BackOpinion | FM’s call to duty for high-income earners: Pay more for nation building
The positive reinforcement was much needed amid the gloom of sluggish growth
PremiumAs expected, finance minister Nirmala Sitharaman has put forth proposals that will further the transformation agenda of the government. She did well to present Budget 2019 with clarity and confidence, reiterating the various initiatives of the government. The positive reinforcement was much needed in the gloomy landscape of sluggish growth, low consumption, low investor confidence, liquidity squeeze, and not-so-bright horizon for employment. Even as the math of the budget is being unravelled, with the liberal use of positive strokes through various couplets and catchy phrases, the finance minister stuck to the theme of making the life of the common man in India much easier.
On the personal finance side, the “thank you" message for all taxpayers for increased tax collections came with a call for duty to nation. The high-income earners are bound to think that the call for duty to the nation is specifically aimed at them as the finance minister has proposed enhanced surcharges on their income. For those earning income between ₹2 crore and ₹5 crore and above ₹5 crore, the maximum marginal rate of tax will go up to 39% and 42.74%, respectively. More than the actual tax collections that may be an outcome of this move, this proposal is significant as it is symbolic of the “fair share" debate to ensure equitable distribution of wealth and reduce income disparity. It could also be indicative of the way the system of taxation will evolve in India.
The budget proposed to broad-base tax compliance by making it mandatory to file tax returns for persons who carry out high-value transactions, such as where the person has:
l An electricity consumption bill over ₹1 lakh a year.
l Foreign travel for self or someone else priced at over ₹2 lakh or more.
l Deposit of an amount or an aggregate of the amounts exceeding ₹1 crore in a current account.
l Other prescribed conditions/circumstances.
l A person who has claimed the roll-over benefit of tax exemption for long-term capital gains under various provisions of the Income-tax Act if income before claiming this exemption is chargeable to tax. The mandatory requirement to file tax return will help the department track transactions undertaken, particularly real estate transactions.
The finance minister has tried to give a boost to real estate by encouraging low-income earners to invest in a house property by allowing ₹1.5 lakh deduction for interest on housing loan taken in FY2019-20 for the purchase of their first residential house property (not exceeding ₹45 lakh in stamp duty value). This will be in addition to ₹2 lakh already available.
With an eye on green India and giving an impetus of sorts to the auto sector, the finance minister proposed a new tax deduction of ₹1.5 lakh for a loan taken between 1 April 2019 and to 31 March 2023 for the purchase of an electric vehicle.
The finance minister also continues to focus on discouraging use of cash by introducing a 2% tax deducted at source by banks or post offices on cash withdrawals above ₹1 crore. The introduction of tax on withdrawal versus the expected penal levy on cash withdrawal is a relief as the tax deducted can be claimed against any tax liability.
The budget also proposes to bring in the change announced earlier by the government for making NPS withdrawals fully non-taxable. Earlier, only 40% of the total corpus was non-taxable; in the proposed scheme, 60% of the corpus which can be withdrawn will be non-taxable and the remaining 40% will go for purchase of annuity. The monthly pension payout from the annuity is fully taxable.
The finance minister has proposed to bring to life the vision of first-class tax administration with faceless tax assessments and pre-filled income tax return forms. This is a great initiative to encourage and support taxpayers with the promise of no harassment and ensuring objective tax assessments.
As a woman writer, I need to congratulate the finance minister for bringing women at the centre stage in the budget discussion by invoking Naari tu Narayani. Recognising the contribution that women in India are making to India’s socioeconomic transformation, she did well to articulate the government’s approach of going beyond just women-centric policy-making to women-led initiatives. All successful women must take this forward and the finance minister did her bit and made us all proud.
Sonu Iyer is tax partner and people advisory services leader, EY India
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