‘40,000 standard deduction will benefit pensioners’

NAGPUR: “The government has fulfilled almost all the promises it had made in the current union budget,” said

Girish Ahuja

, a direct tax expert from Delhi, on Thursday.

Speaking at a seminar on ‘Finance Bill-2018’, organized by the Nagpur branch of

Western India Regional Council

(WIRC) of ICAI,

Ahuja

, a chartered accountant, explained some minor yet significant changes for opting out of National Pension Scheme (NPS) and corporate tax brought during the union budget.

“A self-employed person will now get relief while opting out of NPS after the proposed amendment to section 10 (12a) of Income Tax (IT) Act,” said Ahuja. The word ‘employee’ has been substituted with ‘assessee’ which will now allow them exemption up to 40% on the total amount of withdrawal from the scheme.

“Only two years ago the clause for exemption on withdrawal from NPS was introduced. But at the time, self-employed persons who too contributed to their own NPS, did not get exemption from tax. We have suggested to the government to make a similar amendment to section 10 (12b) of the Act for partial withdrawal of pension fund,” said Ahuja.

Ahuja also explained why corporate tax has been reduced from 30% to 25% for companies and not for partnership firms and limited liability partnerships (LLPs). “When a company pays 25% tax, it later has to pay dividend distribution tax which is above 20% and after that shareholder in most cases pays 10% tax on dividends,” he said.

When partnerships and LLPs have paid 30% tax, the share of net profit in the partner’s hand is fully exempt. Also in such businesses, the partners are allowed interest on capital up to 12%. This does not happen in a company and therefore the two cannot be compared, Ahuja added.

“We have 7 lakh companies and 6.93 lakh of them have a turnover over Rs250 crore and will pay 25% in corporate tax. The remaining 7,000 companies enjoy various benefits from the government. These benefits will soon be abolished and they will pay the standard 25%,” Ahuja said on the current corporate tax system.

According to Ahuja, the provision for standard deduction of Rs40,000 will benefit pensioner the most. Pensioners till now didn’t use to get either of these allowances, but they will be gaining benefit from the provision even though they do get travel and medical allowance in pension, he said.

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