Union Budget 2018 – Arun Jaitley’s fifth and the Modi government’s last full budget – Highlights
Union Budget 2018 – What is in it
This is off course an Election Budget which balances populism and discipline, but salaried class and investors are disappointed. A Union Budget blended with prudent economics and electoral populism, delivered by Finance minister on 1.2.2018, that placed villages at the Centre of a new development framework but maintained reformist intent and fiscal discipline. Mr. Jaitley announced a raft of farm- centric measures, including to raise the minimum support prices (MSP) for crops, allocated Rs. 10K crore two special funds for fisheries and animal husbandry, launched the world’s largest government-funded health care programme that would benefit 500 million people and raised farm bank credit to Rs. 11 lakh crore in 2018-19. The budget also spelt out an ambitious plan to fix the lingering problems of India’s most unreformed agriculture sector: The focus is on low-cost farming. The Minimum Support Price (MSP) of all crops shall be increased to at least 1.5 times of the production cost,” he said.
The Budget 2018 has focused on creation of a new India, Prime Minister Narendra Modi says. According to him the Budget is ‘Farmer friendly, business friendly, development friendly’. He emphasized that the government needs to consolidate farmer’s incomes as the country has seen large production, thanks to our farmers. “It must be noted that this Budget has given importance to ease of living alongside ease of doing business,” his words are after the budget speech.
The major criticism of Budget proposal is regarding Fiscal Deficit at 3.3%. Last year Mr. Jaitley said that the fiscal deficit would be contained at 3 percent of the GDP from 2018-19 onward. However, taking a deviation from the medium-term consolidation target set, the minister pledged to the keep the fiscal deficit at 3.3 percent of the gross domestic product (GDP) in 2018-19.
Disappointment for investors – As long-term capital gains (LTCS) introduced on stock trading. LTCG at 10 percent levied for investments over Rs 1 lakh.
Corporate Taxation
The lower corporate income tax rate is a carry-over from Jaitley’s 2015 to-do list when he had said the tax would be progressively cut to 25% in four years but would come with fewer deductions. However, the corporate income tax rate at 30% is unchanged, leaving the corporate sector disappointed. It was expected that it will be reduced because the lower tax payouts is necessary to ensure that Indian companies do not lose their competitive edge over global peers.
Individual Taxation
- Thirteen years after it was removed, the concept of “standard deduction” has been brought back. A base amount of Rs 40K that is not subject to tax in addition to the basic exemption limit, as recommended by Eashwar panel on income tax simplification.
- However, tax breaks on money invested in savings instruments, including bank fixed deposits, insurance premium and mutual funds, remained unchanged at Rs 1,50K under “Section 80C”
- The annual tax exemption is also unchanged at Rs 2.5 lakh with no rejig in tax slabs. Currently, those with an income of less than Rs2.5 lakh are exempt from paying taxes. Those earning between Rs2.5 lakh and Rs5 lakh are taxed at 5% and those between Rs5 lakh and Rs10 lakh at 20% while anybody earning more than Rs10 lakh at 30%. Additionally, there is an additional surcharge of 10% applicable on persons with annual taxable income between Rs 50 lakh to Rs 1 crore, and a 15% surcharge imposed on persons with a taxable income of more than Rs 1 crore.
- Presently there is also a 3% education cess applicable on all taxpayers. The rate of cess has been raised to 4% from this 3%.
Tax sops to senior citizens
- The exemption for senior citizens on account of health insurance premium is raised to Rs. 50K from present Rs. 30K under section 80D.
- The interest earned up to Rs. 50K from deposits with banks and post offices will be exempted as against Rs. 10K now. Means the TDS shall not be required to be deducted on such income, under section 194A. This benefit shall be available also for interest from all fixed deposits schemes and recurring deposit schemes.
- The Finance Minister Arun Jaitley also proposed to increase the limit of deduction for medical expenditure in respect of certain critical illness from Rs. 60K in case of senior citizens and from Rs. 80K in case of very senior citizens, to Rs. 1 lakh in respect of all senior citizens, under section 80DDB.
Other Tax Proposals
- There are not many indirect tax changes following the launch of the goods and services tax (GST) on 1.7.2017. Other proposals are:
- Name of CBEC to be now “Central Board of Indirect Taxes & Customs”.
- Customs duty on mobile phone & its components hiked to 20%.
- Education Cess replaced by new 4% Health & Education Cess.
- Reduction in Dividend Distribution tax
- Long Term Capital Gain tax is back for security market
- Tax incentives for International Financial Center; Lower MAT to apply
- Tax incentives for farmer-producers organization
- Sec 80JJA benefits extended to foot ware & leather industry
- Section 80JJAA – Reward to companies for creating employment by giving them more tax incentives for every additional person hired.
Other Proposals
- 99 smart cities have been identified with an outlay of Rs 2.04 lakh crore
- Redevelopment of 600 major railway stations to be taken up.
- Over Rs 1.48 lakh crore to be allocated for railways next fiscal.
- Airport capacity to be hiked to handle 1 billion trips every year.
- Regional air connectivity scheme to connect 56 unserved airports.
- New Gold Policy to develop it as asset class.
- Disinvestment – Govt identifies 24 CPSEs for 2018-19.
- to set up 18 Architectural Schools in line with IITs.
Author Bio
Presently there is also a 3% education cess applicable on all taxpayers. The rate of cess has been raised to 4% from this 3%.
4% is applicable for non resident and foreign company