Will tax benefits announced in interim budget impact households significantly?

Umang Papneja, Senior Managing Partner, IIFL Investment Managers
 
The Budget is aimed at benefitting the salaried class and farmers. A full tax rebate for taxable incomes up to ₹5 lakh, increase in standard deduction to ₹50,000 for employees, no tax on notional rent on the second house, and increase in the limit of TDS on bank deposits to ₹40,000 will provide a tax benefit of₹18,500 crore (0.1% of GDP) to around 30 million middle class taxpayers.
 
Increase in disposable income of farmers and the middle income class (almost 0.5% of the GDP) will boost consumption. To illustrate the impact on, say, a sector like FMCG: if 10% ( ₹100 billion) is spent on FMCG products, it would translate to an increase of 1.3% in the size of the FMCG industry. This could be a one-time impact, boosting sales by say 1-5% across segments and growth reverting to normal. This stimulus is targeted towards the lower income pyramid accounting for 15-20% of the national income. From that context, this stimulus becomes more meaningful.

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