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Relief for taxpayers, no COVID cess levied; but disappointment as no measures to ease tax burden

Amitabh Tiwari
·3-min read

Finance Minister Nirmala Sitharaman has presented the Budget for financial year 2021-22.

This year's budget proposals center on six pillars -- health and well-being, physical, financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government and maximum governance.

The Finance Minister mentioned that it was only three times that the budget followed contraction in the economy.

The markets have given a thumbs up to the budget with Sensex up over 2,000 points (4.5%) at around 2 pm.

The lower tax collections in FY 2020-21 (-18%) due to lockdown amidst the pandemic had prompted many analysts to predict an increase in taxes in the form of COVID cess in this budget.

However, with due credit to the finance minister, the tax proposals have remained unchanged. Neither the super rich tax outgo has been increased nor rich farmers brought into the taxation ambit. The tax rates and slabs have remained unchanged.

The industry has cheered this step as highlighted in the stock markets rally.

At a time when individuals are suffering from low incomes and job losses, and corporates from lower sales due to low demand, any new tax / cess could have dampened the market sentiment, scuttling chances of V-shaped recovery.

However, a section of individuals whose incomes have been impacted by the COVID have been disappointed as no measures have been announced to ease their burden.

Analysts were expecting steps to increase the take home pay / leave more money in the hands of people. This in turn would have provided a big boost to private consumption which is the main lever of India’s growth but has been lagging for some years even before the pandemic set in.

Higher demand for goods and services would have provided a boost to sales of companies and their profits resulting in higher capacity utilization. This would have consequently led to fresh investments kicking a multiplier effect in the economy.

Individuals were expecting an increase in standard deduction limit, a new work from home deduction, higher deduction limits for home loan interest and principal payments, medical insurance among other things. But nothing has been given to individuals.

The budget has an interesting data point, personal income tax collections at Rs. 5.48 lakh crore is higher than corporation tax pegged at Rs. 5.47 lakh crore for FY 2021-22.

With small and medium scale sectors as well as large corporates not yet fully recovered from COVID impact, the personal income taxes have become a very important source of government revenues.

With the fiscal deficit projected at 6.8% of GDP in FY 2021-22, there wasn’t much scope left for the Finance Minister to tinker with the taxes when the government is going to spend huge money on boosting health and other infrastructure.

To sum up, while the super rich are elated, the middle class has been left a tad disappointed with the Budget recommendations, though it fully appreciates the challenges faced by Nirmala.


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