Finance Minister Arun Jaitley, while presenting the annual budget on Thursday, thank the salaried class for contributing the largest per capita direct tax. However, other than the lip service, the salaried did not receive much headroom to boost income from this budget.
"We have made many positive changes in personal income tax rates in the past years, so no change in Income Tax slabs this year," Jaitley said in his budget speech.
"Growth rate of direct tax was significant in the last few years," Jaitley said. Last year direct tax collections had risen by 12.6 per cent compared to 18.7 per cent in the ongoing fiscal. Number of tax payers, according to the finance minister, has also increased from 64.7 crore tax payers two years back to 82.7 crore by end-2017. But despite this headroom provided by burgeoning income tax collections, Jaitley refrained from making any changes to the individual tax rates.
"When the finance minister read out 'relief to salaried tax payers' in his speech. My attention sharpened. But his next sentence was there were no changes this year in individual tax rates," said Shobana Kamineni, president, CII. Kamineni was enthused that the budget had focused on healthcare and education this year.
The component of standard deduction on gross salaried income, which was withdrawn in the year 2005-06, was reintroduced in this budget. Jaitley assigned a fresh standard deduction of up to Rs 40,000, deductible from annual income, on account of medical expenses and transport allowances received.
Out of the standard deduction offered in the budget, two existing benefits – Rs 15,000 for medical expenses and upto Rs 19,200 as transport allowance – have been subsumed. That leaves the middle class with as little as Rs 5,800 relief on their annual tax bills in the coming year. One good thing though, the move leaves salaried class at ease about submitting bills on claiming these standard deductions, said personal tax experts. Also, benefits of lowered tax slabs announced in the last budget would come into play while filing IT returns this year.
Other than the salaried class, the same benefits could also be availed by senior citizens. Senior citizens would also receive a standard exemption of about Rs 50,000 on account of interest income from all fixed and recurring deposits held by them. Cess payabale on direct tax was doubled to 4 per cent by the government in this budget, rendering tax bills to be more expensive in the coming year.
In an elaborate example, the finance minister said in India, salaried return filers pay a per capita tax of Rs 73,306 per annum, compared to only Rs 25,753 income tax per capita paid by professional and business return filers. The finance minister said that going ahead, the government would take more steps to correct this anomaly in income declaration. In all, the finance minister's tax largesse to senior citizens alone resulted in revenue foregone by the government to the extent of Rs 9,000 crore in this budget.
On corporate tax, the finance minister hiked the turnover limit of medium and small scale industries to upto Rs 250 crore, from an earlier Rs 50 crore, for availing a reduced corporate tax rate of 25 per cent. The move, Jaitley said, would benefit almost 99 per cent of all MSMEs that are filing tax returns, and would lead to Rs 7,000 crore in revenue foregone by the government. “All this would lead to a positive climate for investment in the medium and small industries sector going ahead,” said Rashesh Shah, president, FICCI.
On GST, the finance minister said that states have been compensated Rs 20.51 lakh crore from GST compared to the Rs 20.4 lakh crore target. However, expectations of any further rationalisation of GST rates, or their simplifications, remained unfulfilled.
"We had expected the government to use this budget for easing out return filing and other processes under GST. Also, there were expectations that the budget would also initiate the inclusion of oil and energy under the one nation-one tax," said Harsh Goenka, chairman, RPG Enterprise, speaking at a budget session in FICCI.
"For large corporate tax payers also, the government has not put much thought in this budget. The impression is that let those who pay more, continue to pay more, and provide benefits to the smaller tax payers," Goenka said.
One can hope that this will result in more entrepreneurship going ahead, he added, speaking on the government's viewpoint of robbing the rich to reward the poor.
Carrying forward the same rationale, the government has decided to introduce long-term capital gains tax on all investments in stocks and equity-oriented mutual funds, on which a profit of more than Rs 1 lakh made over a period of one year or more would be subjected to 10 per cent tax for now.
The announcement triggered panic in stock bourses and will come into effect on all investments made from February 1. "The government has retained the earlier securities transaction tax along with introducing tax on both short-term and long-term stock gains. This would be unique among all global markets," said Gaurav Dua, head of research, Sharekhan.
According to most budget observers, this budget has failed to deliver to the aspirations of the middle class but fueled hopes for the rural voter, ahead of the poll year in 2019.
"This is not an election budget as it has left out the middle class," said Yogendra Yadav, convenor, Swaraj India. Yadav expects the government to open up its largesse yet again before the 2019 polls. Indications of which are already given in fiscal deficit targets of the finance minister, which pegged fiscal deficit (at 3.3 per cent) to be slightly higher than government's earlier projections of 3.1 per cent in the coming year.
