Amid strong protests against the Citizenship Amendment Act (CAA), the National Register of Citizens (NRC), the National Population Register (NPR) and the economic crisis, all of us expected the government to present a Budget that not only pleased everyone but also revived the economy. However, it seems to have failed in this regard.
The day the Budget was presented, the stock market index – Sensex - went down by 1050 points. No doubt, the twitter fluttered with over 11 lakh tweets, some outrightly rejecting the Budget, calling it a “hollow” exercise while others praising it to the sky.
The politicians would certainly say whatever they want to say. Some of the common people tweeted with different photos and memes and, thereby, expressed their opinion. One of them showed some scenes from the popular Bollywood movie “Ghajani”, showing Aamir Khan’s behaviour after he loses his memory. And it said, “Middle class people trying to understand #Budget2020.”
For the first time, we saw two kinds of tax slabs and the finance minister giving an option to the people. You can choose the new one or the old tax slabs! Some may think, wow! Here is a finance minister, who has given freedom to the tax-payer.
With an intent to simplify the system, Nirmala Sitharaman has unnecessarily complicated it. We now have two options – old taxation system with three tax slabs and the new regime with six slabs! Although the first and the second slab remains the same, there is a reduction of tax in the subsequent slabs.
The minister claimed that it will help the people in saving a lot of money. However, the sad part is that in case a person opts for the alternative tax regime –- i.e., the new tax slabs — one cannot claim any tax deduction mentioned under Chapter VIA of the Income Tax Act.
Does that mean the government does not want people to save? The idea behind introducing various deductions under this chapter was to encourage savings to give boost to investments. In other words, people, who opt for the new taxation system, will no longer be interested in saving as the initial deduction of Rs. 1.5 Lakh under Section 80C is not available. Another disadvantage is that it would be difficult for a person to change the tax regimes if he/she has income under business and profession.
However, it is essential to find whether a person would benefit, in case he/she chooses the new tax slab. A short and crisp answer is “No”. How? Only a person with no housing loan, no kids, no PF or NPS will see a reduction in taxes.
Let us take an example of A, B, C and D with gross total taxable income of Rs. 6 Lakh, 9 Lakh, 12 Lakh and 16 Lakh. If we calculate the tax under the old taxation system, then A, B, C and D would pay tax amounting to Rs. 5750, Rs. 22,500, Rs. 72,500 and Rs. 1,57,500 respectively. The calculation has been done assuming that people have some savings under Section 80C of Rs. 1,50,000 and are eligible for House Rent Allowance deduction.
If a person has other deductions like medical insurance, house loan repayment (interest and principal), the tax would be much less than these calculations.
Under the new tax regime, A, B, C and D would pay tax amounting to Rs. 22,500, Rs. 60,000, Rs. 87,500 and Rs. 2,17,500 respectively as they cannot claim HRA or deduction under Section 80C.
In other words, for a majority of people, the new tax regime would not be useful as they must be already saving money to avail of these deductions. However, for the new tax payers, who have never subscribed to any scheme under Section 80C, the new taxation system might be useful. The new regime with lower tax rates seems to be mere a eye wash.
Worse, the government has decided to sell a part of its share in the LIC of India, one of the most trusted insurance companies of India, where a majority of people invest money, thinking that they would get high returns in future. Not only this, a recent news-item says that the LIC has lost Rs. 20,000 crore in just five stocks it was forced to buy during the last two years. What does this show? The government has been taking decisions haphazardly, putting the hard earned public money at risk. On the long run, the LIC may not be able to prove its USP “ jindagi ke saath bhi, jindagi ke baad mein”, if it starts earning losses.
For those who invest their hard-earned income in the share market, there is no solace either. While the fiscal mass, which has been pegged at 3.5 per cent of the Gross Domestic Product, seems reasonable but the entire calculation has been done with a lot of positive assumptions. The nominal GDP has been pegged at 10 per cent, which in the current scenario seems impossible to achieve. The government has not shown any plan to spur consumption and kickstart the economy from the present slowdown.
Many of the brokers have already put certain stocks on the alert, considering the industry-specific proposals in the Budget. For instance, profits may shrink further for companies like ITC and Godfrey Phillips as the national calamity contingent duty has been increased from the current Rs. 200 to Rs. 735 per thousand cigarettes.
Similarly, Havells India and other electronic companies may face the heat as import duty on compressors for ACs and refrigerators has been increased from 10 per cent to 12.5 per cent. There have been 16 such major stocks, which are expected to be affected drastically. One must keep track of the stock market for avoiding any loss.
Coming to education, there is a nominal increase of Rs.45,00 crore in the budget compared to the last fiscal. The increase is not at all sufficient to meet the existing demand and bridging the learning gaps in children as evident from the recent ASER report. So has been the case with healthcare.
Despite the fact that many of our states have performed poorly on Niti Ayog’s health index, the government increased the healthcare budget only marginally. And if it is factored against the proposed nominal GDP rate (i.e. 10 percent), the effective budget is lower than the previous year by around 10 per cent.
Similar is the case with the Mahatma Gandhi National Rural Employment Guarantee Act. The Budget has marginally increased the allocation from Rs.60,000 crore to Rs 61,500 crore. It is actually 9.1 per cent less than the estimated fund requirement of the current financial year. As per the latest financial statement on MNREGA released last week, as many as 15 states are in deficit.
A report published in a national daily says that 96 per cent of the total allocation has already been spent. A minimum of Rs. 1 lakh crore is needed for the smooth running of the scheme. There is not much in store for the daily wage workers in the rural areas as the estimated expense for the wages itself is around Rs. 67,000 crore.
The government’s goal is of doubling the farmers’ income by 2022. Apart from a fleeting reference to a 16-point formula, there was only a 3 per cent increase in budget allocation for agriculture, which is grossly inadequate to achieve the much-touted goal.
When it comes to the development sector, the story is always fraught with a lot of hurdles. One of the consistent struggles that the civil society organisations have been facing is to comply with the changing legal processes and raise resources to meet the demands of their projects.
With the new budget, the NGO sector must gear up for another set of compliances. The exemptions under sections 80G, 12A, 12AA and 10(23C) of the Income Tax Act, which was perpetual in many cases, have been withdrawn. All charitable institutions and religious institutions will have to apply for revalidation of these certificates within three months of 1st June 2020. These will be valid for five years and would again need revalidation. Renewal of the existing registration will give the government to withdraw these exemptions from certain entities as well.
This is likely to create a chaotic situation as NGOs do not know whether their registration would be valid to receive funds during the renewal process. Or will it get renewed or not? Without the tax exemption, not many would be interested in donations. Also, corporates, who have been funding the NGOs for CSR projects, may be forced to donate to other options like the Prime Minister’s Relief Fund in the absence of 80G exemption.
To cut the story short, the government has neither increased the Budget allocation for causes like education, health but has also tightened the noose on the development sector, which has been trying to bridge this gap for so many years.
Overall, the Budget has left an average Indian confused in this already chaotic environment. The finance minister should have done herself a favour by accepting the crisis that the country is going through and chalking out a concrete plan for bringing us out of it. She had the option of reviving the industry, creating employment opportunities and lifting our spirits up from this gloomy environment. But it looks like she has wasted a great opportunity.
(The writer, a company secretary, can be reached at email@example.com
(Published on 10th February 2020, Volume XXXII, Issue 07)