Sinha gets an F from techies

Cruelest cut of all Section 88 benefits reduced to 10 per cent. No concessions for those earning above Rs. 500,000 Service tax imposed on insurance, beauty parlours, drycleaners, cable operators 5 per cent national security surcharge raises personal tax rates to 31.36 per cent Dividend tax back with a bang Exhibit showing change in Tax structure Taxable Salary in Rupees 3,50,000 5,50,000   Financial Year Financial Year 2001-02 2002-03 2001-02 2002-03 Tax on above 79,000 79,000 1,39,000 1,39,000 Surcharge 1,580 3,950 2,780 6,950 Total Tax 80,580 82,950 1,41,780 1,45,950 Less: max. Rebate u/s 88  (Being investments in Tax saving Schemes) 16,000 8,000 16,000 - Total Tax payable 64,580 74,950 1,25,780 1,45,950 Increase in Tax liability over Previous Year         In Rupees 10,370     20,170 In Percentage 16.06%     16.04% Note : 1. Comparison is made on the Base figures of the Taxable Salary Income. 2. Chapter VIA being deductions of the likes of Donations, Mediclaim have not been considered since the same do not have a bearing on the proposals made in the Finance Act and they remain unaltered in comparison to the current year i.e. 2001-2002. 3. Presumed there are no other income other than the above Taxable Salary Income (Courtesy: KPK & Co)

rapped in the epicenter of recession, India techies have borne the direct blast of layoffs, slashed and stagnant salaries and steep cuts in bonuses and hikes. This February Finance Minister Yashwant Sinha's blueprint to consolidate second generation reforms triggered another significant tremor on the techies' lifestyle scale. In a foul number crunching exercise, Sinha abolished the 20 per cent rebate under Section 88 of the Income Tax Act for those earning above Rs 500,000 per annum. Employee earnings between Rs.1,50,000 and Rs. 5,00,000 will now qualify for a 10 per cent rebate as against the 20 per cent earnings earlier. At the current salary level of Rs. 1.5 lakh for every year of experience, techies will dole out larger handouts to the government as proof of their success. Techies most cruelly impacted are those in the income bracket of 4,75,000 to 5,10,000. For example, techies whose income is 4,99,000, will be entitled to 10 per cent exemption on taxable income whereas those earning Rs 5,00,000 will no longer be able to avail the rebate. Ironically take home salaries of techies earning between Rs 5,00,000 and 5,10,000 will now be lesser than those earning between 4,95,000 and 500,000.

Rather than introduce radical measures such as taxing agriculture income and plugging leakages in the tax collection mechanism, Sinha chose the easiest route to bridge deficit by further flogging a class of employees who dutifully cough up annual taxes. The cuts are drastic. Under the old tax dispensation, an investment up to Rs 80, 000 in specified instruments qualified for a rebate of 20 per cent from tax, irrespective of the income that a person earned. At the rate of 20 per cent, techies were entitled to a rebate of Rs. 16.000 on tax. Techies earning between Rs 1.5 lakh and Rs 5 lakh will now have to pay Rs 8,000 more while those earning above Rs 5 lakh will not receive any concessions. Sinha's logic that taxpayers in the high tax bracket do not require fiscal incentives to save through various designated instruments has not cut ice with techies who are visibly peeved at being made the scapegoat of Finance Minister's reform algebra. Commenting on Sinha's stinging blow, Harish a technical consultant with Intel says. "This is criminal. The instruments are the only form of savings we have."

Sinha did make one concession by liberalising the unpopular move to tax perks. The employer now has an option to pay tax on non-monetray benefits such as car given to an employee. But as the employer is not allowed to treat this as deductible expense; few companies will be inclined to act magnanimous in a soft economy.

The erosion in income is coupled with closure of attractive investment avenues and shrinking interest rates on instruments rated high by techies. The Finance Minister made a cut of 50 basis points in interest rates on small savings schemes. For instance, the rate of interest on PPF has been slashed to 8 per cent. Interest on RBI relief funds has also been cut to 8 per cent. Moreover a ceiling of Rs.2 lakh has been imposed on investments in RBI Relief Bonds in a given financial year. In addition, the rates on these instruments will henceforth be benchmarked to the average annual yield on government securities of equivalent maturities and will be reset once a year. This constitutes a breach of trust as techies made large investments in instruments on the promise of assured returns. Techies will also have to contend with five per cent saving tax on insurance, most likely to be passed on to policy holders. The reintroduction of 10 per cent tax on income from dividends is yet another blow for techies who have invested in stocks of blue chip companies. A dismayed Ramnath working with Novell Technologies says. This is sick. Whatever savings I've had have depleted in value."

This is not all. In a year when the Defence Ministry failed to utilise Rs 5,000 crore; Sinha's numerical gymanstics will cost techies an additional five per cent surcharge in the name of national security. "I don't mind paying for the country's defence but is the money going to the Defence Department" says a dismayed Ramnath. Apart from the direct blow, the decision to extend the service tax to a range of products such as life insurance, beauty parlours, travel agents, cable operators, dry cleaning services etc will also impact spends of most techies. The cumulative impact; expenditure will be up by 10 per cent in a year when the take home is declining on a similar percentage.

The industry has also backed the techie's view. In a recessionary market, companies want techies; the highest networth individuals in India today; to loosen their purse strings. Sinha's treatment of techies like the golden geese will have a diametrically opposite effect. Are you listening Mr Finance Minister?

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