Opinion on the Tax Rebate - Budget 2019

Source

The Union Budget of India that was presented on Feb 1, 2019 was a populist-vote bank driven one filled with proposals to woo all possible stakeholders who are eligible to vote. Be it farmers, the middle class or the economically stronger ones, all sections of society after a brief glance at the highlights of the budget will be content with what Piyush Goyal has to offer in the sixth and final Budget of this term of the NDA. Although I found many parts of the budget a questionable waste of money to fuel populist schemes, I did enjoy certain parts of it, especially the newly introduced tax rebate.

The proposed tax rebate  in which income upto INR 5 lakhs is essentially tax-free is one that I wholly welcome for many reasons. The tax-rebate proposal and terms is something that I welcome unconditionally but the way how the Finance Minister has portrayed income up to INR 6.5 lakhs tax free (with the disclaimer that this is only possible if all the 'right' investments are made) is misleading, even though he is not categorically lying. The INR 6.5 lakhs can be income free if the necessary deductions are made under various sections such as 80C which cover schemes like the Public Provident Fund or ELSS. Let us ignore the misleading nature of how it has been portrayed and instead focus on the more important matter at hand - the actual proposal.

The proposal benefits the middle class of India who earn upto INR 5 lakhs a year. As opposed to raising the tax slab and reducing the turnover of tax collected, the proposed rebate scheme will work on a system where tax is first collected and then rebated or returned presumably at the end/ beginning of a financial year or at some point in the year similar to how how it is done in the United States of America. Tax is paid every month since tax is deducted at source before the employer pays the employee their monthly wages. This results in the Government receiving an interest free loan from the month when the taxes have been paid till it is time to rebate the amount. Even if taxes are not paid and everything is paid in a lumpsum, the Government enjoys an interest free loan between the time of collection of the tax and rebating it.
Further, these households will now face zero income tax liability and will stand to gain a maximum of INR 12,500 per annum which will be credited to them. This money can either be saved and invested or can be used for consumerism which will automatically increase GST collections and increase the amount of money earned by non-direct tax (GST). Even if it is invested, it is beneficial to the growth of the economy and may be subject to taxation (STCG/ LTCG) when sold.