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Budget 2019: The moment belonged to Narendra Modi government and middle-class taxpayers

Finance Minister Piyush Goyal. Photograph:( Reuters )

Ghaziabad, Uttar Pradesh, India Feb 04, 2019, 10.27 AM (IST) Written By: Rajesh Singh

The ‘middle class’ is a humongous classification. It can consist of a salaried employee, a small businessman, a pensioner, even an under-employed person who survives on a generous contribution to his wellbeing by relatives. To add to the complexity, the middle class is subdivided into ‘lower middle class’, middle class’ and ‘upper middle class’, all with varying incomes and different concerns and desires. But what binds them together is the taxes they pay as individual assesses, and the perennial grievance which arises from such a tax-trap. The middle class is also the most difficult to appease and its loyalty takes no time in shifting from one political party to another. 

When finance minister Piyush Goyal stood up to deliver his Budget speech on Friday, he was not unaware of the challenge of pleasing this mercurial section of the population. And more so, since in recent months, his party had suffered electoral reversals in three important north Indian states, with one of the major causes being the shift of the middle-class votes away from the Bharatiya Janata Party (BJP). Something had to be done, since this was the last Budget, even if an interim one, before the party faced the people in the Lok Sabha election. And something was done. Whether the last-ditch effort will bring rewards, will be known in about four months.
 
Given the middle class’s expanse, just one measure would not have sufficed. So the finance minister announced a slew of dramatic proposals, which were greeted with loud thumps and vocal cheering from the treasury bench. A nonplussed opposition looked on with a somewhat dazed expression, though its leaders later recovered and, outside Parliament, rubbished the announcements as the ‘final jumla’ of a government on its way out. Nevertheless, the moment belonged to the Modi regime.  

The one announcement which most energised the NDA rank and possibly the millions that fall in the middle-class category was the 100 per cent tax rebate for individual tax-payers whose annual income does not cross five lakh rupees. 

Until now, they had to pay five per cent as the tax on their income. The five lakh rupee ceiling can go even higher if the individual takes advantage of various tax-saving measures related to interest on educations, national pension schemes, medical claims, interest on home loans etc. According to experts, it is possible for individuals earning as high as eight to ten lakh rupees per year to remain out of the tax net with some help from the existing tax-saving avenues.  
 
To understand the potential political reach of this proposal, one needs to only remember that close to 30 million taxpayers from the middle class will end up saving more than Rs 18,000 crore annually. There are the other spinoffs. Savings on tax can result in a boost to consumption, which in turn could positively affect industrial output, even if that impacts largely the fast-moving consumer goods (FMCG) sector. At any rate, it could lead to more money flowing in tax-saving instruments, which is not a bad thing in itself. 

The middle class was given further bonanzas. The standard deduction limit has been proposed to be raised from the present Rs 40,000 to Rs 50,000;  second-time home buyers, again an important constituent of the aspirational middle-class category, will get exemption on notional rent earned on the second house, benefits from long-term capital gains tax, and relief on tax deducted at source (TDS) for rental income (up to Rs 2.40 lakh). Here too, there are multiple benefits, besides those to the middle class. With more middle-class taxpayers being encouraged to own a second home, the housing sector, which is struggling with unsold properties, can get a leg-up.

As if these were not enough — clearly the finance minister believed that if he had come this far, a little further would do no harm — the tax exemption limit on interest on savings in banks and post offices was increased fourfold, from Rs 10,000 to Rs 40,000.  

Leave aside the economics — where is the government going to find the money for these concessions, or, will it be able to adhere to the fiscal deficit target, etc — for now. That is for the next regime to grapple with. If it’s going to be the BJP-led NDA again, then it will be judged by its ability to deliver on those promises and also simultaneously offer a roadmap for fiscal prudence; if it’s a new regime, it can simply junk Goyal’s proposals in its full-fledged Budget and dish out something else in their place. It’s the politics that matters in the immediate term, which is what the Budget has been all about. 

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)

Rajesh Singh

The writer is an author, senior political commentator and public affairs analyst

Story highlights

The one announcement which most energised NDA rank and millions that fall in middle-class category was the 100 per cent tax rebate for individual tax-payers whose annual income does not cross Rs 5 lakh.