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New income-tax slab a digression from the DTC road

New income-tax slab a digression from the DTC road

Transparency. Result-oriented. Free of discretionary and bureaucratic delays. Governance in the day-to-day life of the aam aadmi. The finance minister said all the right things in the first five minutes of his speech. I was a part of the Mint Editor’s live chat and as the budget speech progressed and the outlays began to be doled out, the sheer extent of cynicism in the comments showed the contempt with which at least the online population of India seemed to be reacting to what the finance minister was saying.

In the preconditioned din of reaction, the part of the speech that addressed the issue of leakages from the pipeline got missed. The finance minister built upon the theme of growth with redistribution and fixing the leaking pipe that takes the benefits to the bottom of the pyramid.

The most significant change over the next few years will be the moving of benefits from the vested interest- infested chain, where people feed off welfare spends down the line, to the system of direct transfers using technology. The unique ID (identification) programme and mobile banking will slowly circumvent the system that does not allow the benefits to get to those who need them. Right now only three things are being considered: kerosene, LPG (liquefied petroleum gas) and fertilizers. The thinking is that if this works, others will follow.

But there were small tweaks in the income-tax slabs that began with taking us closer to the road laid out by the direct taxes code (DTC), but then suddenly digressed in a pointless direction. The basic tax exemption limit for men is up, less than the expected lakh to .8 lakh. The limit for women stays at .9 lakh. India brings the definition of senior citizen down from 65 to 60 years of age and their basic exemption limit is now at .5 lakh. In a pointless sort of a digression from the DTC road, the finance minister has added a new category of tax slab: the very old. Those above the age of 80 will now get a basic tax exemption of lakh. The urban mass affluent has a life expectancy that is now easily in the 80s. For them, the 4,133 tax-free income that this will give is marginal relief. While the tax impact on individuals will be limited, the big difference will be in the manner of tax computation, filing and refunds.

The budget speech spent about 2 full minutes on this. Those with just salary income (income is counted under five heads) as their source of income and having their taxes deducted at source will not have the bother of filing income-tax returns. This means that you should not have interest income, or income from house property or any capital gain that needs to be counted as income.

The widely expected excise rate changes did not happen. Nor did the service tax hike happen. But new services got included in the tax net.

Certain categories of hotels and airline services got included in the tax net, though at reduced rates.

Two significant changes have taken place in the insurance space. First, the finance minister told insurance companies to stick to their core business: providing risk cover. He has included the investment part of all policies in the service tax net. This means that money-back, endowment and other investment-heavy policies will be more expensive, giving one more reason to buy a pure term cover. Two, health check-ups done by hospitals with more than 25 beds or those with air conditioning will now be in the service tax net.

The budget proposal on allowing foreigners to invest in mutual funds is the most intriguing. Is the finance minister’s purpose to allow a larger fund flow or to allow a window to round-trip the money back into India?

The next year will tell the story when the flow of money that comes to India through the mutual fund route will show what this budget proposal ended up doing.

And apart from 300 (several budget initiatives call for investment of 300 crore), the other fixation the budget has is with the letter S. ‘Sevottam’. ‘Sugam’. ‘Swabhiman’. ‘Swavalamban’. If only they’d replace S with G. On the ground—governance.

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