Budget 2015-2016: A damp squib for average taxpayer

Hopes of higher deduction for expenses such as medical bills and an increase in threshold level of income that would be subject to income tax in Budget 2015-16 came crashing down for the common man. There were no give-aways, save the doubling of deduction on conveyance allowance from Rs 800 per month to Rs 1,600. Income tax slabs too saw no change. On the whole, Budget 2015-16 maintained status quo for an average individual taxpayer with limited income.

But then any give-aways at this stage would have cost the exchequer crores of rupees as revenue forgone and it was too soon to make any changes as it was only last July threshold income subject to tax and investment limit in tax savings schemes were increased. In doing so, one can argue that finance minister Arun Jaitley has failed to leave more money in the hands of people to spend on consumption and thus push up demand for goods and services. The finance minister however maintains that he has left more money in the hands of people. Rather, the increase in service tax rate to 14 per cent from the current 12.36 per cent including education cess could pinch everyone.

He has also retained the education cess for primary education and higher secondary education for another year. He has also sought extract a little more tax from the super-rich – imposing a two per cent surcharge on taxable income exceeding Rs 1 crore to replace wealth tax that he has scrapped. Jaitlely has, however, focussed to increasing the savings level of individuals, allowing generous increase in deductions for medical insurance, purchase of house property and savings in pension schemes. “We have incentivised middle classes to save more,” Jaitlely said at a media briefing. He believes this approach is not just good for the future of taxpayers, but also increase the savings rate of the country.

The proposals for additional deduction for medical insurance and social security will benefit the richer classes more - upper middle class and above - who have enough money to buy medical insurance, invest in a house property and the invest in pension schemes. Their total deductions, if fully availed, can be as much as Rs 4.44 lakh, according to the Budget speech. This is because in addition to deductions of Rs 1.50 lakh allowed under the umbrella of section 80C, deductions that can be claimed for medical insurance, investment in pension funds and interest payment on home loan has been increased. Relief has also been given to those with dependents who are differently-abled or ailing from certain diseases as well as to senior citizens. Jaitley has in particular been sensitive about the higher medical expenses of senior citizens and those with disabilities. Thus the underlying message from the Budget is that everyone need to look beyond the present - save for the future to be self-reliant in old age and also be prepared for medical exigencies buying adequate insurance to cover cost of hospital treatment.