A little bit of Robin Hood in the Budget 2016

Let us first understand the idea behind the usage of Robin Hood for this budget. Robin Hood was a legendary character who would steal from the rich and distribute the same among the poor. This budget has taken a series of measures that have the tendency of taxing the more privileged tax payers and distribute the benefits among the less privileged tax payers. Here are a few instances from this budget:

How Robin Hood is this budget?

  • The budget 2016 has decided to tax the rich with a taxable income in excess of Rs.1 crore with a higher surcharge. Against the existing rate of 12% surcharge, the taxpayers earning more than Rs.1 core per annum will now pay a surcharge of 15%.
  • For the lower and middle income groups, there is an additional benefit in the form of a higher tax rebate. These tax payers will also get the benefit of higher exemption under Section 80GG for rent paid.
  • The budget 2016 has also decided to tax dividends in the hands of the shareholders. Again, it is a little equitable. Those who receive dividends in excess of Rs.10 lakhs per annum will now have to pay an additional tax at 10% on the dividend receipt. This is in addition to the DDT that is already being deducted by the company in question.
  • For the lower and middle income groups there is the benefit of higher rebate on housing loans. For first-time house buyers buying a property up to a value of Rs.50 lakhs and availing a loan of Rs.35 lakhs, the benefit under Section 24 will be higher by Rs.50,000. This is only in case of a first purchase of apartment and does not apply to second apartments.
  • Provident fund is another case where the government has tried to be a little more equitable. For example, any contribution by the employer to a provident fund beyond Rs.150,000 per year will be taxable as income in the hands of the employee. This is likely to bring most of the higher income earning executives under a higher tax liability.
  • The same provident fund has been used to benefit the lower income groups. For first time job seekers, the government has agreed to pay the PF contribution for the first three years and has also made a budget provision for the same.
  • Taxing cars is another way of hitting the rich. Apart from the infrastructure cess on cars, this budget also calls for deduction of TDS in case of purchase of SUVs above a value of Rs.10 lakhs.
  • Even in case of corporates, the budget 2016 has not made the benefit of lower tax rates available to the large corporates. Instead, it has first extended the facility of lower rates to companies with annual turnover of less than Rs.5 crore.

The word Robin Hood may be a little uncharitable as the budget 2016 has genuinely tried to make the rich subsidize the lower income groups. The government had two options in front of them. They could have opted for a pump priming approach. In this approach the government would have gone on a spending spree and fiscal deficit targets would have gone for a toss. The other option was to focus on fiscal prudence and let cross subsidization happen within segments. That is exactly what the government has tried to do.

There is a larger economic logic to what the government had done. For the vast lower and middle income groups in India, any tax benefit is tantamount to higher income and therefore higher consumption. For an economy that is starved of demand, that is music to the ears. This economic rationale of pushing consumption has probably made this budget look like having Robin Hood colours. In fact, it is a highly commendable budgetary effort!

Read more news and highlights regarding Union Budget 2016 at Religare Online.

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