Direct Tax Code- 2012 Raw Deal to Seniors


By Dhirendra Kumar
Sep 13, 2010



Senior citizens have got a raw deal in the Direct Tax Code (DTC), not just because they would lose the tax rebate they enjoy now. There is a potentially more serious side-effect of the DTC on senior citizens that has not yet been discussed widely or commented upon publicly. Seniors who have any kind of income have no practical avenues for making tax-saving investments left open to them.



The DTC (and most of us who have commented on it) assumes that income from work ends at retirement. However, this is not true for a significant number of seniors, who work part-time after their formal retirement, while a significant number have rent income.



At present, they can use many of the investment avenues covered by section 80C. They are making tax-saving investments in equity-linked savings schemes (ELSS) of mutual funds, unit-linked insurance plans (ULIPs) as well as five-year bank fixed deposits. One feature of senior citizens’ tax investments is that they prefer shorter lock-in periods. They are little uncertain about how long they will be fit and healthy enough to earn, and so are not confident about when they will go from accumulation mode to withdrawal mode. ELSS, ULIPs and bank FDs, therefore, suit them very well.



However, all these would go once the DTC comes into effect. They would be left with NPS and provident fund, both of which are retirement solutions. And then there is PPF, which has a 15-year lock-in, way too long for older people. The result is that if you still have an income after the age of 60, the DTC will either force you to pay more tax than necessary, or to put money into channels that are unsuitable for you.



The person who first pointed this out to me is a retired PSU employee in his mid-60s who earns a reasonable Rs 5-7 lakhs a year (though somewhat irregularly) as a project engineering consultant. I don’t know how many people are there with this kind of profile, but there is no reason to cut them off from tax-saving investments on top of taking away their tax-rebate.



While the removal of tax rebate to senior citizens is regrettable, it is something that has been done consciously and intentionally.



However, I think it is quite clear that the other impact on senior citizens is an unintended side-effect of changes made for other reasons. It would be good if the finance minister, who himself happens to be exactly the kind of working, productive senior citizen I’m talking about, takes note of this problem and introduces some measures to solve this problem.