Nirmala Sitharaman’s second Union Budget woos the salaried class — but only just

Budget 2020 changes tax slabs to benefit the salaried class earning up to Rs 15 lakh a year, but those opting for it will have to forgo various exemptions.

File image of Finance Minister Nirmala Sitharaman | Photo: Suraj Singh Bisht | ThePrint

New Delhi: The Narendra Modi government sought to reach out to the middle class through Budget 2020, changing the tax slab to benefit the salaried class earning up to Rs 15 lakh a year, a relief former finance minister P. Chidambaram welcomed but called “crumbs”.

The opposition party’s veiled jibe at the new tax system was based on the fact that if a person opts for this, he or she will have to forgo various exemptions, including the Rs-1.5 lakh savings deduction under Section 80 (C), Rs 2 lakh interest deduction on home loans, and deductions from house rent allowance and leave travel allowance, among others.

Though there was no clarity about the exact amount the salaried class would benefit from the new slab, it’s unlikely to be substantial due to the removal of exemptions. Even for the taxpayers who choose to continue with the old tax system, many exemptions may be excluded in the next financial year.

Finance Minister Nirmala Sitharaman declared that the list of exemptions was being brought down from 100 to 30. She said the new income tax slab was optional and those who don’t want it could continue to use the existing income tax slab.

The Union Budget came in the middle of the campaign for Delhi assembly elections, scheduled to be held on 8 February. After Mumbai, which contributes about a third of the overall tax collection, Delhi contributes the most to the exchequer, pegged at around 13 per cent. The share in the city’s contributions shows the high number of the salaried class in Delhi, who could be swayed electorally by any significant tax benefits.

The alternate tax system

The alternate tax regime, the finance minister claimed, could help taxpayers earning Rs 15 lakh a year save Rs 78,000 even if they do not claim any deduction. 

According to the new tax slabs proposed in Union Budget 2020, those earning between Rs 5 lakh and Rs 7.5 lakh will be taxed at 10 per cent as against an applicable tax rate of 20 per cent with deductions.

Those earning an annual income of Rs 7.5 lakh to Rs 10 lakh will be subject to a tax rate of 15 per cent as against a tax rate of 20 per cent.  

People with an annual income of Rs 10 lakh to Rs 12.5 lakh will now be subject to a tax rate of 20 per cent. Those who fall in the Rs 12.5 lakh-Rs 15 lakh income bracket will now be at 25 per cent and those over Rs 15 lakh at 30 per cent. The applicable tax rate for all these three slabs was 30 per cent in the deduction regime.

Apart from the tax cuts, Sitharaman sought to reach out to the youth, saying young engineers would be given a one-year internship by urban local bodies. 

A national recruitment agency will be set up to facilitate an online eligibility test for all non-gazetted posts, the finance minister said. She added that Rs 99,300 crore has been allocated for the education sector and Rs 3,000 crore for skill development. 

The finance minister said steps will also be taken to attract FDI in the education sector. The Modi government will also come up with the New Education Policy soon, she said.    

The opposition parties, however, aren’t really impressed. Chidambaram saw nothing in the budget to create jobs. He said jobs are created in three sectors of mining, construction and infrastructure, and the budget has nothing for them. “The government has given up on reviving the economy or accelerating the growth rate or promoting private investment or increasing efficiency or creating jobs or winning a greater share of the world trade,” the former finance minister said.

Focus on the middle class 

The Modi government largely chose not to focus on the middle class in its previous budgets, even if it did announce a few measures for them. This time, the government appears to have felt an urgent need to address this gap due to disillusionment in the middle class over the current economic downturn, and the assembly elections set to take place in Delhi. The issue gained further currency with the opposition raising it much more forcefully to counter the government. 

Home Minister Amit Shah said the Modi government, through this budget, has provided major and unprecedented relief in income tax to the taxpayers of every category, particularly the middle class, adding that salaried taxpayers will not only have to pay reduced tax but will they also get relief from simplification of the tax system.

“I congratulate the prime minister and Finance Minister Nirmala Sitharaman for presenting a budget, which will benefit farmers, poor, salaried middle class and business class,” he said.

The finance minister also made an attempt to project Budget 2020 as pro-farmer, pro-poor and employment-generating. She announced a 16-point action plan for the agriculture and the allied sector. She also proposed measures for 100 water-stressed districts in the country and said the agricultural credit target has been set up at 15 lakh crore. 

Sitharaman said more than Rs 2.83 lakh crore would be spent on agriculture, rural development, irrigation and allied activities as farmers and rural poor continue to remain the key focus of the government. She said comprehensive measures for 100 water-stressed districts, proposal to expand PM-KUSUM to 20 lakh farmers to set up stand-alone solar pumps and another 15 lakh farmers to solarise their grid-connected pump sets are some of the steps in that direction.

The move to address farm distress and the focus on the rural sector is significant as the agrarian crisis has been a cause of concern for the Modi government both politically and electorally. Elections are also due in Bihar later this year and the focus on farmers is likely to be highlighted by the party in the state. 

Finance Minister Nirmala Sitharaman said people of India have given an unequivocal ‘janadesh’ not just for political stability but also for BJP’s economic policies. “This budget is for youth, SC/ST, women,” said Sitharaman. In its first term, Modi govt’s big thrust was welfare schemes.