Kelkar panel may water down final reports

NEW DELHI: Stung by widespread criticism within the ruling BJP, the Kelkar Committee on tax reforms is expected to submit watered down final reports on direct tax and indirect taxes, particularly on the politically sensitive issue of elimination of incentives for housing in personal income tax.
The two reports, to be submitted to Finance Minister Jaswant Singh on Thursday and Friday, are likely to recommend tax deduction of up to Rs 50,000 or Rs 75,000 for mortgage interest on housing loans as against the present eligibility of up to Rs 1,50,000 per year, official sources said.
This middle path was being adopted keeping in mind the flak the government had received at the hands of the BJP and the middle class, these sources said.
The Task Force had originally suggested doing away with this exemption on housing loans in one go or in three years by reducing the exemption limit by Rs 50,000 every year.
Finance Minister Jaswant Singh has already indicated that he would strive for a balanced approach while moving towards a softer interest regime by providing differential rate of interest for pensioners and the retired employees and hence tax exemptions provided to senior citizens are likely to be continued.
For the salaried class, the tax exemptions on savings is likely to be phased out keeping in mind that the exemption limit for personal income tax was suggested to be raised from the present level of Rs 50,000 to Rs 1 Lakh per annum, the sources said.
Singh had also told the recent BJP National Executive meeting that some of the thorns in the Kelkar Committee recommendations would be weeded out and hence some of the suggestions of the Rajnath Committee would be incorporated.
Apparently, there is a strong resentment against imposing agriculture tax and hence Kelkar would confine himself to the original proposal to make a beginning by taxing agriculture income of only non-agriculturists.
With strong opposition from the party, the Kelkar panel while suggesting adopting the big bang approach in simplification of tax rules and procedures, it is likely to recommend phased elimination of a plethora of exemptions in both direct and indirect taxes.
On some of the sensitive issues like housing loans and savings rates and infrastructure and small scale industries, the exemptions might be retained but at reduced levels, the sources said.
Besides, some of the set-offs for income between Rs 1 lakh and Rs 2 lakh are expected to be retained, the sources said, adding it is very unlikely that there would be any going back on the proposal to abolish minimum alternate tax for corporates.
On indirect tax, the sources said the proposal to move on to a two-tier customs duty of 10 per cent raw material imports and 20 per cent finished goods imports would be retained and the only difference is that it would suggest that this two-tier rates should be effected in two years by bringing down the present average customs duty of 30 per cent on finished products to 25 per cent in the coming year and then 20 per cent in the subsequent year.