In 2015, Prime Minister of India Narendra Modi had appealed to “Middle Class” to give up their LPG subsidy. More than 10.1 million (1.13 crore) “Middle class” people voluntarily signed up. This helped Indian government save more than INR 30,000 crores / 300 billion ($3.5 Billion). The “Middle Class” has always come forward to help the nation out. And in return it expects some concession from Government in taxes. But they are most ignored section of society. Budget 2024 has made this feeling worse.
I really don’t want to get into budget as it’s not my area of expertise. However, as a salaried middle-class taxpayer, I have suggestions on how the taxation and message around it can be improved. Here are few thoughts –
- First and foremost, India needs to have a formal definition of “Middle Class”. I hope when Finance Minister presents economic survey as part of budget process for 2025, the economic survey has a section that clarifies who is considered “Middle Class”. This is very important to ensure taxpayer and tax collectors are on same page.
- There is huge disparity in how Government’s different schemes treat income levels
- From taxation standpoint, anybody who has income of more than INR 300,000, must pay personal income tax.
- But… anybody with income less than INR 800,000 is considered Economically Weaker Section (EWS).
- If income up to 800,000 considered EWS, shouldn’t taxation start after income level of 800,001?
- Well, this is not the only contradiction in Indian tax code. Under old tax regime, premium paid for life insurance, health insurance etc. are entitled for tax exemption up to a certain limit. However, no such exemption is given to premium paid for vehicle insurance.
- Under old tax regime rules, there is an exemption for Vehicle Running Expense (VRE). Depending upon vehicle category, engine capacity etc. there is tax benefit available from INR 2,700 to INR 3,300. But these limits have not changed for more than a decade. However, fuel prices have increased by around 30%.
- House Rent Allowance tax deduction is too complicated. Metro category should be updated. Cities like Bengaluru, Hyderabad and Pune perhaps needs exemption limit like metro category.
- To encourage savings, 80C deduction limits should be revised periodically (may be every 5 years).
- Section 24 limit for interest rate deduction should also be revised and linked to interest rates to encourage housing market.
Salaried class follows one simple unwritten rule while buying the car, “value of car shouldn’t be higher than what their boss drives. If car value is higher than boss, next year’s pay hike becomes problematic.” For section of society; when they see farmers driving Audi, BMW and other expensive cars and not paying any tax on their income, anger goes up further. Hopefully in about 180 days when next budget comes out, subset of these issues would get some attention.