Tax on up to Rs 1 lakh pay to go

NEW DELHI: Come Tuesday, the middle class employee’s smile could turn into a wide grin. For, there is terrific pressure on finance minister Jaswant Singh from his party to announce two significant concessions to the salaried middle class in his interim budget — one, to raise income-tax exemption limit to Rs 1 lakh and, two, to merge the Central government employees’ DA with their basic salary. As things stand, Mr Singh has virtually agreed to do the first, while he’s holding out on the second.
The two demands were recently conveyed by the BJP party leadership to the finance minister. Mr Singh indicated he was okay with the suggestion to hike the I-T exemption limit, but he demurred on the DA issue and is learnt to have then approached the prime minister with his ‘difficulty’. Yesterday, the PM himself intervened with the party leadership on Mr Jaswant Singh’s behalf.
But party leaders, as well as several important government leaders, including deputy PM LK Advani, strongly feel that it would be politically unwise to deprive government employees of the “feel-good� factor. Apparently, they’ve told Mr Vajpayee as much. Even the suggestion to merge half of the 59% DA with basic salary hasn’t found their favour. Said a senior minister: “It will have no meaning. If we are doing it, we can’t do it half-heartedly. We have to bite the bullet.� It’s learnt that the recent Hewitt Associates salary survey predicting private sector increments in the 9.7% to 13.4% range has caught the leadership’s eye. The argument is that if this fuels the “feel-good� factor among private sector employees, something similar must be promised for government employees to get them in the right frame of mind before the election.
The BJP believes that the DA sop will help the party with sarkari babus not just in Delhi but in most urban areas.
Interestingly, the party leadership is aware that this is bad economics. Leaders concede that Mr Jaswant Singh’s fears are not misplaced — that if the Central government employees’ DA is merged with their basic salary, there would be similar demands among state government employees, thus creating a serious stress on the already precarious state finances.

However, there is little resistance on the other demand for raising the IT exemption limit. At present, up to Rs 50,000 is not taxed, while income between Rs 50,000 to Rs 60000 attracts 10% tax on income exceeding Rs 50,000. The next slab of Rs 60,000 to Rs 1.5 lakh attracts Rs 1,000 plus 20% of the income exceeding Rs 60,000 with a 5% surcharge. The proposal now is to change it by making income up to Rs 1 lakh totally exempt of income tax.
This proposal is in line with the recommendation of the task force on direct taxes headed by Vijay Kelkar which, too, has asked for tax exemption on income up to Rs 1 lakh. According to the Kelkar committee report, this would have insignificant impact on tax revenue, as the total collection from this income bracket is a meagre Rs 123 crore.
The annoucement on I-T exemption will, of course, be in the nature of a promise to implement it in the next full budget. In case the DA sop is given by the finance minister, it can come into effect immediately as the measure has no tax implication. A mere administrative order would be enough.
Party leaders feel that eventually the prime minister, too, will give in to the DA demand, as he shares the BJP’s anxiety to reach out to the government employees. The BJP recognises this section as being sympathetic to the party — in fact, a section that has helped it considerably to gain power. And one good turn deserves another.