Wednesday, May 21, 2014

Economic Policy and New Government

So, after a long time we are going to see a stable government at Center.  In the previous two coalition government tenures, we saw the policy reforms going from dirt to dogs and the economy of the country though doing good from one aspect, not to good from the Inflation as well as Foreign Currency reserve perspective.

The markets are upbeat, the Gold Price seems to be easing, Rupee seems to be appreciating (though marginally), but what does that mean for a Common man in India?  

As a common man from India my eyes are set for the outcome of Prime Ministers Swearing in Ceremony. My guess is most of us from the Middle class would be interested in knowing what is in store for us from the Financial and Economic Development perspective?

Yes, it would be very interesting to see who would be appointed as the Finance Minister and who would be at the helm of Economic affairs in soon to be announced results.  Through some of my discussions with few friends and colleagues, they opined it may be Mr. Jaitely or Mr Shourie. I would say, Mr. Jaitely may be appointed as Law Minister but certainly would not be the right choice. Mr Shourie for  that matter would be more appropriate as the Finance Minister as he has that experience on Economic front and has worked with World Bank too.

Saying that, coming back to view the aspects of what would be the expectation of a common man to have better control on their financial status?  The common man that generally makes up the Middle Income Group and is mostly salaried would like to see reforms in the Income Tax bracket with may be following Raise the Income exempt from Tax to say 300,000 / 400,000 / 500,000 for Male / Female / Senior Citizen categories
  • Raise Limit under Section 80 C to 20,000 from current limit of 100,000
  • Revise the Tax brackets as revision suggestion above would mean that till the salary of 500,000, there would be no tax. So the revise slabs should ideally look like - 
    1. Salary from 0 to 300,000 - No Tax
    2. Salary from 300,001 to 1,000,000 - 10%
    3. Salary from 1,000,001 to 2,000,000 - 20% (flat)
    4. Salary from 2,000,001 and above - 30% (flat)
In the suggested slab above, the reason I mentioned "Flat" is that at current the calculation of Income tax is prorated basis, that means if an individual has a Salary of 1,500,000, the Tax calculation is on the slab basis and the upper limit of Tax is applicable only on the portion of Salary exceeding the limit.  but that way, the calculations actually do not seem to be appropriate to me

  • Revise the limits for LTA, Conveyance Allowance, Medical Reimbursement and HRA as the current limits have been there from ages and they have lost relevance in the ever changing world.  
    1. LTA should be made an yearly affair from two times in four years
    2. Conveyance Allowance of 800/month seems to be pea nuts for the escalated cost of commuting.  I should be hiked to say 2500 for those who own a Two Wheeler and 5000 for those who own a Four Wheeler
    3. Medical Reimbursement needs to be more connected to the health conditions and should be slabbed for various cases than just the general slab today.  Suggestive Slabs could be - 
      1. General Physician / Medicine related expenditures - 25000/household/year
      2. Specialty Cases not including Oral Care - 75000/household/year
      3. Oral Care - 10000/household/year
    4. HRA also needs to be revised to meet the current market driven conditions with ever escalating rental prices
  • Revise the Deductions for Housing Loans as the prices in this sector have sky rocketed and the interest rates have been really fluctuating to touch the higher end. the limit that is currently 150,000 on the interest being payed needs to be revised to something in the vicinity of 500,000. 
  • Revise the Income Tax limits for the Income from Agriculture
  • Tax on Banking Transaction - this certainly doesn't seem to be a good way of taxation as then there would be more in Cash Transactions that could boost the Black Money coffers
  • There are also other provisions including deduction of tax at source for deposits yielding interest of more that 10,000.  That limit also needs to be reviewed as women and Senior Citizens get troubled by that.  In certain cases even harassed.  
I would expect that the Newer Government would look at this aspect of the changes to be brought in the Income Tax Regime.  However, I would also like to highlight that the Government would also need to look at overhauling the Tax regime as a whole to ensure that the whole burden doesn't fall back on the so called Middle Income Group that pays the tax as they earn.

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