The 2017 budget can be described as an attempt by the Modi government to project itself as a regime which is for the poor and one which will not make life easy for the rich. But that may be a facade because like all political parties which come to power, big business houses and industrialists always fund the establishment – whether this is discernible or not. And the demonetisation drive killed more than 100 people – most of them poor.
Finance minister Arun Jaitley slashed the tax rate for individuals with an income of less than Rs 5 lakh a year and also to businesses with a turnover of not more than Rs 50 crore per year. Ironically, fresh lawyers who join seniors in Mumbai are often paid around Rs 10,000 per month while those with experience who join the corporate sector may earn from Rs 30,000 per month to Rs 75,000 per month or more if a lawyer is an expert in corporate law and taxation. While inflation rises, fresh LLBs will continue being exempt from tax. Chartered accountants also hold LLB degrees and their earnings range from over Rs 1 crore depending on their experience. Jaitley spent over an hour of his speech stressing that his focus areas included the farmers and rural folk, the poor and the youth. He announced a record Rs 10 lakh crore as the target for farm credit and a hike in coverage of the crop insurance sector as sops for the less privileged. Whether these will bring down farmers’ suicides remain to be seen.
An individual benefits if he earns between Rs 3 lakh and Rs 50 lakh per year or over Rs 1 crore. The overall effect is that those with annual income up to Rs 3 lakh will not have to pay income tax although the formal limit for exemption is Rs 2.50 lakh per year. However, those individuals earning between Rs 3.5 lakh and Rs 5 lakh will get a greater reduction in their tax disbursements from Rs 2575 to Rs 7725. This is why Jaitley has succeeded in projecting the Modi government as not a “suit-boot ki sarkar” despite the Prime Minister making it to the Guinness Book of Records for his suit fetching a record Rs 4.3 crore at an auction. He wore it only once to welcome former US President Barack Obama in New Delhi in 2015.
The Modi regime’s pre-poll promise to eradicate the menace of black money was evident in its endeavour to ban all cash transactions of over Rs 3 lakh per person per day. However, this ban can easily be circumvented by paying cash of Rs 2 lakh per person spread over a greater time period. This laudatory initiative of the government will eradicate black money although the nitty gritty has to be looked at afresh by amending some sections of the Income Tax Act, 1961 and related laws.
Seventy five per cent of political donations come from unknown sources and Jaitley has created history by announcing that the RBI Act would be amended to allow the national banker to issue bonds which could be bought by an individual seeking to make political donations. These bonds could be redeemed in the bank accounts of political parties if they file their income tax returns within the stipulated time. Political parties will continue to accept donations from individuals through cheques and electronic transfers. Jaitley conveniently ignored another major recommendation of the Election Commission (EC) that political parties who do not contest elections should not enjoy income tax exemptions.
The EC had argued in its report to the government, that there are over 1900 registered political parties out of which only 400 have contested elections during 2005-15. As the remaining 1500 political parties are used to launder black money, the EC had asked the Central Board of Direct Taxes to strike them off the list of those political parties enjoying tax exemption. Although the EC had also argued that tax exemptions should be conferred only on political parties which win at least one seat in any election, this aspect too was ignored by Jaitley.
Section 13A of the Income-tax Act, 1961 confers tax-exemption to political parties for income from house property, voluntary contributions, capital gains and other sources. The Association of Democratic Reforms had observed in a recent report that only 25 per cent of the annual income of BJP and Congress comes from known sources.
Political parties cannot now accept donations of more than Rs 2000 in cash from an individual without identifying the donor. By amending the law, Jaitley has accepted the EC’s recommendation that the cash exemption should be reduced from Rs 20,000 to Rs 2000. Political parties can accept donations from individuals through cheques, electronic transfer, and electoral bonds to be issued by the RBI so that their identities are revealed.
The author holds a PhD in Media Law. He is a
journalist-cum-lawyer of the Bombay High Court
