Union Budget 2018: From income tax slabs to inflation, here is what to expect and what not to

Revision of the income-tax slabs. Currently, for individuals the exemption limit is INR 2.5 lakh per annum. With over 5.4 lakh new taxpayers to the tax base, the tax slabs could be amended, such that there is an upward lift to the slabs with 5 per cent tax rate for income till 10 lakh and and increase the slab for 30 per cent to start at 25 lakh. In the alternate, or in conjunction, the investment limit under section 80C could be increased from INR 1.5 lakh to 2 lakh, meaning thereby a saving in the range of Rs 2,500 to Rs 15,000 per annum for the individuals.

From a corporate perspective, there should be a look out if the government will keep its promise of reducing the corporate tax rate to 25 per cent, specifically given the fact that the incentives in the form of tax holidays and accelerated depreciation have already been rationalised. Similarly, the corporate world hopes that the MAT rate would be reduced from 18.5 per cent to 15 per cent.

In addition, the budget proposals would focus on addressing tax provisions that impact flagship programs of the government, such as ‘angel tax’ that impacts Start-Up India, and MAT on debt restructuring that worries the working of the Insolvency and Bankruptcy Code.

Gokul Chaudhri, Partner, Deloitte India

‘Changes in Customs duties on the anvil’

This will be first budget after introduction of GST in India and hence there is considerable interest in knowing the indirect tax changes that are expected in Budget 2018. Changes in Customs Duties- both rate related and policy/procedures are very much on the anvil and several of them would be required in order to align the Customs Law with the GST law. Further, while GST rate changes, which are the preserve of the GST Council, may not figure in the budget , there could be quite a few legislative changes in the GST law, which have been announced in the earlier meetings. There are also expected to be quite a few policy level announcements relating to infrastructure, real estate etc. which would also have an impact on the relevant indirect taxes. The lower collections from GST in the last two months would also figure in determining the projected indirect tax revenues for the next year as there would not be comparable budgetary figures available for the past period. Some of the recent measures to curb evasion such as introduction of the e-way bill would also be considered in determining the extent to which the taxbase needs to expand in order to garner additional revenues

M.S. Mani is Partner, Deloitte India

‘Possible boost for services’

The services sector was one of the major parts of the economy that saw a slip in performance over the past few quarters and while the sector has started to recover, there is a need for a sustained push toward a digital economy. While the push on the manufacturing front continues, services are likely to be the major income and employment generator in the Indian economy. The need of the hour is to ensure that the Indian economy generates new jobs in the sector and achieves an overall level of excellence in delivery.

The previous year saw an increasing penetration of digital technologies and expansion of the financial inclusion net, however, there is a need to incentivise the newly included people to fully utilise the benefits of the financial markets while also addressing concerns on adaptability.

Separately, with growing inclination toward automation and technical innovation, the need of the hour is to push for services that facilitate entrepreneurship and spur job creation. There needs to be focus on schemes to stimulate sports and tourism sector growth that will further create avenues of growth and also address the issue of generating relevant jobs in the economy. Continuous focus on skill development keeping in mind global developments also assumes importance as we try and maintain our position in the global markets.

‘Budget with a rural focus likely’

Given that growth momentum was hit on account of certain structural changes, the focus of the current budget is likely to be on alleviating the built-up stress in the rural economy, especially in the agricultural domain given the prevailing agricultural distress, which has led to falling farm incomes. We may see policies aimed at eliminating supply side barriers to in agricultural markets while also trying to increase the efficiency with which markets function. The Budget may increase allocation toward existing schemes related to MGNREGA, crop insurance, irrigation works and other social security measures along with infrastructure related to cold chains to boost agriculture and the overall rural economy.

Beyond this, the government is likely to accelerate implementation of infrastructural projects while also emphasising on schemes to improve exports. Expect to see some details on the process of bank recapitalisation as it would be crucial in ensuring sufficient credit supply through the economy. Some tax rebates (reduction in corporate taxes) for small and medium enterprise (SMEs), startups and corporates could be expected. Lastly, the scope of Direct Benefit Transfers is likely to be broadened after assessing its performance over the last year. This is likely to be done via pilot schemes in areas where subsidies are given.

‘Inflation management to be challenge’

The Budget per say is unlikely to have any major impact on prices as changes in rates on commodities and services are to be decided by the GST council. That said, we can expect the government to show its intent and signal the direction of its priorities. Inflation in general is likely to be an area of concern especially at a time when growth is showing some promising signs of revival. The main risk to inflation is likely to come from higher crude oil prices that have almost doubled over the last one year. Higher crude prices are likely to have an impact on the fuel prices at the pump and also impact the fiscal deficit through an increase in subsidies. Further, improving growth conditions across the globe could lead to somewhat higher commodity prices and build inflationary pressures. Important to note that since India is a net importer and higher commodity prices, especially crude oil is likely to affect growth negatively. With fiscal room limited, higher oil prices may also have an impact on expenditure in other areas. As such, we are likely to see overall inflation remain high in the 5-6 per cent bracket over the next few months of the calendar year after which it is likely to moderate as adverse base effects wane away.

Richa Gupta is Senior Director, Deloitte India