The interim budget was “like allowing the nose of a camel in the tent", said former finance minister and Congress leader P. Chidambaram, a day after the budget was presented on 1 February by finance minister Piyush Goyal. He was implying that Goyal had presented a full-scale budget masquerading as an interim budget in an election year. “It shows the desperation of the NDA," he said.
In particular, he accused the government of tinkering with income-tax laws. The interim budget offers tax breaks directed largely at the middle class. It announced full tax rebate for individuals with taxable income up to ₹5 lakh and also increased the standard deduction from ₹40,000 to ₹50,000, bringing marginal relief to tax payers.
Clad in his trademark white shirt and veshti, Chidambaram, who was at the Delhi airport waiting for his flight to Chennai felt the budget presented by the NDA government violated both convention and the spirit of an interim budget. “Never has an interim budget tinkered with the tax rates," he said. And this can put a great deal of pressure on the future government. “Nothing stops the next government from presenting a full-scale budget in an election year," he added.
Goyal, however, justified the proposals on rebate and standard deduction. “Though as per convention, the main tax proposals will be presented in the regular budget, small taxpayers especially middle class, salary earners, pensioners, and senior citizens need certainty in their minds at the beginning of the year about their taxes. Therefore, proposals, particularly relating to such class of persons should not wait," he said in his budget speech.
What the experts think
“The finance bill (tabled by the NDA government on 1 February) has already proposed the necessary changes to the Income Tax Act. I don’t recollect previous interim budgets making many changes to tax laws, but for an interim budget, this budget has significant changes by way of a rebate and proposals made for home owners and he real estate sector," said Homi Mistry, partner, Deloitte India.
“A budget is an estimate of expenditure and revenue of the government. Every tax proposal will have implications on the revenue and, therefore, it’s only good practice that the outgoing government in an interim budget stays clear of making any sweeping changes," said Gautam Nayak, partner, CNK & Associates LLP. “It’s unlikely that the new government will make any changes to what is already announced as it gets hardcoded in law, but after estimating its budget it could increase tax rates or increase surcharge or make other changes to recover any shortfall," he added.
What the UPA did
Chidambaram himself was in Goyal’s position in 2014 when the UPA government was caught in the eye of an anti-corruption storm. The interim budget he presented on 17 February 2014 reduced excise duty on the manufacturing sector, with Chidmabaram noting that it needed an immediate boost that couldn’t wait for the full budget. He, however, did not make sweeping changes in direct tax rates. “In keeping with the conventions, I do not propose to make any announcements regarding changes to the tax laws," he had said in his FY15 interim budget. He also added that the proposals could be reviewed at the time of regular budget.
While his budget didn’t make sweeping changes for taxpayers, it did retain the surcharge that was levied on the super rich the previous year. Budget 2013 announced a one-time surcharge of 10% on taxable income exceeding ₹ 1 crore.