A higher tax exemption could have increased take-home salary, which would have meant more spending capacity and also higher saving potential, say taxpayers. (Photo: Pradeep Gaur/Mint)
A higher tax exemption could have increased take-home salary, which would have meant more spending capacity and also higher saving potential, say taxpayers. (Photo: Pradeep Gaur/Mint)

Income tax burden weighs on the salaried class even as costs climb

  • No hike in exemption limits and the government’s proposal for additional cess on fuel will pinch the salaried
  • Budget 2019 has left income tax slabs unchanged, to the disappointment of the salaried class

NEW DELHI : I generally don’t talk about salary, but any salaried employee earning 1 lakh a month in a metro city is living a hand-to-mouth situation, says Varsha Ratnaparke, a marketing communication professional in Maharashtra.

Ratnaparke, 45, believes that while salaried employees pay more tax and lead a more transparent life from the taxation point of view, it’s the same category of the population that is at the receiving end of everything. There were expectations that budget 2019 will hike the income tax exemption limit to improve the ease of living of the salaried class.

However, the first budget of the Narendra Modi government’s second tenure has left income tax slabs unchanged, to the disappointment of the salaried class.

The income tax slab and benefits announced in the February 2019 interim budget ahead of the general elections by the then finance minister Piyush Goyal has been kept unchanged. However, finance minister Nirmala Sitharaman said her government has continued with Goyal’s promises of full tax rebate for citizens with net annual taxable income up to 5 lakh.

“Let me recall and reiterate this government’s effort over the past five years to alleviate the tax burden on small and medium income earners. This includes self-employed as well as small traders, salary earners, and senior citizens. Only when their annual taxable income exceeds 5 lakh, are they required to pay any income tax," Sitharaman said in her budget speech.

This means the full tax rebate is not applicable to individuals earning more than 5 lakh.

The Finance Bill says that while there is no income tax for those earning up to 2.5 lakh per annum, between 2.5 lakh and 5 lakh, the tax slab is 5%. Between 5,00,000 to 10 lakh, it’s 20% and above this, the tax slab is 30%.

“Finance minister Sitharaman continued with all the proposals related to income tax that Goyal had promised in the vote-on-account budget. But this may not cheer the salaried class. While the government will claim that zero tax for net income up to 5 lakh will benefit low paid employees and pensioners, at a time when consumer demand for products like automobile and white goods are low, a higher income tax exemptions limit was needed," said K.R. Shyam Sundar, a labour economist and professor at XLRI Jamshedpur.

Sundar said that along with no hike in exemption limit for the larger salaried class, the proposal for an additional excise duty and road and infrastructure cess of 1 each on every litre of petrol and diesel will be a net negative for the salaried class.

“I am a proud taxpayer, and would never hesitate to pay, but what next? Are salaried class getting facilities they pay for? The education cost of my son grows around 20% every year, the health care cost is exorbitant and you cannot avoid such expenses. When are we going to have low-cost facilities in healthcare, education for common salaried workers?" wondered Ratnaparke, adding that while a certain share deducted from the overall salary is not a problem, it should be commensurate with what the state offers to these people.

“When you are spending the entire salary for regular expenses including child’s education, healthcare, etc, then where is the money to invest and save tax. Here, one feels the tax burden, and then some people explore ways to evade tax?" she argued.

Swaha Sahoo, another salaried employee and young mother in Gurugram concurred. “I am privileged, and it does not make much sense when it comes to a 2% deduction here or a 2% exemption there in the income tax. As a citizen and a taxpayer, I expect better government healthcare facilities. For minor flu or cold of your child, you end up spending thousands in private hospitals. Why should one pay 5,000 for a service that actually should be available for 500. This is where you expect your tax deductions to show up or work for an individual," Sahoo said.

In other words, Ratnaparke and Sahoo feel that merely appreciating honest taxpayers is not enough, and citizens paying a sizeable share of salary as tax deserve a good return on their tax contribution.

In his 2018 budget speech, then finance minister Arun Jaitely had said, “There is a general perception in the society that individual business persons have better income as compared to salaried class. However, income tax data analysis suggests that a major portion of personal income-tax collection comes from the salaried class".

Official data shows that salaried employees on an average pay three times more income tax than individual business taxpayers. For the assessment year 2016-17, 1.89 crore salaried individuals had filed their returns and paid a total tax of 1.44 trillion, which works out to average tax payment of 76,306 per individual salaried taxpayer. As against this, 1.88 crore individual business taxpayers including professionals who filed their returns for the same assessment year paid a total tax of 48,000 crore, which works out to an average tax payment of 25,753 per individual business taxpayer, Jaitley had said in 2018 Union budget.

“A higher income tax exemption was the need of the hour. The salaried class have been witnessing very moderate pay hikes over the past two years, and with expenses steadily rising, the spending capacity and the potential to save for the future has reduced considerably," said Amit Khurana, managing director of Corporate Access, a human resources firm.

A higher tax exemption could have increased take-home salary which would have meant more spending capacity and also higher saving potential, he said. Higher spending capacity also peps up consumer demand for household and white goods. It has a direct relation with increased investment and production, which will create more jobs and help boost the economy, Khurana added.

However, the budget does have some provisions which will indirectly benefit the salaried class. In addition to the current deduction of 2,00,000 on housing loan interest payment, the finance minister proposed to “allow an additional deduction of up to 1,50,000 for interest paid on loans borrowed up to 31 March 2020 for purchase of an affordable house valued up to 45 lakh".

Sithraman said a person purchasing an affordable house will now get an enhanced interest deduction up to 3.5 lakh. “This will translate into a benefit of around 7 lakh to the middle-class homebuyers over their loan period of 15 years".

“Honestly, the salaried class did not get anything substantial to better their living standard from the first budget of the new government. Ease of doing business is great but as a welfare state, we cannot ignore the ease of living of the salaried class who, as the FM correctly said, are honest taxpayers," added Sundar.

Close