Indian Middle class and Budget 2020 – Did you really benefit


Indian Middle class and Budget 2020 – Did you really benefit

Indian middle class whose annual income ranges from thousands to a few lakhs, always look up to the budget every year. The only expectation they have is towards the excess cash which shall remain in their pocket after tax cuts. They ponder upon the speech of the Finance Minister but at the end land up gaining nothing but actually shelling out more. This is exactly what has happened in the past few years. Budget 2020 is no different.

Just like GST, government has introduced multiple slabs of income tax with a gap of Rs. 2.50 lakhs each. Also in order to simplify the tax filing process, the taxpayer has to forego all benefits of deductions and exemptions and pay tax at flat rates. This would mean that there would not be any tax benefit on the savings that a middle class would make. Savings are the essence of middle class which now seems to be the biggest pain point of Finance Minister. Tax cuts on savings has always been a source of encouragement for this segment of citizens. Further neither the tax cut in new slab rates is so substantial that it would leave huge sum of money nor new slabs have simplified anything for an individual. Savings has always been the strength of middle class, be it for higher education or marriage of children or meeting any untoward exigencies which may arise. If we discourage them, we might witness the increase in hardship which a middle class will be facing after retirement.

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The new tax structure for individuals does not permit them to take any benefit of housing loan or standard deduction which they presently get for a self-occupied house. Not only benefit of house property has been withdrawn but also the standard deduction from salary is also denied in Budget 2020. It seems that the government has not done any ground work before announcing their self-perceived version of simplified tax returns. In the age of nuclear families, possessing a house is the basic necessity which is usually fulfilled with the support of bank loans. If the tax benefit is withdrawn or will be withdrawn in future, we may also see a slump in the housing real estate.

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FM announced that she does not want any middlemen between them and taxpayers and hence government is simplifying the procedure. But I really feel that she had not done her homework properly. From now on, a taxpayer will have to prepare two computation of tax with old and new structure and then take a decision. It would add up to the fees they pay to their consultants along with rise in their anxiety levels. When read in between the lines, Finance Bill 2020 makes it necessary for the employer to deduct TDS as per old structure only. It is the responsibility of the taxpayer to decide which scheme he would want to pay taxes at the year end.

Further when the experts analysed the new scheme by putting it to test with real scenarios, it revealed that the new scheme would make taxpayers pay more taxes instead of saving anything for them. Other provisions, such as taxing dividend in the hands of individual instead of company would also prove extra burden on them. A middle income segment usually invest in the share market with an intention to receive tax free dividends, but now this benefit has also been withdrawn.

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Indian Middle class and Budget 2020 – Did you really benefit

The crux of the matter is that if you are a middle class, be prepared for another set of challenges and anxiety which are awaiting for you at year end. We can’t say anything more than saying – Happy Taxes to you.


Annual Salary       1,700,000
Housing Loan
Principal          100,000
Interest          250,000
Saving Interest           25,000
Interest on FD           85,000
Medical Insurance           25,000
Old Scheme New Scheme
Gross Total Income
Salary Income       1,700,000       1,700,000
Interest Income          110,000          110,000
      1,810,000   1,810,000
Housing Loan Interest          200,000                  –
Deduction under Chapter VI
80C (Housing Loan Principal)          100,000                  –
80D (Medical Insurance)           25,000                  –
80TTA (Savings Interest)           10,000          335,000                  –             –
Net Taxable Income       1,475,000   1,810,000
Tax on Income          265,200     291,720
Net Difference           26,520



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