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Disappointing budget for the aam aadmi reeling under inflation

Never before has a budget been so eagerly awaited and never before has a budget been so disappointing for the common man – the man on the street. I believe this in spite of the praises being heaped on the finance minister. As you will see as article unfolds, the aam admi does not, in times of rising prices, get much relief.

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Never before has a budget been so eagerly awaited and never before has a budget been so disappointing for the common man – the man on the street. I believe this in spite of the praises being heaped on the finance minister. As you will see as article unfolds, the aam admi does not, in times of rising prices, get much relief.

The finance minister dazzles the individual by mentioning in his speech that those earning up to Rs 4,44,200 (please see table below) would not have to pay tax.

However, there are several factors that one should note. First of all, the benefits i.e. deductions are available only if one actually incurs the expenditure. If one does not have a housing loan the benefit does not exist. Similarly unless one actually invests in the National Pension Scheme, the deduction will not be available. The question also arises on whether the National Pension Scheme is the best available option. Are there better schemes available that offer a better return such as mutual funds and equities? Pension is a good thing and this concession would have been more meaningful if it was available for contribution to any recognised pension scheme. The increased deduction under mediclaim has been, with increasing premiums, long overdue. I would have been happier if the deduction of medical allowance given to employees of Rs 15,000 had been raised as that is really minimal and has remained unchanged for at least a decade. The increased deduction for transport allowance, while welcome, is too low. Rs 19,200 per annum is Rs 1,600 per month. With monthly bus passes costing Rs 880 for distances of up to 20km, this additional deduction of Rs 800 is not much. A day after the budget the prices of petrol and diesel have been raised by over Rs 3 per litre. Concessions given to recipients of this allowance using vehicles have thus within 24 hours been burnt away. Additionally, many employers do not give transport allowance. Therefore this benefit to many tax payers is meaningless.

The finance minister must realise that though it is being shouted from the rooftops that inflation is coming down and is under control, the man on the street is not delighting in it – not with a 140% increase in the price of vegetables since May 2014. And most other prices, though not at this rate, have also risen exponentially during the last 12 months. I was truly jealous of a friend in Canada who mentioned to me yesterday that inflation there has been averaging 0.6% in 2015. In the United States it actually fell by 0.1% in January 2015 (it was 3% in 2014).

This budget envisages various other increases too. Service tax is going to increase from 12.36% to 14.0%. As practically everything has been brought under the service tax net, any service availed of is going to get taxed. This means that if you go to a restaurant you'd pay more; if you avail a service from any service provider (telephone, life insurance, etc), you'd pay an additional 1.4%. Additionally, soft and sugary drinks will increase with a hike of 0.5% on excise duty. Other costs that will go up include dry cleaning, courier services, cement, card-related services, etc. These will result again in an increase in costs for the man in the street already reeling in a rising costs tsunami. Cigarettes, of course, will cost much more but then that is a good thing as it is a habit that has no redeeming features.

Presently, interest from recurring deposits is not subject to deduction of tax at source. It is now proposed to tax these at source if the interest exceeds Rs 10,000.

The benefits given should have had some correlation to the rate of inflation as the common man needs money in hand not concessions if he spends. This could have been partly accomplished if the income exemption had been raised from the present Rs 2,50,000 to Rs 5,00,000.

The writer is MD, Cortlandt Rand and an author

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