concerted campaign to cover all eligible individuals under this scheme. Our cultural heritage is respect and care for elders. If we believe in this, surely the first step would be to support the aged through effective fiscal measures.

Please Note: This article was first published in The Freepress Journal on May 05, 2014. Syndicated.

This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Protect small savers and seniors". Click here!

2 Responses to "Protect small savers and seniors"

S Paul Choudhury

May 12, 2014

I do AGREE on all the points as suggested...
Everyone should raise their VOICE on this issue..

Like 

ram

May 5, 2014

sensible suggestions and hope that a goverment without PC will listen and implement a more friendly tax regime .the current tughlak durbar is becoming unbearable .

Like 
  
Equitymaster requests your view! Post a comment on "Protect small savers and seniors". Click here!

More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Where Can You Find Safe Quality Stocks in This Market? (The 5 Minute Wrapup)

Jul 13, 2018

Don't define quality by market capitalisation. Look for quality stocks across market caps instead.

Have You Built A Rainy Day Fund Wisely? (Outside View)

Jul 13, 2018

PersonalFN explains how to go about building a contingency fund and the investment avenues for it.

The Market Gods Are Laughing (Vivek Kaul's Diary)

Jul 13, 2018

President Trump escalated the trade war yesterday, and the Chinese say they will retaliate. Where is this trade war heading? Bill shares his insights.

More Views on News

Most Popular

Has A Bank Ever Told You Its Deposits are Riskier than Stocks? These Should Have...(The 5 Minute Wrapup)

Jul 3, 2018

Left on their own, the banks would possibly have to mark down the value of deposits by 90% to 100%.

The Real Truth About India's FDI, Beyond WhatsApp(Vivek Kaul's Diary)

Jul 4, 2018

The FDI numbers do not look very impressive once we adjust for repatriations as well as the overall growth in the economy.

The 5-Point Checklist to Save You from Toxic Stocks(Profit Hunter)

Jul 2, 2018

Worried about investing in one of the poisonous stocks that keep emerging from the woodwork? This checklist could come to your rescue

New Fund Offer - ICICI Prudential Pharma Healthcare and Diagnostics Fund - Should You Invest?(Outside View)

Jul 6, 2018

ICICI AMC launches an open -ended equity fund following Pharma, Healthcare, Diagnostic and allied theme.

When Disappointment Panda is Around. Buy Quality Stock like This!(Chart Of The Day)

Jul 6, 2018

Buy Companies that can fight all kinds of Pandas and Bears in the long run.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jul 13, 2018 (Close)

MARKET STATS