What expectations from Budget 2018

What expectations from Budget 2018

Apart from the Assembly elections in 7-8 states, the Union Budget 2018 may well be the biggest event of the year. With the 2019 Lok Sabha elections approaching and a close victory in Gujarat assembly elections, in all probability, we’ll be seeing a more populist approach from the Government rather than a reformist approach, which has been the case uptill now. So here’s a list of thing one can expect from the Budget:

1. Reduction of Corporate Tax rate:

Currently, a Domestic Company is taxed @30%. Further, a Company is required to pay a Surcharge of 7% if the Total Income exceeds Rs. 1 crore and a Surcharge of 12% if the Total Income exceeds Rs. 10 crores (plus Education Cess @3%) making it an effective tax rate of 33.063% and 34.608% respectively. The companies would be wanting the effective tax rate to come at 30%.

2. LTCG exemption on equity being withdrawn:

Currently, any Long Term Capital Gains on sale of listed equity share on which STT has been paid is exempt from tax. There are several reports anticipating this amendment and with the Government facing uncertain tax revenues, particularly the GST revenue dipping every month this may well be a highly probable amendment. At present, the STT fetches the exchequer a sum of Rs. 7000-7500 crores per annum while losing a notional amount of Rs. 49000 crores on LTCG exemption.

While this move has been anticipated in the past if this is to be implemented 2018 would be a more preferred year than 2019 by the Government. One can expect investors to go on a selling spree up to 31st March 2018 (to gain the benefit of exemption) and thereby having an adverse effect on the equity markets.

3. Standard Deduction for Salaried class:

This is more of a hope than expectation. Under the current structure, there are numerous allowances and perquisites that are given to the employee some of which are fully or partly exempt. While giving a Standard Deduction of 25 – 30% of the gross salary will not materially affect the Governments tax revenue it’ll substantially reduce the compliances and complications involved.

4. Increase in limits under Section 80C and 80D:

While one would not expect a change in the tax slab rates this might one means of offering a tax relief to the common man. The current cap on deduction allowed under section 80 C is Rs. 150000 for investing money in various instruments such as mutual funds, FD, Life Insurance Policies etc.

Under Section 80 D a deduction of a sum of Rs 25000 and Rs 30000 for senior citizens is allowed for Health Insurance premium and Health Checkup. While these limits were revised from Rs 15000 and Rs 20000 in Budget 2015, with the rising medical cost these limits may again be revised.

5. Specific Law on Taxation of Cryptocurrencies:

There have been several warnings issued by the RBI and the Government to the investors in Cryptocurrencies to be cautious with their exposures to such investments. Cryptocurrencies being a digital asset, the tax liability can be deferred if not avoided without much difficulty. We shouldn’t be surprised if the Government decides to tax profit on such investments at the Maximum Marginal Rate.

6. Increase in limit for set off of the loss of Income from House Property:

‘Housing for all’ is one of the topmost agendas of the Government, and a likely scenario of interest rates increasing in the future, the loss allowable to be set off from Income from House Property may be increased. Currently, in case of Self Occupied Property, the cap on loss (interest on loan) allowable is Rs. 2,00,000. One can expect this to be increased to Rs. 2,50,000 – 3,00,000

7. Reduction in Long-Term Capital Gains holding period of REIT:

Real Estate Investment Trusts (REIT) provide a new class of investors to the Real Estate market, at the same time ensuring liquidity and transparency into the system. Clearly, the focus of the Government this time around will be on infrastructure sector and to give it a boost, the requirement of holding period of units in REIT’ S may be reduced from 3 years to 1 year to classify it as a Long Term asset.

8. Cutting down on Excise Duty on Petrol and Diesel:

When the Modi Government came into power in 2014, it was blessed with reducing prices of crude oil. Now, it has to tackle an increase of $42 / barrel (approx) to $ 65 / barrel from July 2017 to January 2018. The rise in crude oil prices is the biggest contributor to inflation in India, hence a reduction in duty can be expected.

With all the benefits the Government is expected to offer, it’ll be interesting to see how they go about reducing its deficits. Particularly, with the decreasing GST revenue and increasing crude oil prices, the Modi sarkar definitely has a lot of thinking to do. However, with the unpredictable nature of this Government, it would be wise to expect the unexpected.

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