Some hope for the middle class

The first full Budget of the government created a lot of excitement, especially for the middle class in light of the recent economic survey. The current state of decreasing inflation and crude oil prices had fuelled expectations for increased disposable income through further rationalisation of tax slabs and enhanced deductions.

To this extent, it’s a pleasant surprise to note that unlike past Budgets, this one had a separate section on benefits to the middle class as one of its broad themes. The essential criterion to gauge the impact on the middle class is to assess changes in the basic exemption limits of taxation. While this has not been tinkered with, the finance minister was keen to emphasise that benefits to the tune of ₹4,42,200 have been extended to the common man over the previous two budgets. A closer look, however, indicates that only close to ₹70,000 is in store in this year’s announcements.

This Budget has sought to address the social security and various insurance requirements of the people with special emphasis on the needs of senior citizens. The creation of a Universal Social Security System and an appropriation of about ₹9,000 crore from unclaimed PPF and EPF accounts to a senior citizen welfare fund deserve mention. Further, the deduction limit on contributions to a pension fund/ National Pension Scheme (NPS) has been increased from ₹1,00,000 to ₹1,50,000.

Tax breaks have also been extended to individuals to incentivise them towards contributing in insurance products and other areas. For instance, health insurance premium payments to insure senior citizens would be eligible for a deduction of ₹30,000.

Very senior citizens would be eligible for a deduction of ₹30,000 towards medical expenditure. Other individuals would be eligible for a deduction of ₹25,000 on health insurance premium as against ₹15,000 previously.

In the case of very senior citizens, the deduction on account of specified diseases will be enhanced from ₹60,000 to ₹80,000. The limits for maintenance expenses on persons with disability will also be enhanced.

The increase in quantum of transport allowance from ₹800 to ₹1600 a month was opportune.

Education and job creation have also received attention. Several new educational institutions have been announced throughout the country. Towards job creation, certain tax incentives have been announced for corporates to incentivise hiring and employment. Entrepreneurship has also been given a boost by way of making available financing and introduction of the Mudra Bank. The push to the ‘Make in India’ project could be a game-changer; we can expect a lot of employment generation and thereby increasing consumption in the economy.

The Budget also seeks to address the concern of the common man in relation to unaccounted money by disincentivising its generation and bringing perpetrators to justice. Additional announcements towards incentivising non-cash transactions by encouraging the use of debit and credit card transactions are also expected.

Despite this, there remain certain areas that could have got more attention from the finance minister. Matters regarding incentivising the middle class to own a house, increase in tax slabs and some avenues for the middle class to be part of the secondary market could have gone a long way in spurring domestic consumption and channelising savings. The finance minister has, however, promised that the near future may see better days for the middle class as and when overall fiscal consolidation is achieved. While we have seen that the government does not uses the platform of the Union Budget to announce/implement measures (such as the Jan Dhan Yojana and Sukanya Samriddhi Scheme), there may be good news for the common man in the years to come to ensure greater disposable income to spur consumption.

All in all, while there has been speculation, expectation, apprehension and wish-lists from the common man, the government’s promise of growth and job creation has created a sense of optimism.

The writers are with Deloitte Haskins & Sells LLP

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