Finance Minister Arun Jaitley is likely to offer taxation relief to middle class taxpayers in the forthcoming budget to fuel the consumption and saving boom in the economy. The move, which would leave more money in the hands of the taxpayers, would be aimed to boost the consumption demand that remains too tepid at the current juncture. The inclination of savers to park their money in financial products rather than in gold and real estate — a trend observed in last one year — is also likely to be further incentivised. The government may consider giving a boost to consumption “by increasing the deduction amount either under 80 C or giving a special deduction this year, which would help boost the savings and investments and ultimately the consumption expenditure in the economy,” says Vikas Vasal, partner, KPMG India.
“The Finance Ministry’s proposed move has basically been inspired by the ‘Middle-Class Economics’ espoused by US President Obama to take some taxation burden away from the tax-paying middle-class,” says Deepak Kapoor, financial analyst, ADC Legal. He adds that it is the middle class that mainly bears the brunt of taxation and therefore, the government should be enhancing the deduction for commutation expenditure and should also offer some deduction for childcare and skill upgradation expenses.
Economists believe that the Indian economy urgently needs the consumption and savings push to reach a respectable growth target of over 8%. In the previous budget, the Finance Minister promised to bring down the corporate tax rate to 25% from the current 30% in a phased manner over the next four years. On top of this, “if the government removes the surcharge and education cess then it would provide a big relief to the corporates,” says Vasal. More money in the hands of corporates would fuel more investment in the economy. This would take the pressure off from public spending which is propelling the growth that Indian economy is currently experiencing.
In the last 18 months, the government has been trying to make the Indian taxation architecture simpler and compliance friendly. The government’s decision to do away the requirement of personal appearance before the taxation official would provide a big relief to the individual taxpayers. Moreover, the concept of ‘limited scrutiny’ would reduce bribes which are often demanded by some officials. The setting up of a panel headed by Justice R.V. Easwar to bring about certainty in tax policy regime is also being hailed by investors. Such initiatives would not only remove the element of awe of taxation authorities from the minds of taxpayers but, “would also improve the overall efficiencies and productivity of the economy and once the productivity goes up, the taxation revenues — as the byproduct — would surely increase.”