A two-hour speech delivered with no focus or goals in view. It was a budget presented for keeping up with the formality . Nobody can fault the Finance Minister.

The Direct Tax Code is on the anvil. The Goods and Services Tax will be rolled out in the next fiscal year. What is it that this budget can hold out on the tax front in this situation?

Yet, Mr Pranab Mukherjee has tried to please a section of the lower income groups. Inflation affects everybody, barring the high net worth individuals. The raising of the exemption limit does not keep up with the spiralling rate of inflation. The DTC has made us believe that tax rates and slabs will form part of the Code and the Finance Bill may not have much to do with the same. Yet, Mr Mukherjee has revised the slabs. At least when the DTC is taken up for consideration in Parliament, the Finance Minister should bring in proposal for linking basic taxable exemption limit to the index for inflation. We already have it for capital gains taxation. Such a step will obviate the need for tinkering with the exemption limits from year to year.

Juniors and Seniors

Mr Mukherjee has converted some junior citizens into senior citizens. Some seniors have been pushed up into the new category of very senior citizens. It has been estimated that senior citizens in the age group 60-80 will number 112.9 million by 2016. The lowering of the age limit from 65 to 60 will certainly benefit a large number of taxpayers in this group. There is an obvious disparity in the way age limit is laid down in the tax law for determining who is the senior and who is the junior.

The Railway Minister thinks that those who are above 58 should be eligible for concession as senior citizens. The Finance Minister seems to have adopted the age of retirement from Central government service as the criteria. Probably, we can have a uniform age limit for this purpose under all laws, State and Central. According to estimates about the graying of India, the dependency ratio, that is the number of people over 65 years age dependent on their children, is on the rise. The ratio was 10 per cent in 2010 and 23 this year. The CBDT has explained that those aged above 80, new class of very senior citizens, will number around 1,500. If this is true, nothing would have been lost by totally exempting this class from the purview of income tax. It is also noteworthy the special preference shown to women is being withdrawn gradually. There is no gender discrimination with regard to tax exemption, except to the extent of Rs 10,000/- in the basic exemption limit.

Inequitable rates

The lowering of the tax rates has resulted in the rich getting richer and prospering faster than the poor. India has the largest number of poor people living on less than $1.25 a day. Their number went up from 444 million in 1993 to 456 million in 2005, according to the World Bank. The top 20 per cent of the population have been enjoying a higher and higher share in total income. It was 36.7 per cent of the total income in 1993-94 and 53.2 per cent in 2009-10, according to the studies by the NCAER.

The tax policy has totally ignored all equitable considerations. Whether the income is Rs 10 lakh or Rs 10 crore, the income tax rate will be only 30 per cent. China applies a higher rate of 40 per cent for those in the higher income groups. In fact, China starts its basic rate from 5 per cent and the maximum marginal rate is taken to 45 per cent, the same with Australia, Germany, Greece etc. What purpose is served by keeping the maximum marginal rate at 30 per cent for incomes exceeding Rs 10 lakh? Why pamper the rich at the cost of the lower income groups and very senior citizens? We can have a low entry level tax which will go up to 40-50 per cent as incomes rise above Rs 10 lakh.

The big gain for small tax payers is the announcement that those individuals with incomes below Rs 5 lakh need not file their tax returns. The Form 16 given by the employer will suffice in the place of return. The notification will have to be drafted with a liberal mind so as to extend the benefit to a larger class of taxpayers as prescribed in the Section.

(The author is a former Chief Commissioner of Income-Tax.)

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