The budget also marked the beginning of a new public accounting process. There were fewer indirect tax changes following the launch of the goods and services tax (GST) that kicked in on July 1.
But there was not much on offer for the salaried class, which could leave India’s 40 million individual taxpayers underwhelmed. The Budget also disappointed investors by reintroducing long-term capital gains on stock trading.
In his budget for 2018-19, Jaitley announced a raft of farm-centric measures, including to raise the minimum support prices (MSP) for crops, allocated Rs 10,000 crore two special funds for fisheries and animal husbandry, launched of 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.
There was an element of grandness and sense of occasion in Jaitley’s fifth and the Modi government’s last full budget that spelled out an ambitious plan to fix the lingering problems of India’s most unreformed sector: Agriculture.
“The focus is on low-cost farming. The Minimum Support Price of all crops shall be increased to at least 1.5 times that of the production cost,” he said.
The budget also marked the beginning of a new public accounting process. There were fewer indirect tax changes following the launch of the goods and services tax (GST) that kicked in on July 1.
There were tax breaks and concessions for the unorganized sector workers and small and large businesses, which endured twin disruptions of demonetization and the GST.
The minister reimposed the long-term capital gains (LTCG) tax on stock trading, as feared. He levied LTCG at 10 percent for investments over Rs 1 lakh.
This triggered an immediate sell-off in bourses, which could force a shuffle in stocks portfolio of many individuals and institutional funds.
Stock markets reacted adversely to the proposal, with benchmark 30-share Sensex falling over 300 points.
Jaitley lowered the corporate income tax rates to 25 percent for all companies with a turnover of up to Rs 250 crore.
Roads, ports, railways, and power got special attention, signals that the sector would be the primary vehicle for job creation. “99 smart cities have been identified with an outlay of Rs 2.04 lakh crore,” Jaitley said.
Over Rs 1.48 lakh crore to be allocated for railways in next fiscal, redevelopment of 600 major railway stations taken up, airport capacity to be hiked to handle 1 billion trips every year and regional air connectivity scheme to connect 56 unserved airports
Keeping at it, Jaitley proposed tweaks to the Income Tax Act’s Section 80JJAA to reward companies for creating employment by giving them more tax incentives for every additional person hired.
The focus on jobs is seen as a move to counter the Opposition that has repeatedly accused the government of failing to create opportunities for millions of young hopefuls despite the 2014 poll promise of Acche Din (good days).
To ease the fiscal squeeze, customs duty on a few goods were raised — a move that could make some products such as imported mobile phones costlier.
The minister pledged to the keep the fiscal deficit — a measure of how much a government borrows to meet its expenses – at 3.3 percent of the gross domestic product (GDP) in 2018-19, a deviation from the medium-term consolidation target set last year when Jaitley said the fiscal deficit would be contained at 3 percent of the GDP from 2018-19 on.
LESS TAX, SPEND MORE
Thirteen years after it was removed, Jaitley brought back the concept of “standard deduction,” a base amount of Rs 40,000 that is not subject to tax in addition to the basic exemption limit, providing relief to every taxpayer. In a recent report, the Easwar panel on income tax simplification had recommended the return of standard deduction.
The move is predicated on the principle that additional demand for goods will nudge companies to expand production, step up hiring, raise incomes and eventually trigger a cycle of spending and investment.
Accelerating household spending, which accounts for more than half of India’s GDP, is critical to sustaining the broader economy’s budding revival.
The salaried class, however, could be disappointed, Tax breaks on money invested in savings instruments, including bank fixed deposits, insurance premium and mutual funds remained unchanged at Rs 1,50,000 under the popular “Section 80C” scheme.
The annual tax exemption also remained unchanged at Rs 2.5 lakh. He also did not rejig tax slabs.
Currently, those with an income of less than Rs2.5 lakh a year are exempt from paying taxes. Those earning between Rs2.5 lakh and Rs5 lakh annually are taxed at 5 percent, those between Rs5 lakh and Rs10 lakh at 20 percent while anybody earning more than Rs10 lakh pay a tax of 30 percent.
In addition, there is an additional surcharge of 10 percent applicable on persons with annual taxable income between Rs 50 lakh to Rs 1 crore and a 15 percent surcharge imposed on persons with a taxable income of more than Rs 1 crore.
There is also a three percent education cess applicable to all taxpayers.
CORPORATE TAX REJIG
Jaitley, however, did not lower the headline corporate income tax rate from 30 percent, leaving the business community disappointed.
Business leaders have been asking for lower tax payouts to ensure that Indian companies do not lose their competitive edge over global peers.
In December, the US overhauled its tax code that would bring down the corporate tax rate to 20 percent from 35 percent. 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 percent in four years but would come with fewer deductions.
A six-member panel will draft a direct tax legislation that would draw from systems prevalent in other countries, international best practices and also keep in mind India’s economic needs, among others. The report is expected in the next few months.
REFORMING THE FARMS
In a departure from the past when farm economics used to be talked about in the middle of the budget speech, Jaitley took the bull by horns.
Fifteen minutes into his speech, he unveiled measures to turn the countryside into a robust growth engine, seeking to shift the focus to “farmers’ income” as opposed to the decades-old output-focussed “food policy”.
He announced a big jump of 1.5 times in MSP. An agriculture export plan and schemes for dairy and fishery are also on the cards. The steps are in keeping with the government’s promise to double farmer incomes by 2022.
A subsidy scheme for machine-aided crop residue shredding will help check stubble burning that adds to Delhi’s toxic air in early winter.
Another scheme, Operation Green, focussed on kitchen staples such as tomatoes, onions, and potatoes, will be launched to protect farmers from a price crash. This year a glut leading to a fall in prices has seen farmers dump potato on roadsides and even mandis particularly in West Bengal and Uttar Pradesh.
The export policy will stipulate norms for making India’s farm produce, particularly fruits and vegetables, compatible with global food-safety or phytosanitary requirements. The policy will focus on nearly 25 farm export clusters.
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