The entire country is eagerly awaiting the NDA Budget 2019, which would be announced on 5th July, and understandably so. For this will be the first budget that will be presented by the Modi 2.0 government after it came into power by winning the second consecutive general election.
The expected reforms can have a significant impact on the general public and corporates alike, as well as on integral sectors of the economy
With this article, I would like to highlight some of the prominent budget expectations from the re-elected government in general and new Finance Minister Nirmala Sitharaman in particular.
The budget plays a critical role in giving direction to the economy of the country as well as setting the tone for the GDP of the country. It is important that the budget is prepared with due planning and care, in order to promote jobs, infrastructure growth and give a boost to the Indian economy.
Certain recent economic events have been a spirit dampener for Indians. For instance, in May 2019, unemployment in the country touched a 45-year high. To add to these woes, India lost the tag of the world’s fastest-growing major economy to China.
Budget announcements related to fixing the widespread epidemic of unemployment as well as the economic progression of India is what the general public most keen to know.
Economic experts, on the other hand, would be scrutinizing an important metric that has a huge impact on our economy; Fiscal Deficit. The way budget expenditure is allocated will play a major role in containing the fiscal deficit of the country. Only time will tell whether the target fiscal deficit of 3.4% will actually be achieved or not.
Moreover, in presenting the budget 2019, the new Finance Minister Mrs. Nirmala Sitharaman has big shoes to fill, especially since her selection as the Finance Minister came as a surprise to the financial world. Also, the former Finance Minister, Mr. Arun Jaitley surely made his mark in the last tenure.
Therefore, this budget will be critically evaluated. The public shall also be keenly waiting to see if the promises made by the Modi 2.0 government are actually delivered.
Here are some of the key expectations, the country has from the Budget and the impact of these reforms on the Indian population if these expectations are met:-
It is expected that the tax exemption limit for individual taxpayers might be increased. In terms of the quantum of change, the basic exemption limit is expected to be increased from INR 250,000 to INR 300,000.
This range of income is currently taxed at a rate of 5%. Therefore, an increase in the exemption to the tune of INR 50,000 shall correspond to a saving of INR 2,500 for individual taxpayers.
It must be kept in mind that in the interim budget announced by Arun Jaitley, a full tax rebate up to the total income of INR 500,000 was introduced under section 87A.
Let us compare this expectation with the Union budget by Modi 1.0 in 2014. In its first union budget, the NDA government the basic income tax exemption limit from INR 200,000 to INR 250,000. Therefore, if the trend were to continue, we might see the overall tax exemption limit increased from INR 250,000 to INR 300,000, which definitely is a welcome change.
At present, the limit for deduction from taxable income under Section 80C of the Income Tax Act, 1961 is INR 150,000. It is expected that in the union budget of 2019, this deduction limit shall be increased to INR 200,000.
Section 80D deals with deduction related to medical expenditure/ healthcare. At present, the limit of deduction under Section 80D is restricted to INR 25,000.
To cope up with the rising medical expenditures along with an increase in inflation, it is expected that the Finance Ministry could increase the maximum deduction eligible under this section to INR 35,000. The rationale is to make medical treatment more affordable and accessible to people.
There could be an increase in the threshold limit of LTCG on sale of listed equity shares and units of equity-oriented mutual funds. At present, the threshold for above- mentioned Long- term Capital Gains is INR 100,000.
P.S. Watch this video to learn more about Long Term Capital Gains
However, it must also be kept in mind that the changes in the LTCG tax on equity shares and equity-oriented mutual funds were implemented only on a sale post-March 2018. Moreover, the LTCG gains on equity shares and equity-oriented mutual funds until 31 January 2018, were kept exempt from tax i.e. they were grandfathered.
On a different note, many fund managers opine that the long-term capital gains on the sale of listed equity shares and units of equity-oriented mutual funds should be removed. Let’s see what some of them have to say on this :-
Harsha Upadhyaya, CIO (Equity) of Kotak Mutual Fund opines that “For macro-economic stability of a nation, it is always desirable to promote domestic savings driven investment-led growth model. In line with this, we expect the government to focus on reviving the household savings rate, especially through financial assets in the country. Traditionally, due to various incentives or even otherwise, most Indians have invested in physical assets. To encourage more investments in mutual funds, Section 54EC benefit should be extended to cover mutual fund investments too, with suitable lock-in provisions. In our opinion, this will enhance flows into mutual funds, thus channelizing retail investments into long term productive capital.
