The Union Budget for 2018-19 – presumed to be the last Budget by the present Government and its presentation getting preponed to February 1, 2018 in recent years, could be termed as a ‘Bharat Budget’ as it is overwhelmingly dominated by measures aimed at improving the economic lots of distressed farmers and rural areas.
It could also be termed somewhat election budget in the sense that the elections in the 18 states being due during the current year and they are to be followed by the General Election in 2019 and in all this the rural development will matter most. Even though massive outlays have been committed on Agriculture and Rural development and some poverty alleviation schemes the Finance Minister deserves all praise as he has not departed from fiscal prudence. Though this has belied the hope of salaried class and others which were expecting hike in income tax exemption limits and reduction in tax burden but Finance Minister was constraint by the resources at a time when GST is yet to settle down. Even he did not fulfil his promise to bring down the corporate tax to 25 per cent across the board.
Impact on Aaam Aadmi, Salaried Class and Senior Citizens
There has not been expected relief on salaried class barring standard deduction which may provide marginal relief. Budget 2018 proposes to provide a standard deduction of Rs 40,000 for employees but simultaneously it also proposes to take away transport allowance, medical reimbursement and other allowances. Prima facie income exempted from tax after setting off the gain and loss is Rs 5,800 only at lower level. The tax saved for each employee on this income would depend on the tax slab that income falls into. But for Senior Citizens and pensioners there are several measures which would provide them relief viz.
Exemption limit for interest income from banks and post offices has been raised from Rs 10,000 to Rs 50,000 and increase in tax break on health insurance and medical expenditure under sections 80D and 80DDB has also been extended. TDS is not required to be deducted for interest from all fixed deposit schemes and recurring deposit schemes. There is hike in deduction limit for health insurance premium and/ or medical expenditure from Rs 30,000 to Rs 50,000 under section 80D. Increase in deduction limit for medical expenditure for certain critical illness is to be raised from Rs 60,000 (in case of senior citizens) and from Rs 80,000 (in case of very senior citizens) to Rs 1 lakh for all senior citizens, under section 80DDB.
There will be setback to investors in the equities due to introduction of dividend distribution tax (DDT) and capital gain tax. The finance minister has proposed to introduce a tax on distributed dividend income by equity-oriented mutual funds at the rate of 10 percent, to provide a level field across growth oriented and dividend distributing schemes. Investors relying on dividends from equity funds such as balanced funds would have to reconsider their investment as DDT will reduce the in-hand return to investor, if the dividend option is opted for. Further, it is proposed to re-introduce long-term capital gains tax on gains arising from the transfer of listed equity shares exceeding Rs 1 lakh at 10 percent, without allowing any indexation benefit.
Many experts opine that the flow of investment in the stock market would be affected. While presenting the budget it was observed that initially there was massive fall in the Sensex and Nifty but it recovered but closed in red. Some others call it a knee jerk reaction. However, it is difficult to perceive the Bull Run considering that interest rate scenario in developed market is not conducive to the stock market. So the reaction is yet to be perceived.
Healthcare for Poor
With an aim to provide healthcare for 50 crore poor citizens, Government has announced flagship National Health Protection Scheme to cover 10 crore poor families in the country and allocated Rs 5 lakh per family per year. The objective is to take healthcare protection to a “new aspirational level”.
While the promise of reducing the corporate tax rate was not fulfilled by the Finance Minister, relaxation to small business with a turnover of Rs 250 crore was announced through extending benefit of a lower tax rate of 25 per cent to companies with a reported turnover of Rs 250 crore.
This was done to save MSMEs in keeping with their sufferings during demonetisation. Further with such relaxation they will be able to contribute richly in creating employment opportunities. Banks have already been asked to place emphasis in MSME sector in terms of credit deployment. Thus they will be playing key role in generating massive employment opportunities.
Shrivastava is former general manager, Bank of Baroda and consultant.
Sahoo is a chairman of Atom Technologies and also professor for various universities .