With PC in charge of the Finance Ministry we can expect some dramatic sleight of hand changes in the tax structure. Here is an advance warning. Almost all of this will happen over the next few years:

a. Every government hopes that people save / invest for their old age. Simply because if they did not the government will have to spend on social security. OBVIOUSLY people should save for themselves whether there is a tax break or not. Sadly people DO NOT save/invest. So to encourage them there should be incentives. We have NONE. So it cannot get worse.

b. Crowding of Sec 80C: this section was supposed to be for SAVING/INVESTING. Sadly by including home loan repayment, school fees, etc. the impact of this section has been marginalised. This limit of Rs. 100,000 looks like a joke. For most people it is irrelevant.

c. Capital Gains: The people who were rich or got rich in the stock market boom benefited by not paying any capital gains or tax on dividends. Sure there was STT – but PC will WANT a cut out of these inflation profits – so expect to see cap gains back in a small form. Sure STT will also be there. Dividends will again be taxed – at the maximum marginal rate perhaps.

d. Estate Duty: Charging a tax on the Rich people passing property to their kids is very tempting in a poor country like India. So expect a small token introduction – and a nice jump up soon.

e. Touching the pension funds: The pensions earmarked for government employees – civil servants, defense personnel, railways….etc. is so scary, that the government MAY change the retirement age to say 65 years – thus you start payments later. However the bomb is so damn big that we do not have the guts to see it or touch it.

f. Fibbing about the nos. by window dressing is easy for a wily old Congress Fox. So some of the government nos. will be changed – and the window dressing will be so brilliant that most of us will not know what happened. Be careful.

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  1. Subra Sir
    I feel There is a significant risk of Long Term Capital Gains becoming taxable,it makes sense to get your gains on table today & buy back the share if necessary on same day

    Also with Mr Chidambaram -(not saying chiddu as i could get arrested U/S 66 of IT Act for saying that (sad days really) =in charge we can see lots & lots of fudging of figures & dream budgets which will screw you with N number of backdoors,

    I am worried, I would prefer to immigrate to another country but all others are facing recession.


  2. Why cant be government run its own business and pay social security out of it? Why should the poor wage earners be taxed at 30%? They have full monopoly on many fronts.

    Tax is just a method to cover inefficiency of democracy/government!

  3. Paul,
    I am sure subra has a excellent reply for your query 😉

    List the business that government already are into 🙂

  4. Assured social security/pension is a mechanism of transferring wealth from the productive citizens to non-productive citizens. Inflation is a mechanism of transferring wealth from savers to borrowers. If we have both these balancing each other, we will be well off. Otherwise, imbalances in one will destroy the other.

  5. @luckyoye – not sure why these 2 forces will ever be balancing. infact most non productive people arent savers.they might be borrowers,if at all.
    thus,inflation and redistributive taxes are a double whammy .cant think of a balancing scenario. the only winners are politicians -their vote banks get doubly stronger.if you promise to pay paul by robbing peter,you can be assured of paul’s support.

  6. Chidambaram is known for bringing sweeping changes in the tax regime…. Even the GAAR issue has still not been completely solved and it remains to be seen how he tackles the issue of GAAR…

  7. @Pravin,
    I agree to you. But I think social security is needed so that it can stop economic imbalances leading into social unrest.

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