This was one of the longest Budget speeches with many statements of intent. Whether the intent is realised will depend on implementation.
The finance minister mentioned that banks will allow individuals to disable anybody else from depositing cash in another individual’s bank accounts. It would be interesting to see how this will actually work on the ground.
A new deduction of Rs 1.50 lakh has been announced for interest payable on a loan taken to acquire an electric vehicle. Such deductions spur taxpayers
by making loans cheaper, but it will require charging infrastructure and availability to drive the demand for electric vehicles.
The new deduction of Rs 1.50 lakh for interest payable on loans to acquire affordable homes is unlikely to really push demand. It is restricted to loans sanctioned till March 31, 2020, for first-time homebuyers where the stamp duty value of the house does not exceed Rs 45 lakh. A double income couple buying such a house are able to get the full benefit of the interest deduction within the existing provisions itself. Though the FM in her speech clearly mentioned it as a deduction in addition to the existing deduction, the wording of the section are not so clear.
The NPS exemption has been increased to 60 per cent as promised earlier. Additionally, central government employees will be allowed a deduction of up to 14 per cent of their salary as compared to 10 per cent for private-sector employees. One wonders why the special treatment for government employees as compared to private-sector employees.
In a welcome clarificatory amendment, it has been said that in case of non-exempt life insurance policies, what is taxable is the surplus above the premiums actually paid by the taxpayer and not the entire maturity value. The TDS has been changed from 1 per cent of the maturity value to 5 per cent of taxable income. It would have been ideal if clarification had also been provided on whether such income will be taxed as capital gains or income from other sources. The interchangeability of Aadhaar and permanent account number is also a welcome step.
There is no sign of the so-called “nudge economics” unit touted by the Economic Survey to encourage voluntary compliance and promote a non-adversarial relationship between taxpayers
and the tax department. It is still not clear how anonymised scrutiny assessments will actually work. Also, the much-touted pre-filling of income tax returns can turn out to be a curse rather than a blessing if the tax department does not allow changes in the reported figures which might have mistakes.
Forget rewarding honest taxpayers, the FM has actually burdened them with tax rate as high as 42.74 per cent (for those with taxable income greater than Rs 5 crore). Though only a few taxpayers
earn that kind of income but such high tax rates send wrong signals to honest taxpayers. The government is treating them as “tobacco items” on which a “sin tax” can be levied. A comparison with tax rates in advanced economies which have a high level of social security is wholly unjustified.
In a welcome but less-publicised move, people who have spent Rs 2 lakh on foreign travels, or deposited more than Rs 1 crore in bank accounts or have spent more than Rs 1 lakh on electricity need to file their income tax returns even if their income is below the minimum amount chargeable to tax. This is likely to net many non-filers who have large unaccounted incomes. If only non-filers with large holdings of real estate, including agricultural land, are included in this category, it will be poetic justice and the few taxpayers who pay 42.74 per cent tax may feel a little mollified.
The writer is an investment advisor