BackWanted: Empathy for citizens who must live off past savings
We claim to hold our elders in high esteem but pay almost no attention to their financial security
PremiumIn response to my column last Monday on the plight of India’s middle class, I received quite a few mails. Among those who contacted me was a 74-year-old Indian Institute of Technology alumnus who retired as executive director of one of India’s finest central public sector units (CPSUs). He had done some calculations and come up with conclusions that startled me.
But before we come to numbers, let’s acknowledge some Indic realities. We respect age and believe it is our duty to be grateful to our elders for what they gave us. This does not mean mindless devotion. After all, the Pandavas killed Bhishma and Drona, even employing deceit. But the vast majority of us do not abandon our parents. They live with us and we trust them to teach our children important values. Yet, many of them do not want charity and fiercely protect their independence—I am sure every reader of this piece has a mother or a grandparent who epitomizes this spirit. This is the Indic way.
This year’s budget sneaked in some stuff that hits senior citizens right in the gut. Let’s look at the calculations that this former CPSU top executive did. I have chosen this example because CPSU employees fall somewhere between employees of the central government who, post-retirement, enjoy a liberal pension linked to inflation, and those of the private sector who get no pension. Yet, CPSU employees are constrained by every government rule. In a way, they typify the talented yet harassed urban Indian citizen who went to work in Nehruvian India.
Till this year’s budget, there were higher minimum tax exemption limits for senior (60 to 80 years) and very senior citizens (above 80)— ₹ 2,50,000 for the general public, ₹3,00,000 for seniors and ₹5,00,000 for very seniors. But this budget set all limits at ₹2,50,000. No concessions for elders.
Dividend distribution tax, which was till now paid by companies and mutual funds, has been abolished and recipients need to pay tax at the applicable rates. And the most affected are senior citizens in the mid-range income levels. Here is an example.
Mr Roy is a 74-year-old non-pensioner. He is dependent on his interest income from bank and company fixed deposits, annuity from insurance policies and a meagre pension from the EPS-95 scheme, which is not adjusted for inflation. He had wisely invested in the stock market during his working years, and gets a decent amount in company dividends. His income from interest payments, EPS-95 and LIC annuity is ₹7,80,000, and ₹3,60,000 from dividends. That’s ₹11,40,000.
Till budget 2020, dividend income was exempted from tax up to ₹10 lakh. So, for assessment year 2020-21, his taxes were thus: Deductions (80C etc) + standard deductions ( ₹50,000 from annuity) = ₹2,50,000. Taxable income: ₹7,80,000 – ₹2,50,000 = ₹5,30,000. Tax = 5% of (5,00,000 – 3,00,000) + 20% of 30,000 = ₹16,000. Health and education cess @4%= ₹640. Total tax liability: ₹16,640.
The 2020 budget offered two options for taxpayers. For convenience sake, let’s call them “Old Regime" (OR) and “New Regime" (NR). Under OR, Mr Roy’s tax liability will be calculated thus: Gross income = ₹11,40,000. Total deductions: ₹2,50,000. Taxable income = ₹11,40,000 – ₹2,50,000 = ₹8,90,000. Tax liability = 5% of ( ₹5,00,000 – ₹250,000) + 20% of ₹3,90,000 = ₹90,500. Cess ₹3,620. So, total tax payable = ₹93,620.This is 5.36 times what he was paying till now.
Let’s look at the NR option. Gross income and taxable income (no deductions allowed under NR) = ₹11,40,000. Tax liability = 5% of ( ₹5,00,000 – ₹2,50,000) + 10% of ( ₹7,50,000 – ₹5,00,000) + 15% of ( ₹10,00,000 – ₹7,50,000) + 20% of ( ₹11,40,000 – ₹10,00,000) = ₹ 1,03,000. Add cess of ₹4,120. So total tax payable is ₹1,07,120, 6.44 times what he paid last year.
Mr Roy and his wife obviously have higher medical expenses than the rest of us. And his income has been declining over the years. When he retired in 2007, the prevailing bank fixed deposit interest was 9.5-10%. It’s now below 6% and likely to come down further. Even the cap on the Senior Citizens’ Savings Scheme has remained at ₹15 lakh since the day of introduction and the interest rate has come down to 7.1%. In these 13 years, the prices of bare necessities have gone up at least three times, and the government-calculated inflation rate is far lower than actual street-level inflation (check your grocery bills).
And this is an Indian who invested shrewdly in stocks and mutual funds during his working years. Till now, the ₹10 lakh exemption limit on dividend income provided adequate insulation. But now that limit is zero. What about people who did not reach high positions, or were not financially savvy? Do we not owe something to our elders? Can we not expect one little thing—that our parents live through their old age proudly and not in penury?
We are inundated every day with economists spouting soulless macroeconomic advice. Please, can we have some heart here, instead of theory and data sheets? Joseph Stalin famously said that one death is a tragedy but a million deaths just a statistic. Let’s look up from those sheets at our people.
Sandipan Deb is a former editor of ‘Financial Express’, and founder-editor of ‘Open’ and ‘Swarajya’ magazines
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