With the Union Budget 2018 round the corner, everybody is looking towards it with much hope. However, what changes can we expect from Finance Minister Arun Jaitley in his final budget, before the elections begin in early 2019?
The past five years have been witness to traditional rules being broken and more unparalleled changes introduced than ever before in recent history. The first break in tradition came when Finance Minister Arun Jaitley announced the budget on February 1st, 2017 instead of at the end of February as his predecessors had done. Of course, the changes introduced by the Modi government have shaken this country up and put the country through a power wash. The year 2017 was no exception as the biggest tax reform happened earlier during the year with the introduction of the Goods and Services (GST). Now as we have stepped into 2018 and preparations for the Union Budget 2018 are on, what changes can we expect from the government, in its final budget, before the elections begin in early 2019?
India’s personal income tax rate is among the highest in the world. The Budget 2018 should be centered around job creation, lowering personal income tax slabs, and tax savings schemes /deductibles. Such changes would directly benefit the normal taxpayer. Although the changes implemented thus far, such as demonetisation and the introduction of GST, while turbulent, have been for the greater good, the upcoming budget announcement should focus more on improving the daily life of the common man. The expectation is a modification in the current tax slab structure and widening in the annual income brackets, which would be in line with the cost of living standards. Furthermore, more tax saving schemes could also be introduced that motivate more people to adopt investment opportunities, such as the infrastructure bond.
These tax-deductible bonds were issued by infrastructure companies, which the government had approved of, with a reasonable interest rate. When introduced a few years ago, the limit was set at Rs 20,000. This deductible was offered on top of the Rs 1,00,000 (deduction limit few years back) deduction under section 80C of the I-T Act. Re-introduction of this bond with an increase in amount to Rs 50,000, for example, would attract more people to invest in it. This would be a win-win, as taxpayers would get a tax deductible on top of their regular deductible, thus saving more money, while the suffering infrastructure could get a boost, which would aid the government in reaching their infrastructure goals, while creating jobs as a bonus, at the same time.
Another scheme, which would help the economy and the taxpayer, would be to offer the deductible u/s 80EE, on a permanent basis. Section 80EE allows first time home owners to deduct the interest paid up to a maximum of Rs. 50,000/year. This is different from 24B, which allows for a deductible of Rs 2,00,000 after possession. The availability of the deductible u/s 80EE on a regular basis would give a boost to the real estate market by motivating people to purchase homes, which in turn would not only give a boost to the real estate sector, but create jobs as well, which should be a key focus of the Budget 2018.
On another note, the reduction in the corporate tax rate from 30% to 25%, for companies with an annual turnover of up to Rs 50 crore, has further fueled the frustrations of the common tax person. The reason being, the normal person has faced the brunt of many of the recent changes made by the government. So, the idea of big corporates getting further benefits while no changes are made in the personal income tax rates, does not sit well with the public. While, there are speculations of further tax cuts for the corporate sector, it will not be profitable to the government unless the GST collections grow significantly over the next couple of years, as a single drop in percentage costs the government thousands of crores.
While present tax laws provide many incentives to the parents contributing to the child’s future welfare, there is hardly any tax benefit given to the children taking care of their ageing parent or planning for their welfare. There is a serious urgency to do something in this regard. For example, if a scheme is introduced whereby the children could open retirement savings plan for their parents and claim it as deductible, which would be above the normal Rs 1,50,000 deduction u/s 80C. This would encourage the younger generation to invest/ contribute to the welfare of the ageing parents, as they will be able to claim a deduction from their taxable income. It will also help the government in its socio-economic objective and provide a healthy and peaceful post retirement life for the elderly.
The Budget 2018’s biggest challenge will be on the taxation side of both direct and indirect taxes. However, since GST has consumed many indirect taxes and any decisions taken will have to come from the GST council, the changes brought to the direct taxes, primarily personal income tax laws, remains to be seen. With so many changes introduced and implemented by the present government, the biggest populace affected is the average taxpayer. So, measures need to be taken in the Budget 2018 that satisfy the needs and expectations of this group.
(By Chetan Chandak, Head of Tax Research, H&R Block India)