The NDA government will be presenting the interim Budget 2019 on 01 Feb. The interim budget is presented by the ruling government before the end of the term as the Lok Sabha elections will be held in April-May. Though this budget will be consumer-oriented and the amendments will be made as per the voter’s expectations. It is the crucial time for the income taxpayers and investors who will be glued to their television sets and mobile devices and interpret the impact of every sentence communicated by the finance minister. Many analysts believe that the budget will be for a larger base to garner more votes. In the past too, there have been instances wherein the benchmark indices have dropped significantly due to a generic budget being announced by the government. However, the situation might change this time as many individuals are looking for tax sops, increased investments in sectors such as real estate, agriculture, automobile, and other incentives for SME’s. While some of the budget announced by the government did provided the much-needed benefit to the taxpayers by enhancing the limit of Sec 80C, and the other budget was a mixed-bag and levied additional taxes.
The budget will have an electoral favor and will provide benefits to the common man as well as the industry. Below are certain expectations from a common man’s perspective:
1. Increase the limit of Sec 80C
Currently, an individual investor can claim up to INR 1.50 lacs, which was revised in 2014-15. The government should consider revising this limit. The inflation rate, currently hovering around 6%-7%, this limit does not hold good. The limit should be increased to 2.50 lacs so that the individual will have more room to save more. This will definitely be a crowd pleaser and will enhance the ability of a salaried class to invest in other asset classes such as mutual funds, real estate, etc. Some hints can be gauged with the government’s proposition to provide reservation for economically weaker section of the society, in which they have categorized the EWS category as any family whose income is less 8 lakhs per annum.
2. Affordable Housing remains a key issue
The government has already given the much-needed push for affordable housing with the recent reforms such as RERA, GST to boost transparency in the realty sector. On the other hand, there is more demand for affordable houses as compared to other segments, which have plummeted due to excessive supply in the market. The government has also undertaken several initiatives such as PMAY and build more than 1 crore homes in urban and rural India by 2022. The affordable segment has also been accorded as infrastructure status, thus creating a win-win situation both for developers and home buyers to get access to cheaper loans. The government should also exempt the GST from affordable houses segment, which increases the property cost. Currently, the sale of under-construction properties attracts 12 percent GST (8 percent for affordable homes).
3. Removal of LTCG Tax
The introduction of Long Term Capital Gain tax was introduced in the previous budget, which was a major let down for the investors. It implies that the investors have to pay tax on the profits generated through the sale of mutual funds, stocks, real estate, etc. The investors will have to pay 10% tax if the profit exceeds INR 1lakh, thus reducing their overall profits. However, the chances are very rare as the tax was introduced in the last budget.
4. Revised National Pension System (NPS) to be implemented
The new rules related to NPS will be effective from the Budget 2019. The government will implement 4% increase in government’s share of NPS contribution for Central government employees. Additionally, the NPS withdrawal will be tax-free up to 60%. The remaining balance will be adjusted in annuities. This recommendation will be applicable to all employees, and will definitely boost NPS as a scheme for retirement planning.
5. Incentives for Startups/SMEs
Majority of the startups wanted to abolish the angel tax, which is applicable if a startup received funding from an angel or HNI based in India. If the capital is raised at a higher level, then the startup has to pay 30% tax on the capital received.
Apart from the above expectations, the finance ministry should look to provide extra tax benefits to pensioners, who constitute the majority of the voters. Looking at the previous budgets, one can expect this budget to focus on the common man rather being restricted to a specific industry or sector. Also, the previous governments have also avoided introducing significant changes to the interim budget as the ruling party has always used this opportunity to woo voters and outline its agenda for the next five years.