Long term capital gains tax on equity investments, which was introduced last year has not yielded any improved tax collections given subdued broader market. Equity investments are still at a nascent stage in our country, and hence removing long term capital gains tax will enable higher penetration of equity investment in the country. It can be reintroduced at a later stage after better penetration levels are achieved.”
We shall have to wait for 5th July 2019 to see if their concerns are heard or not.
Also Watch: Expectations From Budget 2019 with A. Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund
The development of infrastructure projects is a key agenda of the Modi government. Infrastructure development creates jobs and boosts demand. However, developing big infra projects requires a large amount of capital expenditure.
In line with the above idea, the 2019 union budget could witness the return of the tax- free bonds. Now, you might be thinking what these tax- free bonds are?
The tax- free bonds, as the name suggests, are those bonds whose interest income is not taxable. These bonds are usually long-term in nature, with a maturity period of approximately 10 years or more.
Upon a simple analysis, it can be observed that this move shall greatly benefit the National Highway Authority of India (NHAI), in raising capital for huge infrastructure projects.
Inheritance tax is a tax on all properties, jewelry, shares, FD, cash and bank balance inherited by the assessee. This tax, if reintroduced, would make its comeback after nearly 35 years.
The UK is a prime example of a country where the inheritance tax was levied. Currently, the Income Tax Act, 1961 exempts inheritance from tax. This tax was exempted in 1985 and currently, the heir is taxed only when he sells the inherited property.
Inheritance tax can also be called as estate duty, it is similar to wealth tax. However, the imposition of such a tax could be subject to a lot of opposition and criticism.
At present, Section 24B of the Income Tax Act, 1961 provides a maximum deduction of INR 200,000 on pre-construction interest or interest on housing loan.
However, the real estate sector has bared the brunt of the demand slowdown. To boost the recovery in the demand, the government could increase the maximum deduction available for home loans.
The rationale could be to incentivize buying new homes (real estate) and thereby boosting demand in this sector.
National Pension Scheme (NPS) is a voluntary retirement scheme, promoted by the government of India, to inculcate the habit of savings and to promote the creation of a retirement corpus.
Earlier NPS enjoyed Exempt – Exempt – Taxable status on contribution, accrual, and withdrawal, i.e. withdrawal from NPS from partially taxable.
It is expected that the lump sum withdrawal of NPS will be given an Exempt – Exempt – Exempt (EEE) status on contribution, accrual, and withdrawal. This is similar to the EEE status enjoyed by the Employee Provident Fund (EPF) and Public Provident Fund (PPF).
This would make exit (withdrawal) from NPS completely tax- free.
In December 2018, the Union Cabinet approved the increase in the tax exemption limit for lump sum withdrawal of NPS to 60%. However, the change is yet to be incorporated in the Income-Tax Act, 1961. This change could be incorporated in the union budget of 2019.
Moreover, the tax deduction limit under Section 80CCD(1B), on investment in NPS, could be increased from the present INR 50,000 to INR 100,000. This would boost investment in NPS.
This could benefit salaried individuals living in non-metro cities such as Pune, Gurgaon, Hyderabad, Bangalore among others.
In case these cities are categorized as metro cities, the salaried employees living here stand to gain from higher HRA deduction.
At present, for these cities, exempt HRA is calculated as 40% of the basic salary. However, for metro cities, exempt HRA is calculated as 50% of the basic salary. This would correspond to an increase in tax savings for the salaried employees residing in these cities.
NBFCs have recently borne the brunt of a liquidity crisis in the market. ASSOCHAM, which is the apex body, recommends measures to address this crisis.
NBFCs have been seeking relaxation in securitization norms. The aim is to ease the liquidity crisis.
It is widely known that one major goal of the Modi government was to double the Indian farmer’s income by 2022. In considering the present situation and development thus far, it is doable only if the massive investment is made in the agricultural sector. The focus should be to improve and upgrade the existing rural agricultural infrastructure including irrigation, supply chain and cold storage among others.
The agricultural industry is expecting that the budget 2019 shall provide a major boost to this sector.
Although we can only speculate what the reforms would be as of now, I hope the budget announcements to be made tomorrow bring good news for all economic sectors in India and help the Indian economy grow and thrive.
Disclaimer: The views expressed here are those of the author and not of Groww.