Finance Minister Nirmala Sitaraman presented her maiden Union Budget in the Lok Sabha on 5 July. Taxpayers had several expectations as the Narendra Modi government returned with a thumping majority. Women taxpayers were looking forward to benefits and sops. Corporates who were promised lower taxes by Arun Jaitley, saw big relief coming their way in this Budget. There were several announcements related to improving rail and road connectivity and a positive thrust for the adoption of electric vehicles, which found a place in both direct and indirect tax proposals.
The Union Budget 2019 laid down the following significant action plans from 2019-2020 fiscal year:
1) Direct tax
The Union Budget 2019 aided the corporate section of taxpayers by reducing the tax rate to 25 percent from the existing 30 percent for the domestic companies earning an annual turnover/receipts in FY 2017-18 of up to Rs 400 crore. The move is aimed at benefitting nearly 99 percent of the corporate taxpayers for the coming years.
On a sectoral note, we can see a massive boost given to startups the Budget 2019 by extending the time period for investment in startups. Section 54GB now is amended to extend the tax exemption period until 31 March 2021 for capital gains from the sale of a residential house, where the net proceeds are invested in startups. The startups then invest these funds to purchase new assets. Further, the valuation of the share premium amount will no longer be under income tax department scrutiny.
The interim Budget had made a major announcement giving relief to lower salaried class through an increase in Section 87A tax rebate. This rebate allows taxpayers to pay zero tax if they can cap their taxable income at Rs 5 lakh. In the Union Budget 2019, an additional deduction of Rs 1.5 lakh as interest on housing loan for a house with a value not exceeding Rs 45 lakh was announced. This is only available to first time home buyers.
A deduction of Rs 1.5 lakh on interest paid against a loan taken for the purchase of electric vehicles (EVs) was also laid out. However, this came as a surprise since the EV industry is in a nascent stage and would have been ready for this, in about two-year time. On the other hand, high net-worth individuals were taken for a surprise, they end up paying more taxes, with two new slabs added as surcharge as follows:
The proposed change shall impose an additional tax burden of Rs 7 lakhs for an assessee earning Rs 2.5 crore this fiscal year.
Other proposals include the inclusion of cash withdrawals from bank account above Rs 1 crore during the year under the ambit of tax deducted at source (TDS). Such businesses will be subject to a 2 percent deduction of tax from the amount withdrawn from the banks in excess of Rs 1crore. The move discourages cash transactions in business, bringing transparency in the movement of cash in the economy. The implementation of e-assessment will see the light of the day soon, with the pilot run announced.
2) Indirect tax
There were not many announcements for businesses to rejoice upon, but the customs duty rate was increased on several items such as electronics, construction materials and automobile parts. Excise duty on petrol and diesel was increased by Rs 1 per litre along with the special additional duty on excise and the road and infrastructure cess. The decision only aggravates the doubts of the petroleum industry on whether the Goods and Services Tax (GST) Council will in future consider charging one tax—GST on petrol of the multiple taxes as at present thereby removing the prevailing cascading effect. Besides, all of these moves will likely be inflationary in nature causing more distress for a slowing economy.
3) Housing and infrastructure
Apart from the existing ‘affordable housing’ scheme, the Union Budget 2019 this time proposed several reform measures for promoting rental housing. The finance minister claimed that a Model Tenancy Law is being drafted and will be circulated to the states. The Rent Control Act has now become redundant and this proposal for a new tenancy law is in order.
4) Education and employment
The Budget has announced the introduction of new education policy with a major focus on transforming India’ higher education system to align it with the global standards. Through several initiatives over the past five years, such as the Global Initiative of Academic Networks (GIAN) programme that taps the international pool of scientists and the SWAYAM initiative for massive online open courses.
As far as the employment generation initiatives are concerned, tax concessions to businesses surrounding, setting up of more workplaces and factories have always been a favoured option to create employment opportunities. The government must look into creating fair employment opportunities in all the states across India to resolve the rising issue of migration of people to other states in search of jobs. Another persisting issue that still needs to be sorted is the single-window clearance for statutory compliance.
While the plan is out, we can only wait for the fruits of the decisions made. Modi’s $5-trillion economy vision seems to be the mantra over the next five years. The Budget carried nearly no tax relief for the middle-class taxpayer, besides, immediate measures were not seen towards enhancing the consumption levels in the economy leaving room for more efforts in this direction.
(The writer is founder & CEO, ClearTax)
Updated Date: Jul 09, 2019 15:51:06 IST