Tax Exemptions Out Of Touch With Reality
Of course, most companies offer conveyance reimbursement. But when it comes to genuine medical expenses, government officials, who enjoy unlimited medical cover, seem oblivious to the rapidly rising healthcare and medicine costs. As a result, the exemption limit for reimbursement of medical expenses—which was last increased from Rs 10,000 to Rs 15,000 in 1998—has stayed at that level for 15 years now. Any middle-class person in the private sector could tell you that this reimbursement level is grossly inadequate.
There are several such examples of the income tax department failing to increase the tax-free reimbursement limit despite costs going up significantly. For instance, the exemption limit for education allowance paid by an employer was fixed at Rs 100 per child per month for up to two children in 2000 and it has remained unchanged.
JUST NOT ENOUGH
Some tax-exempt limits on heads like conveyance, medical reimbursements last fixed in 1998
Have not been changed since then even though costs have risen significantly
Limit for education allowance paid by employer fixed at 100/child per month for up to 2 children in 2000 'Pvt sector workers bear the brunt'
The meagre exemption limit for education allowance shows up the unrealistic benchmarks of the government. "Even in 2000, there was hardly a single public school in a large city that had a monthly fee of Rs 100. Today, it's unimaginable," said a tax consultant who did not wish to be identified.
Even the medical insurance exemption limit is proving to be inadequate, especially when there is talk of annual premiums going up by 20-25%. A family of four—where the husband and wife are below 35 and the children are under 10 years—spends more than that amount for a Mediclaim policy from one of the four public sector insurance companies. In case of the private insurers, the premium is expected to be higher.
Tax experts are even questioning the Rs 1 lakh investment benefit available under section 80C as provident fund, principal payment for home loans, life insurance premium, investment in public provident fund and tuition fees are all included under this head.
There are changes that may adversely affect you too. For instance, when it comes to vehicles provided by a company, the government has fixed the taxable amount at Rs 2,400 a month if the engine capacity is 1,600cc or more. Another Rs 900 is provided for driver. With companies doling out Mercedes and Audis, tax experts believe that even the two amounts need to be revisited since they were also fixed a few years ago.
A part of the reason for keeping the reimbursements low is the government's own doing. After all, government officials who are entitled to official cars pay a mere Rs 700 a month for using them—a level that was fixed several years ago; since then the cost of petrol alone has shot up manifold.
Similarly, when it comes to medical reimbursements, the government gives limitless allowance to its employees who live in towns that are not covered by the Central Government Health Scheme (CGHS) or have no health facilities. But a private sector employee would still be covered by the Rs 15,000 cap. Whatever be the reason, the limits seem outdated given that they were fixed several years ago.
"Certain tax exempt limits like conveyance exemptions, medical reimbursements, etc, have been fixed almost 10 to 15 years back. Since then, in view of increasing fuel and medical costs, there is a need to consider increasing the exemption thresholds upwards. Similarly, in view of the crowded tax deduction limit of Rs 1 lakh (under section 80C), where almost all savings and long term investments are covered, there is a need to revise the deduction limit to at least Rs 300,000 per annum to avail of some meaningful relief. Alternatively there may be separate tax deduction limits carved out for important expenditure such as housing loan payment, education expenses, life insurance, etc," said Parizad Sirwalla, partner at consulting firm KPMG.
But the changes may not happen immediately. "Although the rules require changes, given that the Direct Taxes Code is on the anvil, the government will probably take stock of the situation when the new law is finalized," said Kuldip Kumar, executive director at consulting firm PricewaterhouseCoopers.