With a keen eye on the elections, the interim Budget 2019-20 contained elements that are aimed at benefiting three major segments of the population — farmers, informal sector workers, and salaried taxpayers — with announcements of an income support scheme for farmers, an insurance scheme for informal sector workers, and tax exemptions for salaried workers.
Finance Minister Piyush Goyal, in his interim Budget speech on Friday, announced the creation of the Pradhan Mantri Kisan Samman Nidhi Scheme, which is aimed at providing income support to vulnerable landholding farmers. What was notable about the announcement, however, was that he allocated ₹20,000 crore for the scheme for the current financial year.
Opposition party members were quick to point out that this was designed to evade the Election Commission rules regarding announcements that are allowed to be made in an election year.
Silent on funds
The Finance Minister was however silent on how these high-expenditure schemes would be financed. In fact, he even admitted that implementing the farmers’ income transfer scheme was the reason why the government would be missing its fiscal deficit target not just for the current year, but also for next year. He said the fiscal deficit would be 3.4% of GDP for both 2018-19 and 2019-20, compared with a target of 3.3% and 3.1% respectively.
“Under this programme, vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support at the rate of ₹6,000 per year,” Mr. Goyal said. “This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of ₹2,000 each. This programme will be funded by the Government of India and will entail an annual expenditure of ₹75,000 crore.”
While keeping tax rates unchanged, the Finance Minister announced that those earning up to ₹5 lakh a year would be exempt from income tax. This, he said, effectively meant that those earning ₹6.5 lakh a year would not need to pay tax if they made full use of the ₹1.5 lakh exemption available under Section 80C of the Income Tax Act.
“This neo-middle class required certainties about their future tax liabilities and to save them from the refund process, we have given benefit to this category,” Mr. Goyal said.
He further said that the standard deduction limit for salaried taxpayers would be raised to ₹50,000 from the ₹40,000 announced in last year’s Budget. “This will provide additional tax benefit of ₹4,700 crore to more than three crore salary earners and pensioners,” the Finance Minister said.
In another move designed to appeal to the masses, the Finance Minister said the Tax Deduction at Source (TDS) threshold on interest earned on bank/post office deposits has been proposed to be raised from ₹10,000 to ₹40,000. Further, the TDS threshold for deduction of tax on rent has also been proposed to be increased from ₹1,80,000 to ₹2,40,000.
He also proposed to exempt the levy of income tax on notional rent on a second self-occupied house. Currently, income tax on notional rent is payable if one has more than one self-occupied house.
Interim Budget 2019: An ‘insult’ to farmers, says Rahul
He said that this relief was being provided considering the difficulty of the middle class having to maintain families at two locations on account of their jobs, children’s education, or the care of parents.
In a bid to win over informal workers, the Finance Minister announced the Pradhan Mantri Shram Yogi Maandhan Scheme designed to ensure a fixed monthly pension of ₹3,000 per month for informal sector workers above the age of 60. The contribution would be ₹100 per month for those joining the scheme at the age of 29, while it would just ₹55 a month for those joining at the age of 18. The government will match the monthly contributions with an equal contribution of its own.
Coming just a day after the government revised significantly upwards the GDP growth estimates for 2016-17 and 2017-18, the Finance Minister’s Budget speech spent a considerable amount of time on the state of the economy and how it was a bright spot in the world.
“The country witnessed its best phase of macro-economic stability during this period,” Mr. Goyal said.