Opinion | Budget gives starring role to Middle India, farmers2 min read . Updated: 01 Feb 2019, 11:31 PM IST
Full rebate on taxable income below Rs. 5 lakh. This means no tax if your taxable income is Rs. 5 lakh or less
The 8,153-word speech by finance minister Piyush Goyal, who was stepping into the shoes of the ailing Arun Jaitley, had some giveaways and some promises to both India and Bharat. But if you look for a subtext, it is this: “We inherited a struggling economy that was crying for structural reform after years of policy paralysis. Our macro report card is good—inflation is down, deficit numbers are within a whisker of the glide path recommended in the FRBM Act and the economic growth numbers are strong. To fix the micro, that means things that will make a difference in your life, give us another chance. And, by the way, to help you help us, here are some rewards targeted at those who most need them."
You can dismiss this as a pre-election manifesto, but the speech did manage to take the winds out of the opposition parties’ sails by announcing tax breaks for Middle India, minimum income for the targeted farmers and sops for the real estate industry.
As a middle income Indian, you will pay lower income tax from 1 April 2019. You will save ₹12,500 a year since the budget has proposed a full tax rebate to those whose taxable income is lower than ₹5 lakh. But even if you earn ₹7.1 lakh and apply the standard deduction of ₹50,000, take the entire ₹1.5 lakh Section 80C deduction (invest in PPF, ELSS or insurance policy premiums) and the ₹10,000 interest on bank deposit deduction, you will pay zero tax.
Add to this other deductions such as the ₹2 lakh interest deduction on a home loan, ₹25,000 on medical insurance premiums for self and ₹50,000 for parents, and an additional ₹50,000 investment in your NPS, people with incomes of ₹10.35 lakh will pay no taxes. Senior citizens will see marginally higher limits.
But for those with taxable income higher than ₹5 lakh, your life does not change much. Remember what the finance minister has proposed is a rebate and not an exemption. You will pay 5% tax on your taxable income between ₹2.5 lakh and ₹5 lakh. But you get a tiny benefit with the hike in the standard deduction to ₹50,000 from ₹40,000. This is the amount you can deduct from income before offering it up for taxation.
People with incomes of ₹10 lakh get a ₹2,080 benefit, those between ₹10 lakh and ₹50 lakh benefit by ₹3,120.
But upper Middle India too has something more substantial to take away. If you own two self-occupied houses, the notional rent you paid on the second house, if unoccupied, has now been abolished. You also benefit if you are selling an old property and buying again. Earlier, you could roll over the investment into one property and not pay any capital gains tax. Now you will be able to buy two. But you can take this facility only once in a lifetime for a profit of ₹2 crore or less.
The budget also indicates the intent of the government to remove the interface between the taxman and the taxpayer to reduce graft and harassment. There is also a promise to process tax returns in 24 hours and instantly issue refunds.
I would look at this interim budget as a report card of the government in an election year—a feel good for the middle class and farmers and a proposed road map for the future. Indians will show during Election 2019 what we thought of this budget.
Monika Halan is Consulting Editor at Mint and writes on household finance, policy and regulation.