Budget 2016: From EPF googly to pricier garments, why the salaried class is getting a heart burn

The Narendra Modi government's third budget has come as a shocker to the salaried even as it addressed the much important issue of the rural poor.

Here are a few steps that are aimed at the salaried class:

 Budget 2016: From EPF googly to pricier garments, why the salaried class is getting a heart burn

Representational image. Freeimages

EPF taxed: This has come as a real shocker for the salaried. The government has decided to tax on withdrawal 60 percent of the contributions made to EPF and other schemes. This aimed at bringing about parity in New Pension Scheme. This is effective 1 April 2016. At present, EPFO is tax free while making the contribution, while interest is being accured and while withdrawing (exempt, exempt, exempt or EEE).

Krishi Kalyan Cess: This is another dampener for the salaried middle class. The porposal is to impose a Krishi Kalyan Cess of 0.5 percent on all taxable services effective from June 1 this year. With the effective tax rate stands at 15 percent, including the 0.5 percent Swachch Bharat Cess. This will help the Centre get Rs 5,000 crore which it need not share with the state governments (unlike tax). The proceeds would be "exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers", said the finance minister.

Infrastructure cess: This could be mood dampener for those looking to buy vehicles as they will have to fork out 1 percent more. The cess has been imposed on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other higher engine capacity vehicles, SUVs and bigger sedans. This will help the government garner Rs 3,000 crore next fiscal.

Excise on branded garments: The government proposes to levy excise duty on ready-made products of Rs 1,000 or more. "I propose to change the excise duty on branded readymade garments and made up articles of textiles with a retail sale price of Rs 1,000 and above from Nil without input tax credit or 6 per cent/12.5 per cent with input tax credit to 2 per cent without input tax credit or 12.5 per cent with input tax credit," this is what Jaitley said in the budget. If this may appear Greek or Latin for many, here's how the garment industry has explained it: the prices of branded garments will go up by 2-5 percent. Ajit Lakra, Head Textile, Federation of Industry and Commercial Organisation, has said it is the "most deplorable" move. "We strongly condemn this move of the Finance Minister as it will hurt small and medium size industries which are manufacturing garments for big brands," he has said. With branded garments becoming pricier, the urban consumer may start downtrading (or switching to lower priced cloths). The garment companies are likely to feel the pinch, if that happens.

This is not to say that the budget has only negatives for the salaried. There are some that will give relief to the salaries class. For example, the tax deduction limit on housing rent has been raised to Rs 60,000 per annum from the current Rs 24,000. But with the above steps, chances are the government's urban constituency will feel the heat and is also likely to boomerang politically.

Updated Date: Mar 01, 2016 10:57:59 IST