The 2024 Union Budget offers mixed outcomes for India's middle class. It provides some tax relief and investment in key sectors while failing to addre
Hopes and Hurdles: Decoding the Middle-Class
Perspective on Budget 2024
By Ramesh Sundaram, Editor-in-Chief
(The 2024 Union Budget offers mixed outcomes for India's middle class. It provides some tax relief and investment in key sectors while failing to address inflation and cost-of-living concerns.)
The Union
Budget 2024-25, presented by Ms Nirmala Sitharaman on 23 July 2024, has been
the focal point of many discussions. This cover story delves deeply into a
brief analysis of the Budget, specifically referring to its positive and
negative impact on middle-class families across various sectors.
The first expectation of the middle class is whether the Budget has provided any Income Tax relief for them. In fact, the minuscule 2.2 per cent of IT taxpayers contribute more to the economy than through corporate tax. They are the main contributors to the economy through Income Tax payments. The middle class bears the brunt of manifold pressures like taxation, unemployment, and a rise in the cost of essential services and goods, and hence naturally expects the announcement of substantial IT relief in the Budget. They are disappointed by the minuscule IT relief given.
People generally believe that the Government will not provide great relief, knowing that it gets the maximum revenue through this segment only. In a lighter vein, the Government won't kill this Golden Goose (IT payers, aka middle class). But despite all the fiscal difficulty, this Budget has attempted to give some relief to the middle class, though it may not have been up to the expectations of the aam aadmi.
The Positive Side:
Income Tax Relief: The introduction of different tax slabs compared to previous Budgets and raising Standard Deduction from 50,000 to 75,000 have offered reasonable benefits of up to Rs 17,500 to the middle class, leading to an increase in their disposable income.
IT payers get more benefits in the present Budget. These include: a) an increase in the Standard Deduction limit, b) rationalising IT slabs. This rationalising of the IT slabs will reduce the IT payment of middle-class as seen from the table above. For an example the tax rate of a person earning upto Rs. 7 lakh was 10% but now it is 5%. So the present Budget for 2024-25 is more beneficial than the 2023-24 Budget.
Housing Sector: There is a sharp focus on affordable housing. This will help many middle-class people realise their dream of owning a house. The budgetary allocation for this sector is Rs 10 lakh crores with Central assistance of Rs. 2.2 crore for the next five years under PM Awaas Yojana-Urban 2.0 to address the housing needs of one crore urban poor and middle-class families. The Budget has also extended the additional deduction of Rs 1.5 lakh under Section 80EEA for home loans taken for affordable housing. The Government also plans to promote transparent rental housing markets with enhanced availability.
Infrastructure Development: The Budget has focused on more investment in infrastructure development. The Government expects more job creation because of this, which will further improve the standard of living of the common man. In this regard, around Rs Eleven lakh and eleven thousand crores (Rs. 11,11000 crores) for capital expenditure have been allocated. This is 3.4 per cent of GDP (Gross Domestic Product). The Budget also envisions a collaborative effort with State Government and multilateral development banks to promote urban infrastructure projects.
Employment: The Budget has allocated Rs 2 lakh crores for job creation over the next five years and three new schemes for employment generation. These include a scheme to provide one-month wages to freshers entering the workforce in all sectors, an internship scheme in 500 top companies that is likely to provide opportunities for one crore youth in the coming five years, and Rs 3,000 per month for employers for two years as Employment Provident Fund contributions for each new employee.
Education: The Budget's increased allocation for education will improve its quality. This will certainly benefit the middle class, which spends a major part of their income on education. In this regard, the Budget has allocated around 2 lakh crores to education and Rs 5,300 crores for teacher training.
Healthcare: The Budget increases the allocation for healthcare, which is sure to improve the affordability and access of healthcare to the middle class. The Budget has increased allocation for healthcare to Rs. 90,657 crores, a marked increase of 12.9% over the previous year. Three cancer treatment drugs are exempted from Customs Duty. Out of the total allocation, Rs. 90 crores have been earmarked for the National Tele Mental Health Programme, while AIIMS has been apportioned Rs. 4523 crores. The Budget has also mooted the expansion of the National Health Mission. This, too, will immensely benefit poor and middle-class families
Benefits for Startups: The Angel Tax was levied on private concerns for receiving excess amounts on shares beyond fair market value. Its abolition, announced in the Budget, will immensely benefit startups. An extension up to March31, 2025 has also been given to Eligible Startup date to claim profit-linked tax holiday deductions. Tax Deduction at Source (TDS) to e-commerce has been reduced from 1% to 0.1%. This will encourage new entrepreneurs from middle class to start a business.
