New Delhi: Only two categories of Indians - farmers and the really wealthy - would perhaps be thankful to Finance Minister Arun Jaitley. The former have yet again escaped the tax net all together as farm income remains free of taxation. And the latter have been saved from an inheritance tax or a wealth tax - though an additional surcharge on incomes between Rs 50 lakh to Rs 1 crore could be troubling them somewhat right now.
As for the middle class, the bulwark of India’s economic growth, there is little to cheer in the tax proposals which Jaitley outlined his Budget proposals for 2017-18. The widely anticipated income tax relief, a change in basic exemption – all of these remained a pipe dream for the middle class. In fact, as a tax expert pointed out, now the income tax slabs are 5 percent for income upto Rs 5 lakh and then a straight 20 percent for income between Rs 5-10 lakh!
“The Finance Minister could have reduced the tax rate for people earning between Rs 5-10 lakh to, say, 15 percent instead of retaining the 20 percent rate,” said Homi Mistry, Partner at Deloitte, Haskins & Sells. Senior citizens and the salaried get virtually no relief from Jaitley’s proposals, though he acknowledged that only a fraction of India’s population carries the taxation burden for a vast majority of others who happily evade the tax net. And the salaried form a substantial chunk of the harried, conscientious Indians who pay their taxes.
Only people whose taxable income is up to Rs 5 lakh have some relief. All in all, the dreams many of us had harboured, of having a significantly lighter tax burden in the new financial year commencing this April, have been shattered. And remember, there’s the sword of the GST hanging on our heads too, which will make services more expensive by the middle of the new fiscal.
So what did the salaried class want most from the Budget this year? On January 10, the Finance Ministry conducted a twitter poll, asking people questions such as which scheme needs more focus in the forthcoming budget. Nearly 7500 people responded. Anup Routh @17_routh said “raise the IT slab up to 5 Lac. Remove any sort of service tax on digital payment upto any amount”. Umang Shah(उमंग शाह) @CAURSHAH said “housing for all is supposed to be focused more than any other scheme and also income tax slabs shall also go high to 5 lakh.” Milind Shah @milindshah2006 said “enough incentive given to India Inc start up etc. Pl work for fixed salary class poor and farmer.
Forget others” whereas Vibhuti Singh @singhvibhuti said “we have lots of hope to change in Income Tax Slab”.
Amarpal Chadha, Partner & India Leader - Mobility at EY had said earlier that the finance ministry has received proposals from tax experts to raise the basic exemption limit on personal income tax to Rs 3.5-4 lakh. “This will mean more money in the hands of people”. But this has obviously not happened. So the basic exemption limit of Rs 2.5 lakh per annum stays – this is the earning on which no income tax is levied. A higher basic exemption limit could have meant lower tax payment.
The most galling thing one noticed in FM Jaitley’s proposals today was the absence of any intention to tax agricultural income. As this piece points out,
the biggest exemption (and correspondingly, the provision subject to the largest misuse) is that for agricultural income. Since most transactions of sale of agricultural produce at the farm level take place in cash, it is very easy to manipulate the quantum of agricultural income. “If the intention of the government is to launch an all-out attack on black money, does it make sense to retain the biggest loophole which enables easy conversion of black money?”
The argument against taxing agricultural incomes is that most agriculturists are poor, and that agricultural incomes are still subject to the vagaries of the monsoon and other climatic events. However, in any case, a poor farmer will not have to pay income tax, if his net income is below the taxable limit. All in all, why should farmers escape the tax net if they are growing wealthy is the pertinent, if politically sensitive, question?
The wealthy not making their millions through agriculture have not been spared by the FM though. Ishita Sengupta of PwC said the hardest hit from the FM’s tax proposals would be wealthy. “Those with taxable income of between Rs 50 lakh to Rs 1 crore per year will be hit because of the new surcharge. Few years back, the Rs 1 crore category was hit with 33.99 percent tax – now this is applicable from Rs 50 lakh onwards”.
And Gokul Chaudhri, Leader Direct Tax at BMR Associates said “The FM is also indicating that the 30 percent tax slab for the wealthy is not high enough, specially given the much higher rates at which the wealthy are taxed in other developed economies”.
So only if you are earning less than Rs 5 lakh every year, you may want to pop the bubbly. If your earning is within the Rs 5 lakh bracket, you need not pay any tax at all (taking advantage of Sec 80C) till Rs.4 lakh, pointed out Suresh Sadagopan, Founder of Ladder7 Financial Advisories “The tax rebate given is small and much more was expected. But, the positive is that there is a small tax relief and nothing really negative for the middle class and most others too,” he said.
Perhaps that is all the cheer one can hope for.
Published Date: Feb 01, 2017 18:16 PM | Updated Date: Feb 01, 2017 18:16 PM