Budget 2018: Finance minister Arun Jaitley, in his last full Budget before the general elections of 2019, had a daunting task of balancing high expectations from all quarters, while maintaining fiscal discipline, something which the Narendra Modi government prides itself in. Delivering to these expectations, the Union Budget 2018 focusses on the ‘ease of living’ for the common man and introduces a plethora of measures for the agrarian, rural and infrastructure sector focused at upliftment of farmers, promoting agri-exports, providing affordable healthcare, insurance cover and education and making available basic utilities across sections of the society. On the direct tax front, there was an expectation of industry stakeholders to reduce corporate tax rates and incentivise investments considering the development on tax policies in other large economies such as the US and UK, as this had made out a case for competitive regime on tax policy in India as well. However, the finance minister steered clear from the competitive pressure and made a choice for allocating his resources towards creation of demand and supporting welfare measures.
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From a direct tax perspective, the Budget, however, provides certain measures for promoting employment generation, transparent tax administration, promoting SMEs and facilitating the takeover of stressed companies under IBC. On personal tax front, the FM has left tax slabs untouched. However, for the salaried class, standard deduction has been reintroduced, with a limit of Rs 40,000 in lieu of the existing transport allowance (of Rs 19,200 per annum) and medical reimbursement allowance (of Rs 15,000 per annum). Applicability of a lower corporate tax rate of 25% has been extended to companies with a turnover of less than Rs 250 crore in FY17. As stated by the FM, this is likely to benefit almost 99% of corporate taxpayers.
To facilitate takeover of stressed companies under IBC, benefit of carry forward of business losses after change in shareholding for such companies has been allowed. Here, clearly, a view has been taken by the FM that economic attributes are important and hence technical issues such as change in shareholding or artificial computation mechanism for set off of losses under MAT have been given a go by. Given the need to quickly turnaround these businesses, it is worthwhile to allow set off of accumulated depreciation or loss against any income that may arise to a company irrespective of the head of such income.
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To balance the revenue outgo on account of the several welfare measures introduced, as was expected, long-term capital gains tax on listed equities has been introduced at 10%, without indexation. And to be fair to stock market investors, all gains up to January 31, 2018, have been grandfathered. It has been proposed to introduce a ‘health and education cess’ of 4%, in lieu of the 3% ‘education and higher education cess’. Effectively, a 1% increase in cess is proposed for all classes of taxpayers on all tax payouts, including MAT and DDT. To support job creation, the conditions for claiming 30% deduction of salaries paid to new employees has been rationalised. The Union Budget 2018 is very balanced, rightly aimed at supporting the wider constituents of ‘Bharat’ to build a shining ‘India’.
Rahul Garg Partner, Tax & Regulatory, PwC
(Arjun Khandelwal of PwC contributed to this article)