Explained: Jaitley’s Rs 4.44 lakh tax benefit gimmick

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010

Vivek Kaul

The finance minister Arun Jaitley during the course of his budget speech yesterday remarked: “After taking into account the tax concession given to middle class tax payers in my last Budget and this Budget, today an individual tax payer will get tax benefit of Rs 4,44,200.”
The details are provided in the annexure to the budget speech (which is reproduced below). Jaitley’s statement is incorrect at multiple levels. First and foremost he wants us to believe that he has been responsible for all these deductions. Secondly, what he is talking about are essentially tax deductions and not tax benefits.

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What Jaitley should have said is that the total tax deductions will amount to Rs 4.44 lakh. And the tax benefit would depend on the tax bracket one falls in. So, an individual in the 10.3% tax bracket would save tax of Rs 45,752.6. An individual in the 20.6% tax bracket would save tax of Rs 91,505.2. And an individual in the 30.9% tax bracket would save tax of Rs 1,37,257.8.
Further, Jaitley’s statement suggests that he is responsible for all these tax deductions, which is not correct. All these tax deductions have been around for a while. Jaitley in his two budgets has just re-jigged the total amount of deductions that are allowed, under the various sections of the Income Tax Act.
So, in the last year’s budget he increased the deduction allowed under Section 80 C from Rs 1 lakh to Rs 1.5 lakh. He also increased the deduction allowed for interest being paid on a home loan for self occupied property from Rs 1.5 lakh to Rs 2 lakh. This year, he increased the deduction on health insurance premium from Rs 15, 000 to Rs 25,000. He also allowed an ‘extra deduction’ of Rs 50,000 for investments made into the New Pension Scheme. The transport allowance allowed as an exemption has been doubled from Rs 9,600 to Rs 19,200.
Once all this is taken into account Jaitley has essentially allowed an extra deduction of Rs 1,69,600 in his last two budgets.(Rs 50,000 extra for Section 80C + Rs 50,000 extra for investing in NPS + Rs 50,000 extra for interest paid on a home loan + Rs 10,000 extra on health insurance premium + Rs 9,600 extra on transport allowance).
Any ‘extra’ benefit is on this Rs 1,69,600. For those in the 10.3% tax bracket this works out to Rs 17,407. For those in the 20.6% tax bracket this works out to Rs 34,814. For those in the 30.9% tax bracket this works out to Rs 52,221.
Hence, the tax deductions and exemptions offered by Jaitley have led to a maximum tax benefit of Rs 52,221 and not Rs 4.44 lakh, as he claimed in his speech.

The column originally appeared on www.firstpost.com on Mar 1, 2015

(Vivek Kaul is the writer of the Easy Money trilogy. He tweets @kaul_vivek)

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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