The Negative Side:
Income Tax: Very marginal Income Tax relief has been given. This has disappointed the middle class. They expected more relief as they are the bulk contributors to the economy in terms of income tax. They contribute around 19% of Gross Total Revenue (GTR). Naturally, they expect more relief, and it is right also. The Government should seriously consider their plea for the reduction in Income Tax. The only thing that can be said is that the present Budget has not lived up to the aam aadmi's expectations as for Income Tax relief is concerned. There is and will be a gap between expectations and actuals. The irony is that income tax contribution is more than Corporate Tax contribution to the revenue
Inflation: Rising inflation is sure to erode the income, saving, and purchasing power of the aam aadmi. The inflation rate is currently 5.08 per cent, against a predicted 4.80%. This is attributed to food inflation, which now stands at a whopping 9.36%.
Fuel Prices: The prices of most fuels are very high. Petrol prices are around Rs 100 per litre, while diesel prices are around Rs 90. This not only increases transportation costs but also has a cascading effect on the prices of goods and services. This has definitely cut into the budget of a middle-class family.
Unemployment: The unemployment rate is high, jumping to 9.2 per cent in June 2024 from 7 per cent in May 2024, causing a dent in the incomes of middle-class people. The Budget has attempted to provide solutions to this. Let us see how this works out.
Cost of Living: The food inflation now stands at a high of 9.32 per cent. This has also eroded the value of the rupee. Goods & Services Tax rates are maintained at the same level with the exception of a hike in GST for luxury goods. This decision not to reduce GST on essential items like food and household goods has not given any relief to the middle class from inflationary pressures due to the increasing cost of food and essential commodities and services. This will certainly make a hole in the pocket of middle-class people. The Consumer Price Index (CPI) inflation rate stood at 6.2% in June 2024, which again adversely affects middle-class people.
Education: There is no direct relief in GST on educational services or school and college fee subsidies. This should be juxtaposed with the cost of higher education in private institutions, which ranges from Rs 1 lakh to Rs 5 lakhs depending upon the course and the institution.
Income Inequality: India's richest people (1 per cent) earn a whopping 22.6 per cent of national income, while only 15 per cent is earned by the bottom 50 per cent. This is an all-time high. A serious effort is needed to address this rising income inequality issue.
Investment Securities: The term 'security' includes many financial investments like bonds, stocks, notes, debentures, investment contracts, etc. The tax levied on transactions in securities is known as the Securities Transaction Tax (STT). This STT has increased from 0.0625% to 0.1%. For Futures Trading, the STT is proposed to be hiked from 0.0125% to 0.02%. Though this seems to be marginal, it will impact the middle-class people who deal with these. The share price index dropped immediately after the announcement but has since then increased to a new high. This means players in the market have reconciled to it but are investing more because of other positive factors of the Budget.
Capital Gains Tax: The Long-Term Capital Gains Tax is now 12.5 percent. Earlier, the LTCG was 20% with indexation. But now the indexation has been done away with. The contention here is that LTCG will actually be 14.5 percent due to removal of indexation. Some experts feel because of this there will be a manifold increase in tax payment. They also feel that it will generate more black money and undervaluing of a property. This is a serious issue and has to be analysed further. At the same time, the tax exemption limit for LTCG has been raised to Rs 1.25 lakhs from Rs 1 lakh. Short-Term Capital Gains Tax has been increased from 15% to 20%. Naturally, the small and the medium investors from the middle class bear the brunt of this increase. This may mean that the Government favours long-term investments over short-term investments.
Housing and Real Estate: Rising real estate prices in urban areas are a source of concern. The average cost of housing has increased by 8 to 10 percent year-on-year, which is a big challenge for the middle class who aspire to own their own home.
Senior Citizens: The elders are a silent majority and they have absolutely no say. They suffer silently. The cut in interest rates on bank deposits has terribly affected their income. Furthermore, there was a mention in the Presidential Address of an insurance scheme for Senior Citizens who are above 70. But this has not found a place in the Budget. The Government has to clarify. The increased cost of living has also dented senior citizens' income. The payment of Employment Provident Fund arrears, on which there is a Supreme Court judgment, is put in cold storage citing various reasons. The people affected are the retired middle-class employees who depend on their pension. The Government should act decisively in this regard.
The Opposition alleges that the Budget favours only the States where alliances of BJP are ruling. This may be due to political compulsions, they allege. The Government says that though other States are not mentioned in the Budget, they also get a fair share of the Budget allocation.
Conclusion: The Union Budget 2024-25 presents a mixed outlook for India's middle class. While there are commendable steps towards easing the tax burden and promoting economic growth, it does not address vital areas like inflation, healthcare costs, and educational expenses. This is a serious concern for the middle class, which has to face these hurdles. The Budget has received both brickbats and bouquets from all class of people.
Finally, it is pertinent to mention here that Warren Buffett said that political pressures should not be mixed with investment decisions.
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