Benefit for the middle class

The Change After almost three years, there’s finally been some relief across the board for the lower- to middle-class tax payer. The benefit flows from the reduction in the tax rate in the ₹2.5 lakh to ₹5 lakh income slab – from the current 10 per cent to 5 per cent. The rebate benefit, though, has been changed from ₹5,000 on those with incomes upto ₹5 lakh to ₹2,500 for those with incomes upto ₹3.5 lakh. Despite this, the net effect is positive. So, for those with taxable income up to ₹5 lakh, this measure could halve the tax outgo and for those with higher income, the benefit can go up to ₹12,875 (including cess).

But the Finance Minister has played Robin Hood. This, he’s done by introducing a surcharge of 10 per cent of tax payable on those with taxable income between ₹50 lakh and ₹1 crore. Meanwhile, the surcharge of 15 per cent on those with taxable income exceeding ₹1 crore continues – this was meant to be a temporary measure many years ago but has become a permanent fixture.

While the Finance Minister tweaked the tax rates a bit, he did not oblige on the widely anticipated increase on the Section 80C investment limit. Nor did he re-introduce the standard deduction for salary income. There were also expectations that the tax breaks on health insurance under Section 80D would be hiked, but this too did not materialise. The hopes of an increase in tax breaks on allowances such as medical reimbursement and children’s education allowance also remained unfulfilled. There were also no higher tax breaks on interest on loans for self-occupied property; it stays at ₹2 lakh a year. On the contrary, the set-off of loss from let-out properties (arising due to interest on loans) has been restricted to ₹2 lakh a year; carry-forward of excess loss though is allowed for eight years.

For those small and medium tax payers with turnover upto ₹2 crore, the presumptive tax of 8 per cent of turnover has been reduced to 6 per cent. But this benefit is available only in respect of non-cash turnover. This is to encourage digital transactions.

The Background Expectations were running high this time around. One, due to the pent-up demand since the last major tax breaks were given in the July 2014 Budget. Also, many expected the government to compensate for the cash crunch troubles brought about by demonetisation. Besides, with key State elections round the corner, there were hopes that the government would want to keep the aam aadmi happy.

The Verdict Something’s better than nothing.

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