OPEN APP
Home / Economy / Wider scope of concessions may have held govt hand on I-T tweaks
Listen to this article

NEW DELHI : Ahead of the Union budget for FY23, hopes were high that the finance minister will tweak the personal income tax regime, leaving more money in the hands of people to boost consumption, one of India’s key growth drivers. However, the policymakers decided against playing to the gallery in an election year, and there was some logic to this decision.

A finance ministry official said the term middle class is generally understood in a very narrow way to refer to income-earners in certain brackets. This definition excludes large sections of society such as farmers, those running small businesses and launching start-ups, all of which have received relief on various counts. Besides, despite the massive humanitarian package and economic stimulus measures during the pandemic, the government did not increase personal income tax rates on high earners, the official said on condition of anonymity.

Yet another factor that held the government’s hand on personal tax tweaks was the fact that such tax concessions would not be limited to small income earners. Possible relief in the lower slabs will also benefit top earners, something that is not in line with the policy of targeting benefits to the needy. In the Finance Act of 2021, the government had introduced a new provision making interest accrued in the provident fund account on contribution above 2.5 lakh a year taxable. The idea was to check high net worth individuals cornering benefits meant for the common man, the official said.

Also, when the government announced an income tax rebate for individual taxpayers in 2019, it was made applicable only to those with income not exceeding 5 lakh.

Sudhir Kapadia, tax leader, EY India, said while the salaried class may be disappointed to find no further reliefs in tax rates or deductions, it could be a signal to move towards the alternative lower personal tax regime in due course.

In the 2020-21 budget, the government had provided options to taxpayers to choose between the existing income tax regime (which allowed availing of income tax exemptions and deductions) and a new tax regime with lower income tax rates and new income tax slabs, but no tax exemptions and deductions.

Finance minister Nirmala Sitharaman followed the supply-side strategy in the FY23 budget to revive the economy instead of offering any direct incentives to boost consumption. The budget aimed to start the ‘virtuous cycle’ of investment to “crowd-in private investment" leading to job creation. It focused on four priority areas—PM Gati Shakti, inclusive development, climate action and sunrise opportunities, and investment financing.

One major argument in favour of a personal income tax break is that it could boost consumption. But policymakers preferred to take a more nuanced view. “This text book division between supply, demand, consumption, etc., is watertight. Resources flow from here to there. Consider the classic example of 2020, where demand essentially came from rural areas where agriculture kept its pace. Measures to support the rural economy helped migrant workers who were returning. Economy activation happens at various stages and at various different levels. There certainly will be a lag," the official said.

An email sent to the finance ministry seeking comments for the story remained unanswered till press time.

Recognizing start-ups as drivers of economic growth, the budget proposed to extend the tax concession scheme for start-ups by another year, which provides tax incentives for three consecutive years out of 10 years from incorporation if set up before 31 March 2023.

The budget also proposed a 2.37 trillion minimum support price allocation for wheat and paddy farmers for FY23. It also proposed promoting ‘kisan drones’ for crop assessment, digitization of land records, spraying of insecticides and nutrients.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Close
Recommended For You
×
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout