Updated on: Thursday, December 30, 2021, 08:44 AM IST

Stop running the family budget and give the reins back to the homemaker, writes P N Vijay


This is Budget time and the PM and FM have been busy with prior consultations. I read that they met big businessmen, private equity players and economists. I did not read of them meeting the simple, hardworking middle class who number 40 crores and pay a high percentage of the income tax and an even higher portion of the GST that make the government function. This middle class has been most affected in the last two years due to job losses, pay cuts, high taxes and hyper-inflation but all it got in return was increased taxes on petrol and cooking gas. The government does not spend any money collecting taxes from this class, as taxes are collected at source and handed over to the government. Yet it remains the ‘forgotten middle’. Through this piece, I am requesting the ‘powers that be’ to be more caring of the middle class and show respect for this ‘silent majority’.

Middle class no longer BJP’s favourite:

The urban middle class has been the vote bank of the BJP for many decades but ironically, has always been cast aside when it comes to taxes. Here are some of the ways -- in India, we slashed corporate taxes. Big corporations like Reliance Industries and Hindustan Lever pay tax at a lower rate than the hardworking woman who toils at home and office just to keep the family’s head above water. This is totally unacceptable and I am yet to understand why this government has done it. Some critics of the government would say this is part of crony capitalism in India but my view is that with the BJP finding the magic wand to get votes without urban support, it has just lost interest in the middle class. This class hardly finds a place in the PM’s speeches and the material put out by the government.

Lower tax rates for individuals and increase in the minimum:

It is imperative that the highest rate of tax for individuals should be brought down to 25%. Also asking a person to pay income tax if their monthly income is Rs 20,000 is sheer loot. We all know that a family of four, with school-going children cannot even survive in India on a salary of Rs 20,000 a month and it is immoral to ask such a person to pay income tax. Tax slabs should start from Rs 5 lacs; From Rs 5 lac to Rs 10 lac, it should be 10 per cent; from Rs 10 lac to Rs 30 lac 20 per cent and 30 per cent above Rs 30 lac. The surcharge should be 10 per cent across all segments. There is no argument of loss of revenue which is the usual ‘bureaucrat’s revenge’. There should be fairness and equity in taxation.

Reduce tax on interest and dividends:

Taxation of interest income needs to be reviewed drastically. The last two years have been catastrophic for savers. Inflation is at 6 per cent and the interest on Bank FDs is 5 per cent means that savers are being punished with negative real rates of return. Adding insult to this injury, the tax exemption on interest income is a miserly Rs 10,000 and that too not available for FDs. To protect the interests of the saver, the tax exemption limit for bank interest should be increased to Rs 2 lac and should also include interest from FDs. The tax exemption on interest income for senior citizens should be increased to Rs 5 lac. There was a time when dividends were tax-free and so was long-term capital gains from shares and equity mutual funds. But under the Modi government, taxes on these have increased. This does not make sense if we want people to use shares as an investment tool and not just for speculation. Also, dividends are paid out of taxed profits. I suggest we should start by making dividend income tax free up to Rs 2 lac and also LTG from shares tax free up to Rs 10 lac. This will encourage the middle class to use shares for saving for their children.

Bring back incentives for owning homes:

For the middle class, home ownership is a dream. Falling interest rates have come as a boon but the tax laws for having one’s home are not. I remember the Vajpayee government allowed a full set-off for interest on home loans against other incomes but this was reversed by later governments and the exemption is now subject to a maximum of Rs 2 lac. We need to bring back the interest set-off paid on home loans against other income of the taxpayer without limit. With one stroke of the pen, the government will set off a boom in the housing industry and more importantly, make it easier for a person from the middle-class person to build their dream home.

Increase exemption limits on tax-saving schemes:

The present ominibus limit of Rs 1.5 lac for all savings schemes was set a long time ago and needs revision. Even the incentive for set-off of housing loan instalments is included in this. This should be increased to Rs 3 lac. The present limit on senior savings schemes should be increased to Rs 25 lac. ‘Where will the government find the money?’ is a stupid question, which assumes that the government should keep spending our money. This government has been rightist only in its political agenda but leftist when it comes to taxation. The Socialist doctrine of tax-and spend was a failed doctrine but the government has embraced this policy. It takes pride in collecting more taxes from the middle class but does not say what it has given in return. Now is the time to get back to a liberal style of government and tax the middle class less. In short, stop running the family budget and give the reins back to the homemaker.

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Published on: Thursday, December 30, 2021, 08:44 AM IST