The first full Budget presented by the Narendra Modi-led government in its third term had some notable takeaways. While farmers and Bihar found notable mentions in Finance Minister Nirmala Sitharaman's eighth consecutive Budget speech, it is the middle-class that the government sought to reach out the most.
With ample indications of the middle-class featuring prominently in the Budget in PM Modi's message ahead of the commencement of the Budget Session, and repeated by President Droupadi Murmu in her address to a joint session of Parliament, the FM did not disappoint as she announced measures outlining a major overhaul of the direct tax regime, specifically benefitting those with an income of up to Rs 12 lakh per annum.
Individuals falling under this income group constitute an estimated 80-85 percent of the total taxpayers' pie.
Modi's booster dose for middle class
In a major overhaul of the income tax regime, FM Sitharaman provided much-needed relief to the middle class by raising the tax rebate limit in the new regime from Rs 7 lakh to Rs 12 lakh. This effectively translates into 'zero tax' for individuals with an annual income of up to Rs 12.75 lakh (with a standard deduction of Rs 75,000).
Announcing her decision, FM Sitharaman mentioned the middle class seven times, and acknowledged their contribution as the "engine" of the economy. "The middle class provides strength for India’s growth. This government under the leadership of Prime Minister Modi has always believed in the admirable energy and ability of the middle class in nation building," Sitharaman said.
The development marks a significant shift in addressing the grievances of a loyal support base of the Bharatiya Janata Party that has helped Modi retain power for three consecutive terms. The overhaul comes after an overwhelming sense of disenchantment within this section of the population, especially in the midst of governments all around focusing more on welfare measures aimed at the poorer and socially disadvantaged groups.
Advantage BJP in Delhi?
The changes in the direct tax regime and the corresponding benefit for the middle-class come just four days ahead of voting for the Delhi elections where the BJP is hoping to make a comeback after a 26-year hiatus. Delhi goes to polls on February 5 while the results will be declared on February 8.
The BJP is locked in a fierce contest with the ruling Aam Aadmi Party in Delhi and is banking on the formula applied in Haryana and Maharashtra to bag a much-needed victory in the capital. Having already announced several schemes like free power, water and travel on the lines of the AAP, the Centre's decision to alter the tax regime could translate into an advantage for the saffron party.
The middle-class in urban areas voted overwhelmingly in the BJP's favour in Haryana and Maharashtra -- states where victories allowed BJP to turn the narrative after a less-than-ordinary outing in the Lok Sabha elections. The move could also be aimed at cashing in on the voter fatigue in Delhi after a decade-long rule of Arvind Kejriwal's AAP.
The move could also help BJP counter the AAP's renewed push to woo the middle class, a section that has backed Delhi's ruling party in the Assembly elections in 2015 and 2020.
The RSS factor
Notably, in its meetings with the Finance Minister ahead of the Budget, the Sangh Parivar had also underlined a growing disenchantment within the middle class and suggested that the government consider providing them significant financial relief.
The RSS had said in its representation to the FM that economic policies must ensure that the burden on middle-class households is reduced, local businesses flourish and thrive, and public-sector units are safeguarded from "excessive privatization".
One of the specific proposals was an increase in the income tax exemption limit to Rs 10 lakh.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
