Belying expectations, Finance Minister Nirmala Sitharaman did not tinker with the personal income tax rates in the Budget for 2022-23.
The minister also did not raise standard deduction, which was widely anticipated in view of elevated inflation levels and impact of the pandemic on the middle class. The standard deduction currently stands at Rs 50,000. There was no change income tax slabs in the personal income tax category in the Budget unveiled on Tuesday. The corporate tax rate too was kept at the same level. However, concessional rate of 15 per cent has been extended by one year for newly incorporated manufacturing units.
Expectations of tax sops for the middle class was high ahead of Budget 2022, given the need to push consumption in the race to re-capture growth in a pandemic-hit economy.
According to CMIE data, India’s private final consumption expenditure (PFCE) declined by six per cent in nominal terms to Rs.115.7 lakh crore in 2020-21 from Rs.123.1 lakh crore in 2019-20. “Consumption expenditure growth has been slowing through the last decade. Growth in PFCE that averaged at 16.2 per cent per annum during 2010-14, fell to 12.1 per cent per annum during 2014-17 and further down to 10.5 per cent per annum during 2017-20. Then, suddenly as the Covid-19 struck India this declining but still double-digit growth in PFCE shrank spectacularly.”
Tax benefits provided to the corporate sector, in the previous years. have not resulted in private capital expenditure, indicating that unless private consumption goes up, the industry will not invest in creating new capacity.
Boosting Consumption
The Covid-19 pandemic disrupted economic activities for two consecutive years. While lakhs of people either had to take salary cuts several others in the formal sector have also lost jobs. Those who were lucky to have survived the pandemic without facing a salary cut had to settle with no or single-digit hikes. In 2020 the average salary increment in India was 4.4 per cent and 8 per cent in 2021, according to Deloitte’s Workforce and Increment Trends survey 2021. For 2022, it has been pegged at 8.6 per cent. The salary hikes should be viewed in conjunction with the Reserve Bank of India’s projection of Consumer Price Index (CPI) inflation of 5.3 per cent for the financial year 2022.
“The salaried class is caught between the devil and the deep blue sea. You do not have many avenues to save taxes. A few years back, there was a significant amount of surcharge levied. We have the highest tax slabs with a surcharge for a high-earning individual. And that’s pretty steep. If the government wants to ensure that people are spending more, then more money needs to be put in the hands of the people,” Aarti Raote, partner, Deloitte India, said.
