Tax code bitter for government employees and butter for the rich - Part I

Shri Govardhana Rao

The Government has recently released the DIRECT TAXES CODE BILL, 2009. The Bill is actually enemy of the government Employees, but it is very sweet for industry, business and rich people.

As per the bill the following items are taxable:

1. Commuted pension, retirement gratuity and VRS emoluments. These are now exempt only if invested in the government approved saving scheme. This is nothing but taking away whatever due to the esteemed employee. Also if invested the amount will be locked for specified period. Worst part is that on withdrawal from the said saving scheme it is again taxable.

2. Contribution to GPF, LIC and PLI are now exempted. The final accumulated amount is also tax-free. The Bill seeks to amend this. Any accumulated amount corresponding to an amount invested from the date of enactment of the bill (i.e. from April 2011) and the return on such instrument is taxable i.e. it is not tax free. On one hand Government is giving paltry 8% interest on the GPF though the name suggests it is for the provident of an employee. This benefit is being taken away now.

The following items which were not part of the income will now become part of the income:

1. Value of LTC.
2. Amount of encashment of un-availed Earned Leave.
3. Medical Reimbursement.
4. Value of concessional Medical Treatment paid for or provided by the employers.

The Government’s intention is not known by including the above items in the income for Tax payment.

Also there is no mention of deduction towards Principal and interest component of Housing Loan. So, your dream home will become only a DREAM.

If one analyses what the RICH got, it is as below:

1. Loses can be carried forward for set off against future income for unlimited years.
2. Wealth tax limit increased to 50 Crore from 30 Lakh.
3. Rate of wealth tax reduced from 1.0% to 0.25%.
4. Financial assets like Shares, Bonds, etc are to be valued at lower of cost or market value.
5. They can get deduction of any amount towards repair of Plant and Machinery.

Thus Tax code is inhuman, since expenses incurred on medical causalities are to be treated as income. One does not know how to anticipate such an eventuality. When the business men are allowed deduction towards repair of Plant and Machinery in addition to depreciation, why not employees for whom their body is plant and machinery.

The government does not want their employees to get entertainment, new vision in life, become one among Indians, show love to India because the LTC is taxable. This is only a barbaric approach.

The Government is not interested in Employees saving. For many a decade India is running a deficit Budget. I.e. its expense is more than the income generated. Under the said ‘Deficit Budget Regime’ the Government is badly in need of cheap money from the market. The GPF, LIC and PLI provide the Government very big amount at a reasonable interest of maximum of 8% and at the rate of 5 to 7.5% in respect of Bonds. If the Government wants to treat maturity benefit as income it is killing the goose, which is laying golden egg every day.

If the employees decide not to save anything in GPF, LIC or PLI then all the money in the economic system will be sucked by the Government and no money will be left to Industries, Business People and also to our bread earner THE FORMER.

The Government does not want their employees to retire peacefully. The employee will save the money for retirement in anticipation of fulfilling his/her unrealized dream. Actually the second life of any person will start after retirement. They will be waiting for this opportunity to do what they wanted to do in their entire life. But the Government is not allowing since it is treating the same benefits as income and they may have to pay the Tax. The Government is creating big hurdles which cannot be crossed by the retiring people.

It appears that the government has just laid in the parliament a draft prepared by economic technocrats for whom Industry and Business people are bread and Butter. They have not cared anything for Employees in general and retired people in particular.

Hope our beloved technocrat Prime Minister MANAMOHAN SINGHJI will look into the matter and set aside the anomalies created by the tabled DIRECT TAXES CODE BILL, 2009. Hope he will remove the new taxation on -

1. Commuted pension,
2. Retirement gratuity,
3. VRS emoluments,
4. Matured value of GPF, LIC and PLI, 5. Value of LTC,
6. Amount of encashment of un-availed Earned Leave, and
7. Value of concessional Medical Treatment paid for or provided by the employers.

The documents DIRECT TAXES CODE BILL, 2009 and DISCUSSION PAPER can be downloaded by clicking the links below:

1. Direct Taxes Code Bill, 2009
2. Discussion Paper

I Request everybody to send their comments/protest directly to the Ministry of Finance or to referencer (login required - for members only) so that final outcome will be in our favour.

Shri Govardhana Rao, Superintendent of Customs, Bangalore (via e-mail) - 03-09-2009 (The author can be contacted at

The views expressed in this article are those of the author and are not intended to represent the views of