New Delhi: All eyes will be on the fiscal consolidation roadmap and the government’s borrowing plans. Will Jaitley stick to the 3 percent (of GDP) fiscal deficit target for 2018-19 set last year? Or will he signal a move to fiscal deficit range from fixed target.
There is heightened expectation that he may announce a new framework suggesting a fiscal deficit range from 2018-19 setting the stage for replacing the Fiscal Responsibility and Budget Management (FRBM) Act with a new law, giving the government more flexibility on borrowing and spending.
With Assembly elections due in eight states this year – including three major states ruled by the BJP – and Lok Sabha election next year, Jaitley’s Budget may seek to address the widespread agriculture distress, create jobs, and boost growth, while at the same time stick to fiscal prudence.
Areas that need to be addressed on Budget Day
1) Corporate rate tax cut
India Inc expects the Modi government is likely to lower corporate taxes in the upcoming Budget. Many analys say the Modi government was planning to cut the peak corporate tax to 25 per cent, as promised in an earlier budget, and may look at demands for matching personal taxes with it.
Although a road map for bringing down the corporate tax rates to 25 per cent was laid out in an earlier budget, this is yet to be implemented.
2) Income tax limit
The proposals before the finance ministry is to hike the tax exemption limit from the existing Rs 2.5 lakh per annum to at least Rs 3 lakh, if not Rs 5 lakh.
In the last Budget, Finance Minister Jaitley left the slabs unchanged but gave marginal relief to small tax payer by reducing the rate from 10 per cent to 5 per cent for individuals having annual income between Rs 2.5-5 lakh.
3) Reduction in fuel taxes
The Modi government levies taxes on petroleum products in the form of excise, customs and import duty. The high taxes have kept fuel prices up in the last three years despite a fall in international crude oil prices.
4) Hike in investment in tax-saving schemes
At present, deduction of a maximum Rs 1.5 lakh is allowed to all individual taxpayers for investing in various tax saving schemes, such as EPF, PPF, life insurance schemes, National Savings Certificates, ELSS, etc. under section 80C.
The increase in Section 80C limit will allow individuals to save more. An Economic Times report said that section 80C could see an increase in its limit from the existing Rs 1.5 lakh a year to Rs 2 lakh or possibly even higher in Budget 2018.
5) Increase in limit for medical reimbursements, transport allowances
It is also likely that limits for certain tax free reimbursements as well as allowances to salaried taxpayers, such as Rs 15,000 per annum for medical reimbursements, Rs 1,600 for transport allowance, etc. may be raised to meet the increased cost of medical and transportation.
6) Tax treatment on pension plans
The Modi government must promote pension plans and ease tax rules for pension-related products. Currently, the income earned on a pension plan is subject to income-tax rules. Further, a pension plan investor needs to buy the annuity on maturity. Otherwise, 66 per cent of the fund corpus is taxed.These features need to be looked into in order to avert an old age crisis 10 years down the line.
7) Revision of Section 80D tax limit
Section 80D can get a fillip too. At present, you can claim a maximum deduction of Rs 25,000 on your health insurance premium (if you are not a senior citizen). But this amount can be raised as well. This can only mean one thing: you save more taxes
8) Tax on equity investments
The finance ministry is actively considering the introduction of tax on long term capital gains (LTCG) from equities or raise the holding period for long-term tax exemption from one to three years in the Budget, according to multiple reports.
9) Abolish dividend distribution tax
The finance ministry is likely to do away with the dividend distribution tax (DDT) in the upcoming Budget.
In its pre-Budget expectations, EY said dividend distribution tax has become burdensome for corporates due to various factors such as high rate, litigation on disallowance and hence the return on capital employed has significantly diminished.
10) Long-term capital gains tax
There is a buzz in the stock market that the government may impose a tax on long-term capital gains from shares and equity mutual funds. This looks like a possibility, as the government is keen to open new revenue channels to contain the fiscal deficit.