Introduction

The Interim Budget 2019 in India has set the stage for significant changes in the tax landscape, with particular implications for the working middle class. While the full budget has yet to be presented, the initial measures, such as the enhancement of income tax exemption limits, are likely to have a profound impact on various sectors of the economy and on the lives of individuals.

Impact of Enhanced Tax Exemption Limits

The Interim Budget's most significant impact on the middle class was the enhancement of the income tax exemption limit to Rs 5 lakhs. This adjustment is expected to have a positive ripple effect on the economy in several ways:

Positive Economic Impacts

Increased Declaration of Income: Many people are known to declare less income than they actually earn to evade taxes. With the higher exemption limit, more individuals are expected to declare their actual earnings, thus increasing their eligibility for various bank credit facilities. This, in turn, could lead to an expansion in the retail credit portfolio offered by banks.

Increased Consumption: Higher credit availability means more disposable income, which is likely to translate into greater consumer spending. Sales of automobiles, consumer goods, and residential properties may experience a significant uptick over the coming months.

Enhanced Disposable Income: The higher tax exemption limits would result in greater disposable income, fueling consumption and potentially driving economic growth.

These changes are expected to provide a significant boost to the economy, leveraging the purchasing power of the middle class.

Impact on the Working Middle Class

By 'middle class,' we typically refer to individuals employed in the corporate sector or running their own small businesses in urban areas. Despite expectations of significant benefits, the Interim Budget 2019 has fallen short of providing substantial relief to this segment:

No Major Sops

Although the budget did not introduce major sops, it did provide certain tax planning benefits that could make a difference for those earning up to Rs. 60,000 per month. Now, these individuals will not have to pay any taxes with proper tax planning, and even some earning up to Rs. 60,000 could avoid tax. However, the next tax slab poses a more critical issue.

Unequal Tax Burden

The tax burden becomes disproportionately higher for those earning between Rs. 7 lakhs and Rs. 10 lakhs annually. While an individual earning Rs. 7 lakhs can pay no tax with proper planning, an individual earning Rs. 10 lakhs faces an increased tax liability of 50-60,000 rupees. This stark difference in tax burden highlights the increasing gap between the effective tax rates for people earning just above Rs. 7 lakhs and those earning Rs. 10 lakhs.

Tax Slab Adjustment

Given that the tax slabs have remained unchanged for a while, there is a need to adjust them for inflation. While this is a critical step, the current tax structure does not provide long-term relief to the working class, especially those with higher earnings. Even with inflation eroding their savings, the tax burden on the middle class, particularly those with higher earnings, is escalating.

Reservations and Taxation

There is also a contradiction in the stance of the Government, which categorizes people earning less than Rs. 8 lakhs as economically weak, qualifying for reservations. However, these same individuals are often expected to pay significant tax, despite their relatively modest incomes. This paradoxical situation adds to the complexity of economic policies and their impact on the middle class.

Conclusion

The Interim Budget 2019, while bringing some relief to the working middle class, has also introduced some complex issues related to the tax burden. The government's focus on the poor and the effective tax rate for those earning more than Rs. 5 lakhs raises concerns about the long-term welfare of the middle class. It is essential for the government to address these issues as they significantly affect the overall economy and the well-being of the working middle class in India.