Budget 2018, the last opportunity for the Finance Minister to make ripples in the Indian economy post demonetisation and GST, sees a large focus to energise Bharat (read rural India) which constitutes the majority of our population, market and resources. We cannot move to a different level without bringing them fully into the game.
The call is loud and clear on strengthening agriculture, reviving growth in rural economy, welfare measures for the lower and middle class, improving the quality of education, creating job opportunities and infrastructure development.
The Budget salutes the senior citizens and has given them enough reasons for cheer.
It proposes to increase the net take-home of women employees by reducing their required contribution to Provident Fund (PF) from 12 to 8 per cent, and build social security for new employees with the government proposing to contribute 12 per cent of wage to PF for the first three years. But how to track new employees could be tricky as those opting out of PF for their salary exceeding ₹15,000 per month may be left out and how those with such salary opting voluntarily will qualify for this proposed contribution, is not clear.
No change in individual tax rates and increasing cess by 1 per cent will, in effect, increase the tax bill of the non-salaried. Standard Deduction (SD) of ₹40,000 is proposed to be reintroduced for the salaried class but any tax benefit owing to this shall get neutralised due to withdrawal of existing tax concession for transport allowance (₹19,200 per annum) and medical expenses reimbursement (₹15,000 per annum). However, pensioners and expats may benefit from the SD proposal. If the effect of additional 1 per cent cess was also to be considered, salaried employees having income more than ₹12,62,500 would end up shelling out more tax after taking into account SD, the removal of exemptions and increase in cess.
Biting the bullet on LTCG
Someone had to bite the bullet on introducing Long Term Capital Gain (LTCG) on equity. LTCG exceeding ₹1,00,000 on sale of listed equity share or unit of an equity oriented fund or unit of a business trust subject to the Securities Transaction Tax (STT) is proposed to be taxed at 10 per cent (without indexation).
However, any accumulated gain in the nature of LTCG on such transfer of assets acquired before February 1, 2018, has been spared from taxation. But one will pay tax, both on transactions i.e. STT and now also on gain.
Sticking to its agenda of popularising the National Pension Scheme as an alternate social security, the government has extended the exemption benefit of 40 per cent on withdrawal (whether on closure or opting out) to all subscribers. This will bring parity on tax treatment for all subscribers.
The proposed roll-out of e-assessments on all-India basis will reduce the human interface at the time of processing of tax returns and will improve transparency and efficiency.
This is a visionary Budget and real benefits or its refection clearly lies in its timely and effective implementation.
We can’t expect the tax rates to be tweaked every year and also claim for consistency and stability. Growth and economy can no more be only Budget-dependent.
We are fast moving into a virtual digital world where the rules of the game change overnight, therefore we need to be equally fast in relevant policy making and implementation if we have to achieve the goal New India 2022.
The writer is Partner Personal Tax, PwC India. Gurucharan Kr., Manager, also contributedto the article