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FM urged to equalise tax benefits for govt and non-govt employees in Budget 2020

The Income-tax Act, 1961 differentiates between a government employee and non-government employee. However, this should not be the case. There are numerous tax benefits available only for the government employees only.

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Last Updated: Jan 17, 2020, 04.56 PM IST
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By Naveen Wadhwa

Apart from the widespread expectations of a cut in personal tax, there are several lacunae in the current income tax laws which we recommend that the government should fill. This is because some of these gaps are against individual assessees and some needs to be filled due to their nature and impact on the tax revenue.

Some of our expectations and recommendations from the Union Budget 2020 include tax law changes to provide non-government employees the same tax benefits available to government employees with respect to gratuity and leave encashment; Clarification on whether the Benami Transactions (Prohibition) Amendment Act, 2016 is applicable with retrospective effect or not.

Similar tax benefits for government and non-government employees
The Income-tax Act, 1961 differentiates between a government employee and non-government employee. However, this should not be the case. There are numerous tax benefits available only for the government employees only. Example, gratuity received by a government employee is fully exempt from tax, whereas it is exempt up to Rs. 20 lakh if received by a non-government employee. Similarly, leaves encashed by government employee at the time of retirement are fully exempt from tax, whereas it is partially exempt in the hands of others.

In a recent judgment, the Delhi High Court in the case of Kamal Kumar Kalia versus Union of India had held that retired employees of public sector undertakings and nationalised banks cannot be treated as government employees. They are not entitled to get full tax exemption on leave encashment after retirement or superannuation under section 10(10AA).

It cannot be said that there are fewer non-government employees in India compared to government employees. In fact, it could be greater. Thus, giving both sets equal treatment will be reasonable. It is recommended that all employees, government or non-government, must be treated equally for income-tax exemptions.

Retrospective applicability of Benami Transactions (Prohibition) Amendment Act, 2016
The Benami Transactions (Prohibition) Act, 1988 was amended by the Benami Transaction (Prohibition) Amendment Act, 2016 (hereinafter referred to as Amendment Act). It came into force with effect from November 11, 2016. By the Amendment Act, the government has redefined and widened the provisions of the Benami Transactions (Prohibition) Act, 1988. The Amendment Act introduced extensive provisions on definitions, authorities, attachment, adjudication, confiscation, and so on, whereas the original Act had just nine sections.

After the enactment of the Amendment Act, initiating officers started issuing notices for provisional attachment of alleged Benami properties which were challenged on the ground that the provisions of the Amendment Act, 2016 could not be applied with retrospective effect. Thus, properties purchased before January 1, 2016 shall be out of the ambit of Benami law.

So far, we have witnessed multiple High Courts' rulings on this issue. The Calcutta High Court in the case of Ganpati Dealcom (P.) Ltd versus Union of India had held that the Amendment Act was new legislation and to have effect retrospectively it should have been explicitly provided therein that it was intended to cover contraventions at an earlier point of time. That express provision is not there and thus, the Benami Transactions (Prohibition) Amendment Act, 2016 could not be applied retrospectively.

However, the Chhattisgarh court in the case of Tulsiram versus ACIT had ruled in favour of revenue and held that the Prohibitions of Benami Property Transactions Act, 1988 as it stands today, after incorporating the effect of Amendment Act that brought into force from November 1, 2016, shall apply irrespective of the period of purchase of alleged Benami property.

Considering the ongoing disputes in this matter and to avoid any further litigations, it is expected that the government could clarify the applicability of the Benami Transaction (Prohibition) Amendment Act, 2016.

(The author is DGM, Taxmann.com)
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