The Hindu : Opinion / Editorials : NO SAVINGS FOR SENIOR CITIZENS

Online edition of India's National Newspaper
Tuesday, Mar 22, 2005

Opinion

Opinion - Editorials

NO SAVINGS FOR SENIOR CITIZENS

THE UNION FINANCE Minister, P. Chidambaram, claimed recently that senior citizens and women are the natural constituency of the ruling alliance. For senior citizens, however, the Union budget was a major disappointment in more ways than one. In his budget speech the Finance Minister asserted that "tax payers in every bracket will gain from my proposal" (to rationalise the personal income tax regime). That rang hollow for many senior citizens and pensioners. Among the most publicised tax proposals in this budget are those seeking to simplify and reform the personal income taxes. The marginal tax rates have been brought down for all categories. More significantly, as against the existing multiple limits for claiming rebates and exemptions, the budget seeks to club them. Every taxpayer will now have an incentive to save up to Rs.1 lakh in specified instruments. The saving will be deducted from his or her income before the tax is calculated. Simultaneously, the proposals seek to do away with all personal allowances that have been used to reduce the taxable income. The most significant among these has been a "standard deduction" of Rs. 30,000 from the taxable income of salary earners and pensioners. The budget gives substantial relief to many categories of income tax payers and makes payment of taxes simpler but quite obviously the new proposals benefit only those able and willing to save.

For most senior citizens, saving to reduce tax liability is hardly a viable option. Nor does it make sense. Ironically, most of them are wholly dependent on the income from the investments they made during their working life in tax saving schemes such as the Employees' Provident Fund and the Public Provident Fund. To suggest a similar method to save and reduce taxes during their retirement is unjust on many other counts as well. The point has repeatedly been made that the present generation of senior citizens has not benefited from macro-economic policies of the recent past. A notable example is the interest rate regime. A period of historically low interest rates has certainly enabled many individuals to borrow against future income and buy homes and other assets. For many senior citizens, however, low interest rates have translated into diminished returns from bank deposits and other safe investment avenues. Most of them had no inkling of a drastic drop in interest rates. In contrast to the younger generation, which will soon be able to invest in market-based pension schemes, they have had no opportunity to hedge their risks. There is an iron-clad case for giving preferential treatment to senior citizens and those about to retire.

However, the budget proposals are insensitive to these concerns. Although the exemption level has been raised to Rs.1.5 lakh, for many taxpayers among them, the gain will be illusory for, given the various exemptions and rebates, the existing threshold is Rs.1.95 lakh. The proposals to withdraw the standard deduction of Rs.30,000, the special rebate of Rs.20,000, and the tax-exempt status of interest income from bank deposits up to Rs.12,000 are all regressive measures from the senior citizens' point of view. Ominously, the Finance Minister has spoken of further reforms that will aim to tax withdrawals from schemes such as the Public Provident Fund, which are currently totally tax free. The justification to bring Indian tax laws in line with international practice wears thin when the interests of vulnerable sections of society are hit.

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