From the point of view of the individual tax payer, the Budget may come as a disappointment as it was expected that there would be some tax concessions given.
This expectation has been generated on account of the fact that consumption has been growing at a low rate and a tax cut on income would have increased disposable income.
However, the government has been silent on this and instead enumerated the tax benefits that have been provided in the last 5 years including the interim budget. In fact at the higher level the surcharge has been increased.
Two areas where individuals would be better off on the consumption side are housing and vehicles. The Budget has provided for enhanced tax exemption on interest paid on loans for buying a house that comes in the category of affordable housing.
This means that if a person buys a house for less than Rs 45 lakhs and borrows from a bank to finance this purchase, the interest paid will be tax exempt for an additional Rs 1.5 lakhs.
This will be an incentive for sure. It will also benefit the housing industry and to that extent can add to job creation, though may be limited in scope depending on the reaction of the public.
The second is on electric vehicles where loans taken to buy such an article would get a tax break up to Rs 1.5 lakhs. While the immediate response from buyers and sellers may be slow,
it may be expected that in course of time this will work out well for producers and consumers. This can be a simultaneous boost for the auto segment which is facing various challenges that has led to declining growth in sales.
This enthusiasm may be dented by the decision taken to increase excise duty on petrol and diesel by Rs 1 a litre. This is one of the reasons that the government has kept them out of GST as this would otherwise have meant not being able to change the rates on these items.
The fact that demand is inelastic gives that much space to the government to raise rates on these products. Hence even as crude oil prices remain low at less than $ 65/barrel and the currency strengthening to now Rs 68-69/$, revenue collections will increase.
Another disappointment would be no action on the LTCG. While some may say it was overoptimistic to expect such a measure, given that there was a sense that the government may try and assuage the markets, any change in the LTCG on equity and equity funds would have spiked the market. But this has not been done and it may be assumed that it would not be on the agenda for some time.
In terms of expenditure, there is not much change from the Interim Budget proposals with some items moving across to other categories. The ability to spend has also been heavily restricted given that economic growth is not really going to be very much different this year compared with FY19.
However, companies with turnover of less than Rs 400 cr would now face a lower corporate tax rate of 25% instead of 30% which will be a major gain. The Budget does expect corporate taxes to be the main driver of tax income this year with an increase of Rs 95,000 cr expected.
This will be followed by Rs 40,000 cr from income tax. Quite clearly there is an assumption that either the tax base will increase or compliance will be significantly better to drive these numbers.
With the budgetary numbers being largely unchanged, the government’s borrowing programme remains virtually static at Rs 7.1 lkh crore. This is good for the market which would have taken it perversely if the borrowing increased.
However, the government has been indicating that it was committed to lowering the fiscal deficit number to 3% by FY21 and hence was unlikely to stray from the path.
It has bettered the number to 3.3% this year. There is always scepticism on whether the target will be attained. But it must be remembered that the government follows a cash based accounting system where expenditure is reckoned only when it is paid.
By rolling over expenses, the budgetary numbers can be maintained and the expenses deferred. This could always be done again to meet the goals.
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