Union Budget 2018, Expert Explains: For salaried class, savings get a slight Pruning, says Surya Bhatia

A target of 3.3 per cent for 2018-19 and the ongoing fiscal to close at 3.5 per cent with some fiscal slippage is what most economists will live with

Written by Surya Bhatia | Updated: February 2, 2018 4:29:27 am
Budget 2018 Budget 2018 News Budget 2018 Live Budget 2018 Income Tax Budget 2018 Date Rail Budget 2018 Union Budget 2018 Income Tax Slab Rates 2018 Indian Budget 2018 Union Budget Rail Budget Railway Budget Income Tax Slabs Central Budget 2018 Budget 2018 Expectations Arun Jaitley Narendra Modi Modi Government General Budget 2018 Arun Jaitley Speech Budget 2018 Speech A target of 3.3 per cent for 2018-19 and the ongoing fiscal to close at 3.5 per cent with some fiscal slippage is what most economists will live with

Expectations from Union Budget 2018-19 have been on a higher side than usual. And why not? This was the last full Budget before general election, and this government has done what no other previous governments could do, like demonetisation and GST, and making these a reality.

Yes, the Budget was expected to keep an eye on next year’s elections and, hence, was to be on a populist side. The key areas addressed in the Budget was, as expected, a huge push on rural spending — be it housing, electricity, toilets, infrastructure, healthcare, farming or education — while still trying to keep the fiscal deficit within reasonable reach. A target of 3.3 per cent for 2018-19 and the ongoing fiscal to close at 3.5 per cent with some fiscal slippage is what most economists will live with.

The brownie points were scored by finance minister Arun Jaitley with the key focus on healthcare, supposed to be the largest in the world. The launch of National Health Protection Scheme, providing cover to 10 crore poor families (approximately 50 crore beneficiaries) and providing coverage up to Rs 5 lakh per family per year along with setting up 24 new government medical colleges and hospitals by upgrading existing district hospitals in the country. Once implemented, this will ensure adequate distribution of medical colleges and hospitals in each state of the country is commendable.

Also, it was ensured that the promises made in the earlier Budget of reducing corporate tax to 25 per cent was addressed when the lower tax slab of 25 per cent currently applicable for corporates with a turnover up to Rs 50 crore was enhanced to Rs 250 crore. This typically covers 99 per cent of corporate taxpayers.

In the personal income tax category, the expectations were really high — that there will be an increase in tax slabs, deductions will become higher and better. But not much was on offer. There was no change in the income tax slabs. Education cess, which was 3 per cent earlier, has been renamed as health and education cess and raised to 4 per cent To compensate the salaried class, standard deduction gets reintroduced with the exemption limit of Rs 40,000.

But, the government took away the existing transport allowance of Rs 19,200 and reimbursement of miscellaneous medical expenses of Rs 15, 000 totalling to Rs 34, 200, leaving only Rs 5,800 as the real benefit to salaries class.

The exemption is way too less in the real world where the prices are sky rocketing and the inflation is again inching up. For senior citizens, exemption of interest income on deposits with banks and post offices will be increased from Rs 10,000 to Rs 50,000.

Further, increasing the limit of deduction for medical expenditure in respect of certain defined critical illness from Rs 60,000 in case of senior citizens and from Rs 80,000 for very senior citizens, to Rs 1 lakh for all senior citizens, under Section 80DDB, is a welcome move towards easing the dignity and life of senior citizens.

There have been rumours in the markets that the long-term capital gain taxation would be tweaked and there was hope against hope that Jaitley may just leave it again. But on the plea of buoyant equity markets and the huge income flow of Rs 3.67 lakh crore, which was exempt income, he made a strong case of bringing it in the tax net.

Hence, any long-term capital gain exceeding Rs 1 lakh is going to be taxed at the rate of 10 per cent without allowing the benefit of any indexation. However, all gains accrued up to January 31, 2018 — the day before Budget announcement — will be “grandfathered”. The gains from equity share held up to 1 year continue to remain short-term capital gain and continues to be taxed at 15 per cent.

In addition, there is another levy in the form of dividend distribution tax on equity-oriented mutual funds at 10 per cent. As part of this, anyone taking an income in the form of dividends needs to convert in a growth plan and start using SWP (Systematic Withdrawal Plan).

This will enable investor to continue getting a regular income and still let it remain as tax efficient. The only additional work an investor has to do is to define the income to be planned from the investment with the focus that income should not be higher than the incremental gain in the investment. To sum it up, it was on the expected lines and was a Bharat Budget – the real intent being rural-focused.

The writer is managing partner, Asset Managers

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