SECTION 80L - DEDUCTIONS IN RESPECT OF INTEREST ON CERTAIN SECURITIES

1. History of Section 80-L
2. Deduction under section 80L for 2002-2003
3. Grounds to delete 80L
4. Revenue Receipts - income on deletion of 80L.

1. History of Section 80L :

Section 80L of the Income-Tax Act was introduced by the Finance (No.2) Act, 1967 (XX of 1967) with effect from 1968. Under Section 80L income from dividend upto Rs.500 was exempted on "gross total income" in order to encourage investment in Indian Companies. An individual or HUF can take advantage under section 80L of the Act. Within 34 years, 16 amendments have been made when number entries were made or amended varying exemptions of amount of interest in dividend income and source of income. The Minister of Finance had made an attempt to reduce interest exemption of Rs.12,000 to Rs.9,000 in the Finance Act, 2001 with effect from 1st April, 2002. After passing of the Finance Act, 2002 Mr. Sinha was given charge of Minister of Foreign Affairs and Mr. Jaswant Singh was given the charge of Finance, who, on taking charge restores exemption of interest income of Rs.12,000 from Rs.9,000 with additional interest income of Rs.3,000 from Government Securities. The Government has estimated loss of Rs.1,000 crores per year in increasing limit of interest income to Rs.12,000 per year from Rs.9,000 per year.

2. Deduction u/s. 80L for 2002-2003 :

An individual or a Hindu Undivided Family can get exemption upto Rs.12,000 as interest income on Securities and Dividend for assessment year 2003-2004 (1-4-2002 to 31-3-2003 Accounting Year) from the following investment:

• Interest on any security of the Central Government or a State Government.
• Interest on National Savings Certificates VI, VII and VIII issue, National Development Bonds and 7-years National Rural Development Bonds.
• Interest on debentures of the Companies or Institutions notified by the Central Government.
• Interest on Post-Office Time Deposit Accounts, the Post Office Recurring Deposit Accounts and National Savings Scheme. Post Office (monthly Income Account).
• Dividends from any Indian Company.
• Income received in respect of units from Unit Trust of India.
• Income received in respect of units of Mutual Fund specified under Clause (23D) of Section 10.
• Dividends from any Co-operative Society.
• Interests on deposits with a Banking Company, and Co-operative Bank.
• Interests on deposits with a Co-operative Society made by a member of the Society, interest on deposits with Housing Boards.
• Interest on deposits with a Financial Corporation, which is engaged in providing long-term finance for Industrial Development of India.
• Interest on deposits with a public company carrying on business of providing long-term finance for construction or purchase of houses in India for residential purposes.

An individual or HUF can get additional interest income from Government Securities upto income of Rs.3,000 per year.

GOVERNMENT SECURITY :-

Clause (2) of Section 2 of the Public Debt Act 1944 defines "Government Security as follows :

(2) Government Security means :

• A security created and issued, whether before or after the commencement of this Act by the Central Government for the purpose of raising a public loan and having one of the forms of the following forms namely :-
  • Stock transferable by registration in the books of the bank, or
  • A promissory note payable to order, or
  • A bearer bond payable to bearer, or
  • A form prescribed in this behalf

   

• Any other security created and issued by the Central Government in such form and for such of the purposes of this Act as may be prescribed.

3. Grounds to delete Section 80L :

• Government of India had constituted a Committee of experts to examine the structure of Direct and Indirect Taxes under the Chairmanship of Dr. Raja J. Chelliah. The Committee had submitted its interim report on Tax-Reforms in December 1991, and had submitted Final Report in 1992. The Committee had suggested to reduce income tax rate from maximum 55% to 40% and had also recommended to delete Section 80L, but in fact it was not deleted and number of new entries were made during the period of 10 years exempting interest income. The extract of recommendations of the report of Dr. Raja J. Chelliah is given in separate Chapter.

• As Section 80L was not deleted and continued for period of 10 years, the Central Government has lost about total revenue of at least Rs.20,000 crores in 10 years. Indian economy has suffered, as the Central Government has given benefit under the Report regarding reduction of tax rate from 55% to 30%, but did not implement other recommendations of deleting exemptions and deductions, which were practically condition precedent before giving relief to Income-Tax rate from 55% to 40% and 30%.

• There are other reasons in support of deletion of Section 80L of Income Tax Act. The black money and generation of black money can be controlled provided every interest income is taxed. There are about 2 crores and 79 lacs organized employees, but, about One crore 10 lacs file income-tax returns. Every employee of organized labor should have been given P.A.No., but it has not been done. How many organized employees and other assessees show correct interest income? Section 80L is a shield for not showing interest income in one's Income-tax Return.

• There are number of cumulative schemes namely :- National Savings Certificate VI, VII, VIII, National Rural Development Bonds where monies can be given in cash and received in cash only. The interest income received by a depositor cannot be checked as transaction can be done in cash.

• There are 225 million accounts in India. The interest earned in savings account is likely to escape from taxation due to exemption u/s. 80L of Income-tax Act.

• Income-Tax Rules were amended in 1976 and Part-IV and V were added and an assessee had to declare his main expenses in Part-IV and he had to declare his assets in Part-V and also declare which a new asset he has acquired during the year. The said two Parts were postponed each year and in year 1981 and the said parts were deleted. The Parts IV and V of Income Tax Rules, 1976 should be reintroduced, so entire wealth of an assessee can be ascertained and black money can be controlled and entire interest income can be in tax net.

• A P.A.No. should be made compulsory with every deposit and investment which can bring entire interest income within taxable net.

• The deletion of Section 80L will have indirect effect of increasing number of assessees whose income tax limit is increased from Rs.50,000 to Rs.65,000 per year. In view of the deletion of Section 80L such persons will have to file income tax return and it will be easy for the Government to reach target of 5 crore assessees under Income Tax Act.

4. Estimated Revenue Receipts Income on deletion of Sec.80L :

The Government has estimated loss of Rs.1,000 crores increasing exemption limit of interest from Rs.9,000 to Rs.12,000 per year under section 80L of Income Tax Act. On deletion of Section 80L, Rs.4,000 crores income can be raised per year. The writer estimates income of Rs.5,000 crores per year as more assessees will come into tax net. In U.S.A., every Company sends a letter intimating shareholder intimating the shares which he has held and dividend which he has received. One copy of the said letter is sent to the assessee and also the respective Income-Tax Officer of the assessee through social security who files in the computer. The department knows entire holding of the assessee and his unearned income from his investment.

Part IV and V of Income-Tax Act, 1976 are given in the Chapter of new assessee which can show that entire investment income can be traced and can be taxed as every assessee has to give his details of assets in Part-V and also to give new assets which he has acquired during the year.