Budget 2018: Arun Jaitley’s message to sulking middle class — Done enough in previous budgets

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Updated: February 2, 2018 12:48:29 PM

When Finance Minister Arun Jaitley said, 'I do not propose to make any further change in the structure of the income tax rates for individual', in his Budget 2018 speech, it left the middle-class sulking. But Arun Jaitley defended his decision, and so did some of the experts.

Finance Minister Arun Jaitley proposed no change in income tax structure in Budget 2018Budget 2018: Arun Jaitley’s message to sulking middle class — Done enough in previous budgets. (Image: Reuters)

Budget 2018: When Finance Minister Arun Jaitley said, ‘I do not propose to make any further change in the structure of the income tax rates for individual’, in his Budget 2018 speech, it left the middle-class sulking. However, Arun Jaitley, in his defence, said that he has done enough for the middle class in the previous Budgets. “Step by step, in every budget, I have been putting surplus money in the hands of the middle-class taxpayer.”

“Last year, we had reduced the tax rate to 5% for those with an income of less than Rs 5 lakh per annum. This is the lowest anywhere in the world,” he told reporters after the Budget speech. Madan Sabanavis, Chief Economist CARE Rating told FE that no change in the structure of the income tax rates is a “let down”, especially because it was a pre-poll Budget and expectations were high, but the government was reluctant in giving any benefit due to the revenue loss.

The middle-class can always pay the tax and earlier sops were given to the middle class, Madan Sabanavis said reiterating Arun Jaitley’s argument. In the last four Budgets, Arun Jaitley, indeed, had something for the middle-class. In his interim Budget, right after winning elections, he hiked tax exemption limit from Rs 2 lakh to 2.5 lakh along with hiking exemption limit under 80C from Rs 1 lakh to Rs 1.5 lakh and on interest on home loans from 1.5 lakh to Rs 2 lakh.

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In 2015, he announced an increase of deductions in multiple cases along with increasing income tax surcharge for income over Rs 1 crore from 10% to 12%, while abolishing the Wealth Tax. In 2016, additional relief to home-buyers was given. The lower income groups were given tax rebates and the income tax surcharge for over Rs 1 crore income was hiked from 12% to 15%.

In 2017, one of the biggest tax reliefs came when Arun Jaitley announcing reducing the tax slab of 10% to 5% for the income groups between Rs 2.5 lakh per annum and Rs 5 lakh per annum. The combined effect of changes meant lower tax for individuals earning up to Rs 3.5 lakh per annum. Besides, an additional surcharge was levied on individuals with income between Rs 50 lakh and 1 lakh.

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Before the Budget presentation, it was reported that the government may increase tax exemption limit from Rs 2.5 lakh per annum to Rs 3 lakh or Rs 3.5 lakh and under 80C, besides lowering the tax slab for individuals earning more than Rs 10 lakh per annum from 30% to 25%, recognising them as ‘the new middle class’. However, the tight fiscal situation of the government due to lower GST collections and deferment of spectrum auction is understood to have left no or little room for the announcing income tax sops.

Given the low income tax compliance, senior advocate Mukesh Patel told FE that it was not wise to hike the tax exemption limit as it would take away nearly the 80% of India’s total tax base. In the Budget 2018, Arun Jaitley proposed a standard deduction of Rs 40,000 in lieu of medical reimbursement and transport allowance. He said he was doing so to provide relief to the salaried class as data suggested that major portion of the personal income-tax collection comes from the salaried class.

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He, however, replaced the existing 3% education cess with a 4% education and health cess. This, analysts say, will offset the standard deduction of Rs 40,000. “The FM proposed a standard deduction of Rs40,000, thereby resulting in a net benefit of meagre Rs 5,800. This benefit will get offset with a levy of additional cess @ 1%. Thus, no relief accrues to the salaried class much against the expectation,” Divya Baweja, Partner Deloitte India, said.

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