Income from salary is assessable as income from employment under Part B of Chapter III in the Code. The computation of income is to treat all amounts due or paid, whichever is earlier, in the financial year as taxable income. Such amount is gross salary from which deductions are allowed to arrive at taxable salary. Professional tax, transport allowance to meet the cost of journey from place of residence to office and back and expenses solely incurred in the course of employment to be prescribed and recognised awards given by the Central Government are alone deductible. The expenses now prescribed as relating to employment are tour allowances, place allowances, travel, transfer and helper allowances under Rule 2BB, which may probably be repeated in the new rule to be prescribed.

But what may come as a shock to the employees is that the amount received as terminal benefits by way of voluntary retirement or gratuity either paid to him or to his nominees on his death or amount received in commutation of pension, hitherto exempt, will all be deductions, subject only to deposit of such amount in specified retirement benefit account under the scheme to be framed and prescribed by the Central Government in this behalf. On withdrawal, the amount will become taxable, so that there could at best be postponement of liability. The period for which such deposits will be locked up will be known when the scheme is notified.

It has been clarified in the discussion paper that the Code would treat all perquisites to be taxable so that the value of free or concessional accommodation will be taxable without distinction between government employees and others. Similarly, leave encashment, leave travel concession, medical reimbursement and value of free or concessional medical treatment provided by the employer will all be taxable. It has been claimed in the discussion paper that the difference between government servants and other classes of employees will no longer persist so as to improve both horizontal and vertical equity in the tax system.

Property income

House property occupied by the owner for the purposes of his own business, as now, will not be taxable.

Income from property, whether let out as business or otherwise, with or without amenities will be assessable only as property income. The exemption for self-occupied property is replaced for exemption for any one property, which is not let out and from which no other benefit is derived by the owner so that a self-occupied property will not be eligible for the benefit of exemption as is now possible. It means that self-occupied property will be liable to tax by adoption of “gross rent” so that all the deductions as for let out property will be available therefrom for self-occupied property as well. Gross rent, as for let out property, will be eligible for all deductions. It is only where the property is not let out or occupied or otherwise availed that there will be nil income without deductions.

“Gross rent” will be either contractual rent or presumptive rent, whichever is higher. Presumptive rent is ratable value fixed by the local authority in the absence of which it will be 6 per cent of the cost of the property. Where the property is let out or some benefit is availed as for self-occupation for any part of the year, deduction is available for local taxes and service tax and ad hoc deduction for repairs and maintenance at 20 per cent as against the present limit of 30 per cent. Interest on monies borrowed for acquiring property or repayment of any monies so borrowed will be deductible, whether self-occupied or let out without the present ceiling for such interest now in force for self-occupied property. But where the property is neither let out nor any benefit is derived from it gross rent will be nil without any deductions. It is also provided that rent received in advance will be treated as part of gross rent in the year of receipt.

Wealth tax

There will be no separate enactment for wealth tax, since it is digested in the Code, but it is vastly diluted in view of the rise in exemption limit from Rs. 15 lakh to Rs. 50 crore with tax rates slashed from one per cent to 0.25 per cent. But all the same, all the assessees will be required to compute net wealth, since it is part of the Code and would require to be reflected in the return. Companies will not be liable for wealth tax under the Code, but they will be liable for tax on gross assets, which will substitute Minimum Alternate Tax. Individuals and Hindu Undivided Families (HUFs) and discretionary trusts alone will be liable for wealth tax. Where there is liability, advance tax, now described as pre-paid tax, would be payable. Tax is levied on net wealth being the difference between the aggregate value of all assets and the debts in relation thereto. Distinction between productive and non-productive assets by merely listing out the excepted non-productive assets is no longer a part of the wealth tax under the Code. It will now include all assets, subject to exclusion only of foreign assets of a non-citizen, notified properties of the ruler and the interest of an individual in joint family property. Only significant exemption is one house property or a plot of land acquired or constructed before April 1, 2000. The method of valuation will be prescribed by rules to be notified. Clubbing provisions as of now will continue with the only modification by way of a welcome exclusion of son’s wife from its purview.

The tax base for wealth tax is, therefore, broadened. Though only few will be affected, because of the high exemption limit, it is likely to affect most assessees because of the burden of compliance. The object of making wealth as part of income tax law and income tax return is to have a record of wealth from year to year, so as to measure the income disclosed with reference to annual increase in wealth, an object which is more easily achieved by requiring such information without the complications under wealth tax law, which is now carried to the income tax Code.

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