A key issue is what is more important to the tax payer, 'Expenditure only' or 'Savings and Expenditure'

- The government's intention to abolish tax exemptions has now fallen

- Government encourages individuals and corporates to save in assets through tax exemptions.

In the budget for the financial year 2023-24, the government has praised the New Tax System (NTR) and requested taxpayers to switch from the old tax system (OTR) to the new tax system. The finance minister claimed that his five advertisements would mainly benefit the hardworking middle class.

However, the Finance Minister did not define the middle class. But his government has defined the economically weaker section and it has been announced that the family with an annual income of less than eight lakh rupees will be considered as economically weaker section. This announcement has come based on the Ajay Bhushan Pandey Committee report.

Who is middle class?

According to a report prepared by Price (People Research on India's Consumer Economy), 31 percent of households have an annual income between Rs 5 lakh and Rs 30 lakh and can be classified as middle class. The number of these families can be put as 28 crores. A family may have only agricultural income or there may be more than one earner in the family but not all of them pay income tax or may not be taxpayers. In 2017-18, the Income Tax Department revealed that 1,47,54,245 individuals declared an annual income between Rs 5 and 10 lakh, while 45,08,722 individuals declared an income between Rs 10 and 25 lakh in the returns filed. This number goes up to two crores which may have increased subsequently.

For our purpose, we need to know how many people have an annual income between Rs.8 lakh to Rs.30 lakh. Based on various available figures, my rough estimate is that this number could be 3 to 4 crores. The finance minister is claiming that these people have been given relief under NTR.

Let's do the math

On the second day of the budget, several newspapers provided an estimate of the tax liability of individuals with different income levels under OTR and NTR and tried to explain to what extent OTR would be beneficial to them.

A newspaper claimed that OTR is beneficial for a person with income up to Rs 15 lakh with lower tax liability. Another English newspaper put the figure at Rs 35 lakh. An English financial newspaper stated that OTR is beneficial for those with an annual income of up to Rs 60 lakh. For Senior Citizens and Super Senior Citizens, OTR at these levels is quite beneficial. The government did not accept this claim of the newspapers.

I have an Excel sheet prepared by a Chartered Accountant from Ahmedabad, showing the income by way of salary, standard deduction, professional tax, deductions under section 80C and 80D and interest payments on housing loan (Rs two lakhs per annum). OTR is more beneficial at every income level up to Rs 30 lakh. If the taxpayer is self-employed and has other income, OTR is more beneficial in case of income up to Rs 10 lakh and tax liability remains the same at Rs 15 lakh to Rs 30 lakh. OTR appears to be more beneficial for the middle class as defined. The government's argument that the middle class will pay less tax under NTR is wrong.

Goodbye to savings?

However, from the point of view of the tax payer what is more important is 'expenditure only' or 'savings and expenditure'. The importance of household savings in developing countries is globally acknowledged. A large number of people in the country have little or no social security provided by the government. So for 75 years governments have been emphasizing on family savings. Household and corporate savings are the foundations of private capital that can be used for investment. Individuals do not have the nature of saving, they have to be encouraged to do so. Therefore, the government encourages individuals and corporates to save in fixed instruments or assets through tax exemptions.

This belief has been distorted by the present government. This government believes that the expenditure is beneficial for the country's economy. I am not questioning people's need to spend, but there needs to be a balance between spending and saving. A strategy of saving and spending is advisable rather than just spending like there is no tomorrow.

As an example I have used Excel sheet of Ahmedabad CA. It is included in the article.

Under OTR the taxpayer will pay less tax and will be able to maintain a balance between savings and disposable income. Under NTR, the taxpayer will have more money in hand for expenditure but no savings.

The government's intention to abolish the tax exemption system did not last long. I believe in few taxes with some exemptions which will encourage savings and make enough money available for spending. When there is no exemption at all, there will be less tax in the system. In the budget for the financial year 2023-24, the marginal tax rate under OTR has been fixed at 42.70 percent while 39 percent is proposed under NTR. These rates expose the validity of the low tax regime.

Well the government has given the taxpayer a choice, but for how long?

• 	OTR - NTR	OTR - NTR	OTR - NTR
  Income (in Rs.)	10 , 00 , 000	20 , 00 , 000	30,00,000 _ _ _ _	-	-	-
  savings	375,000 _ _	----	375,000 _ _	---	375,000 _ _	----
  Vera and Shes	28 , 100	54 , 600	295 , 651	296 , 400	607 , 651	608 , 400
  Income for expenditure	544 , 500	895 , 400	1 , 276 , 949	1 , 653 , 600	19 , 64 , 949	2 , 341 , 600