Budget 2019: Expectations and Analysis
This year, in the view of upcoming Lok Sabha elections, the demands and expectations from the Budget 2019 are high. Will this budget be people’s budget? or vote bank? or a neutral one?. only time will tell… but the expectations and speculations are high… Let’s have a look at some major budget expectations and analysis of our team.
Tax slab -relaxation for Individuals
This year, the demands are high to increase the exemption limit for individuals. IANS (Indo-Asian News Service) reported that the Finance Minister is likely to double the exemption limit from Rs 2.5 lacs to Rs 5 Lacs. In other words, individuals with taxable income less than Rs 5 lacs will not get taxed.
Though this change in tax slab will be most welcomed, in our opinion, this is less likely to happen. The Finance Ministry is continually working towards increasing the base of taxpayers. This change will not only impact the taxpayer’s base but will also directly impact the revenue inflow as the percentage of the taxpayers in the bracket of Rs 2.5 lacs to Rs 5 lacs is significant.
We will not be surprised if the tax slabs are changed to something like below:
Above Rs 2.5 lacs upto Rs 5 lacs – 5%
Above Rs 5 lacs to Rs 10 lacs 10%
Above 10 lacs to 20 lacs – 20%
Above Rs 20 lacs – 30%
The existing slab rates are as follows:
i.e Rs 2.5 lacs upto Rs 5 lacs – 5%,
Above Rs 5 lacs to Rs 10 lacs 20% and
Above Rs 10 lacs – 30%.
Corporate Tax cut
There is a high demand from the corporates to provide tax breaks. In our opinion, this is a fair demand which is most likely to get implemented. The Honourable Finance Minister in his first Budget speech of 2015 had promised to lower the corporate tax rate to 25% over 4 years. He believed that the change will lead to a higher level of investment, higher growth, and more jobs.
In Budget 2018, the government had reduced the tax rate to 25% only for the companies which had reported a turnover of up to Rs 250 crore in the financial year 2016-17. We expect a relaxed Corporate tax rate of 25% for all the companies irrespective of the turnover.
Long Term Capital Gain Tax
Stock-brokers have sent their budget wishlist to SEBI. Interestingly, the major expectation is the withdrawal of Long Term Captial Gain tax on equity shares which was brought in the last Budget 2018. The tax rate was introduced just a year ago and the taxpayers were granted relaxation to consider the cost of shares as on the last day of January 2018. Hence, we will not be surprised if the LTCG tax on equity shares continues. ( click here to read more about Sec 112A)
Other points in the wishlist presented by brokers include rationalization of STT and Withdrawal of DTT, increase in investment limit under section 54EC, re-introduction of rebate under Section 88E and abolition of stamp duty on stock market transactions.
Focus on rural economy
The current Government has been allocating a significant amount for agriculture and rural ministries. However, as per economists, a growth of approx. 20-25% has been witnessed in the rural economy this year. This might demand further allocation. At the same time, the loss in State Elections primarily blamed to be due to disconcerting conditions of farmers and protests; might compel the government to provide significant attention towards the rural economy.
A populist announcement in this sector can’t be ruled out.
Boosting Real Estate
The government has been taking various measures in the affordable housing sector. However, the real estate experts still expect affordability of houses to the buyers. They are also expecting a reduction in development costs.
This wishlist can be addressed in the Budget and otherwise later in the GST meetings.
Increase in Sec 80C limit
In the budget for 2014-15, the limit of deductions for investments made as specified under sec 80C was revised to Rs.1.5 lakh. Considering the inflation rate and time gap since the last change in the limit, we expect this limit to be increased to Rs 2 lakhs in this budget.
There are other expectations too like, tax deductions on provisions made by banks under the Insolvency and Bankruptcy Code, allocations or tax breaks to Start-ups especially in the field of “Financial Technology or Artificial Intelligence”, etc.
Evidently, this budget is a crucial one for the current government. Some populist and significant announcements can certainly influence voters. Having said that, Finance Minister Arun Jaitley has mentioned earlier that he will present an interim Budget, not a full Budget or a vote-on-account… It will be interesting to see how the government strikes the balance.
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