MIDDLE MARCH
THE TAX SOPS MAY BOOST MIDDLE-CLASS CONSUMPTION BUT ARE UNLIKELY TO WIN VOTES AS JOBS AND HOUSING REMAIN BIG WORRIES
One big move in the budget targeted at winning over the middle class was the tax rebate. The zero tax benefit, applicable so far to annual incomes of Rs 2.5 lakh or less, has been extended to incomes up to Rs 5 lakh. This is expected to benefit 30 million middle-class taxpayers, including the small businessmen who form the core base of the ruling BJP. Also, those who earn up to Rs 6.5 lakh in annual income need not pay tax if they make tax-related investments. Meanwhile, standard deduction has been increased from Rs 40,000 to Rs 50,000, yielding a maximum reduction in tax outgo of Rs 3,000. However, only low-income tax payers will gain from the rebate; the tax slabs and basic exemption limits have not been touched.
Will the move help the government win hearts and votes in the upcoming elections? Experts feel that while the move puts more money in the hands of the common man, it may not be enough to make a big change in his life, or win his vote. “The average saving (from the tax rebate move) will be Rs 6,000 per person. So, in effect, Rs 6,000 multiplied by 30 million people will be what comes into their hands,” says Dhirendra Kumar, CEO of Value Research. This will mean different things to different people. For someone earning Rs 6-7 lakh, the amount is equal to five large Domino’s pizzas, says Kumar. For someone with two children in college, the money will be insignificant.
That said, it would be unrealistic to expect all middle-class economic concerns to be addressed by just one budgetary gesture. “This budget is actually trying to do something about everything, and affect a large number of people. But one budget by itself can’t do anything [much],” says Kumar. Other key things that affect individuals—employment and housing—need to be addressed too. “Housing is a mess that was created over the past 20 years. It can’t be solved through an incentive,” argues Kumar.
A Crisil report says the budgetary measures will be “mildly positive” for low-value consumer durables such as mobile phones, small TVs and entry-level twowheelers, given the additional income of Rs 3,000-10,000 in fiscal 2020, it adds. “With more money available to large sections of the population, a consumptionled economic buoyancy is on the cards,” says Sudhir Kapadia, national tax leader, EY India.
30 MILLION MIDDLE-CLASS TAX PAYERS TO BENEFIT FROM THE TAX REBATE FOR SALARIES UP TO Rs 5 LAKH 6,000 ` AVERAGE SAVINGS PER PERSON FROM THE TAX REBATE MOVE “This budget is actually trying to do something about everything, and affect a large number of people. But one budget by itself can’t do anything [much]” DHIRENDRA KUMAR CEO, Value Research