The present exemption limit of Rs. 50 lakhs of deposit in
Sec 54E instruments was fixed over a decade ago and, since then, there has been a tremendous increase in
property prices (land or buildings) and
this makes the present limit very
unrealistic and unfair to the individual tax payer.
In the light of the above, the basic Recommendation
is : Raise the present exemption limit
of Sec 54E deposits from the current Rs. 50 lakhs to Rs. 10 crores as under :
a)
Increase the Rs. 50 lakhs deposit limit to
Rs. 1 crores in any of the currently available avenues like REC Bonds etc. as
per present practice for obtaining Capital Gains Tax Exemption (i.e. an
increase of Rs.50 lakhs benefit to the tax payer)
b)
Deposits beyond Rs. 1 crore upto Rs. 10 crores
can
only be made under the following
provisions :
- For deposits from Rs.1,00,00,001 upto Rs.2,00,00,000/- the interest rate paid in Sec 54 E instruments will be 2 percentage points less than the prevailing rate for that year (which is applicable to the deposit of the first Rs.1 crore)
- For deposits from Rs.2,00,00,001 upto Rs. 5,00,00,000/- the interest rate paid in Sec 54 E instruments will be 4 percentage points less than the prevailing rate for that year (which is applicable to the deposit of the first Rs.1 crore)
- For deposits from Rs.5,00,00,001 upto Rs. 10,00,00,000/- the interest rate paid in Sec 54 E instruments will be NIL.
c)
As can be easily understood, the government will get a huge cache of cheap
and almost NIL cost funds for the price
of foregoing some taxable income (a fair part of which it was losing anyway
because people may have been avoiding declaring the same to avoid / evade paying income tax).
d)
Even more important, the deposit of so much money in government
coffers means that development works can be tremendously speeded up without the
government running up huge deficits because these funds are coming at
substantially lower costs.
e)
Finally,
the mopping of so much money from individuals will have a salutary
effect on inflation that is fuelled by excess of money supply in individual
hands.
ONE CAUTION
Anyone making large deposits for Capital gains should not be questioned, interrogated, investigated or hounded for doing so. The very fact that he/she is placing money in a legal instrument is a big gain for the legitimate economy and probing beyond that will be counter-productive.
Of course, while making such deposits, the capital gains claimed has to be explained in terms of giving details of the transaction which yielded such capital gains and asking for necessary details of that transaction is perfectly okay. But that is where it must stop. There should be no automatic imputation of "illegitimacy" simply because Capital gains amount deposited is large.
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