- No change in personal income tax; standard deduction of Rs 40,000 reintroduced, but medical and travel benefits to go
A low fiscal deficit on his mind, the FM plays it safe with taxes. Only the old have reason to smile.
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Union Budget 2018 has been on expected lines, aimed at appeasing farmers and others in rural areas, as well as small industry. When it comes to most tax proposals, though, it has disappointed everybody except senior citizens and Micro, Small & Medium Enterprises (MSMEs). In its last full budget before the next general elections, the BJP-led NDA government targets its votebanks in rural areas and the agriculture sector, promising them a lot. In direct taxes, however, where it was expected to bring in a lot of reforms and exemptions, it has done precious little.
Of all classes of taxpayers, the salaried employee has been left almost high and dry with finance minister Arun Jaitley announcing there would be no change in the personal income-tax rates. From a taxpayer바카라s perspective, there was a lot of expectation that the personal income-tax exemption limit would be raised. That has not happened. With GST becoming a reality, most citizens are being made to pay taxes on almost every purchase and, in most cases, the taxes are higher than before. That바카라s why there were expectations that the finance minister would put more money into the taxpayer바카라s hands by lowering personal taxes. To encourage higher compliance, simplification of direct tax laws was also expected. None of these has happened.
바카라This is a political budget,바카라 says Daksha Baxi, partner at Khaitan & Co. 바카라They really needed to reach out to those who suffered because of demonetisation and GST. They have been given a largesse. Apart from this, senior citizens, who suffered because of reduced interest, have got a lot. These are people who needed to feel that something is being done for them.바카라
It is clear that the salaried taxpayers are not the government바카라s priority, and so nothing much has been done for them. While there is no change in the personal income tax rates or slabs, the government has reintroduced the old standard deduction바카라a flat amount deducted from the salary income before calculation of taxable income. It was discontinued by former finance minister P. Chidambaram in Budget 2005-06. It바카라s back, in lieu of exemptions for medical and travel expenses바카라so no more bills to claim reimbursement.
According to Budget 2018, there will be a standard deduction of Rs 40,000 for all salary earners who pay tax. However, the catchis바카라the existing benefits of medical allowance, where Rs 15,000 was tax-free, and transport allowance, of which Rs 19,200 was tax-free, have been removed. The net gain for salary earners is thus a little over Rs 5,000 only바카라and even that they may well not be able to get and instead end up paying more in taxes. That바카라s because the government has increased the education and health cess from three to four per cent, which is expected to neutralise all gains arising out of the standard deduction.
The prospects look up only for pensioners, who are set to benefit substantially as they did not get any standard deduction earlier, nor any of the other allowances given to salaried employees. They would be saving the tax payable on this entire amount of deduction.
Experts feel the government바카라s hands were tied as far as raising the threshold limit for taxes for salaried employees was concerned. 바카라Increasing the threshold limit has been a challenge for the government and is against the goal of expanding the taxpayer base,바카라 says tax expert Mukesh Butani, who is the founder of BMR Legal. 바카라It would have immediately taken a chunk of taxpayers out of the tax net. That is something the finance minister did not want. Hence, it has not been touched.바카라
There is more bad news for salary earners and investors, especially those investing in the markets. Long-term capital gains, which had been exempted from taxes in 2004, will now be taxed at 10 per cent as the government has reintroduced the long-term capital gains tax on gains arising from the sale of listed equity shares exceeding Rs 1 lakh, with no indexation benefit. This will affect everyone who has invested heavily in market instruments that fetch returns in excess of Rs 1 lakh, and is expected to have a significant negative impact on the mutual fund industry, besides adversely affecting inflows from foreign investors.
바카라Introduction of long-term capital gains tax on equity gain exceeding Rs 1 lakh at 10 per cent without indexation will impact the equity market and the corpus that people need to create for meeting their financial and life goals,바카라 says Sanjay Sanghvi, partner at Khaitan & Co. 바카라There is another catch바카라this change is, in effect, a retrospective amendment since only capital gains made until January 31, 2018 will not attract this new tax. This is against the stated policy decision of NDA government not to make retrospective amendment in tax laws.바카라
As expected, the markets reacted negatively to this and the BSE benchmark Sensex closed 58.36 points lower than yesterday바카라s close at 35,906.66, after losing about 400 points in intraday rallies. The NSE Nifty also closed 10.80 points lower than its previous close at 11,016.90.
바카라There is a similarity between the tax proposals in this year바카라s budget and what was there in last year바카라s,바카라 says Gokul Chaudhary, partner at Deloitte India. 바카라Last year, tax for people at the lower end of income was brought down from 10 per cent to 5 per cent. This year, too, there is a Robin Hood approach of reducing tax burden at the lower end of the pyramid, but increasing it at the upper end. People at the lower end will get the benefit of standard deduction, while those with higher income will be taxed for long-term capital gains.바카라
It is towards senior citizens that the budget has been very kind. The finance minister has proposed to increase the limit of deduction under section 80D for senior citizens for medical insurance from Rs 30,000 to Rs 50,000. Exemption on interest income has also been increased from Rs 10,000 to Rs 50,000. These measures have been brought in because senior citizens had suffered due to reduction in interest on deposits.
Keeping his word of bringing down corporate tax in a phased manner, the finance minister has brought it down for MSMEs. According to Budget 2018, the threshold limit for MSMEs바카라for which tax has been brought down from 30 to 25 per cent바카라has been raised from a turnover of Rs 50 crore to Rs 250 crore. This is also because the government looks up to this sector for employment generation.
Explaining the reason why the government did not raise the threshold limit for the entire corporate sector, experts point out that the 2015 announcement of phased reduction in corporate tax was predicated on a reduction in exemptions, which have not happened. Chaudhary, however, feels that given the higher cess and surcharge, even after bringing down the tax for MSMEs from 30 per cent to 25 per cent, the effective tax rate would be 29-34 per cent.
From an indirect tax standpoint, as expected, the focus has been on customs duty. There is a clear change in policy to increase customs duty to encourage domestic manufacturing. Accordingly, customs duties on products like mobile phones, television sets and furniture have been increased by 10-20 per cent. 바카라The FM wants to promote Make in India by taking a protectionist approach,바카라 says Butani. 바카라There had been no upward rejigging of customs duty in the recent past, which has been done now.바카라
Suresh Nandlal Rohira, partner at Grant Thornton India LLP, says, 바카라With the powers being disseminated to the GST council, there were no significant expectations on the indirect tax front, although a broad-level roadmap on bringing the petroleum sector under GST could have brought some relief to the surging prices in that sector.바카라
Overall, besides addressing the rural and agrarian sectors, the finance minister has given little to most people, barring some sections. But considering that he has pegged fiscal deficit for 2018-19 at a low 3.3 per cent, there was little he could give out.