Budget 2017: Income Tax cut by 5% is only a half measure by Arun Jaitley

S Murlidharan
S MurlidharanFeb 01, 2017 | 14:30

Budget 2017: Income Tax cut by 5% is only a half measure by Arun Jaitley

The reduction of the first slab rate from 10 per cent to 5 per cent on income between Rs 2.5 lakh and Rs 5 lakh perhaps is the biggest takeaway for individuals as far as Budget 2017 presented by finance minister Arun Jaitley in the Lok Sabha on February 1, 2017, is concerned. 

However, the move has made our tax rates steeper once we cross the Rs 5 lakh threshold — we would be assailed by a hard-hitting 20 per cent on income between Rs 5, 00,001 and Rs 10 lakh and thereafter by a 30 per cent rate. From 5 per cent to 20 per cent is a quantum jump or leapfrogging.


In all fairness, the second slab of Rs 5 lakh to Rs 10 lakh should have been taxed at 10 per cent, with 30 per cent kicking in at the level of Rs 20 lakh. Income between Rs 10 lakh and Rs 20 lakh should be taxed at 20 per cent.

This has left the very senior citizens (80 and above) in the cold as before.  They pay no tax on their first Rs 5 lakh but are assailed with a 20 per cent impost on income between Rs 5 lakh and Rs 10 lakh in common with everyone else. 

The very senior citizens (80 and above) have been left in the cold as before. (Credit: PTI photo, for representational purpose)

In deference to their lesser-earning potential, they should have been taxed softly.  Why should they be subjected to a 20 per cent tax straightaway?  The Budget ought to have righted this wrong against the aged. 

Our tax rates may not be very high, but they are steep.  And Budget 2017 has accentuated this problem. 

Ideally, we should be increasing the rates in multiples of 2.5 and not 10 as hitherto. 

It is half measure again when it comes to the holding period for computing long-term capital gains.  Reducing the general holding period from hitherto 3 years to 2 years narrows, all right, the gulf between securities for which the norm is one year and other assets, but in all fairness, there should be parity between the two. 


If reducing the holding period to one year across the board was found difficult, the holding period for securities could have been increased to 2 years from the present one year that unnecessarily spares moneybags from any tax on long-term capital gains from bourses if they sit tight and bide their time just for 365 days. 

It is a half measure that characterises the cash transactions reforms.  Heeding the Election Commission's advice, the finance minister has reduced the limit up to which anonymous cash donations can be accepted from the present Rs 20,000 per donor to Rs 2,000. 

At first blush, it looks like tightening of belts that would deny elbow room for cash.  But a moment’s reflection would show that political parties would wriggle away from this bind easily — if it took five persons, often fictitious, to account for a cash donation of Rs 1 lakh, now it would take 50 people. 

Political parties are not going to lose sleep over this. Only their accountants would have to work that much harder. Ditto for the clampdown on cash transactions in business — Rs 10,000 from the existing Rs 20,000 per day per payee. 


We as a country know how to take a mile when an inch is given. A wily businessman procured thousands of invoices from his supplier so that a huge plant could morph into thousands of parts to be assembled at his site. The idea was to convert a machinery costing say Rs 5 crore into parts each of not more than Rs 5,000 — the maximum limit for claiming 100 per cent depreciation. This story was told by none other than former prime minister Manmohan Singh in his avatar as finance minister in 1991.

Increasing the carry forward period from 10 years to 15 years for excess tax paid, courtesy Minimum Alternative Tax (MAT), is of a piece with the series of half measures enumerated above because the carry forward facility itself is illusory, thanks to the requirement that in the year in which the set-off is claimed out of the amount brought forward (thus tax in cash in any case must be paid to the extent of MAT). 

It is because of this harsh rider that often the brought forward excess tax goes a-begging.

Last updated: February 02, 2017 | 13:17
Please log in
I agree with DailyO's privacy policy