The Interim Budget for FY20 announced by the then acting finance minister proved to be a boon for small and marginal taxpayers. The tax rebate was extended further to include people with net taxable income of up to Rs 5 lakh, a move welcomed by all.
But as per the 2019-20 budget estimates, the government aims to raise Rs 7.60 lakh crore from corporate tax and Rs 6.20 lakh crore from individual income tax. This is higher than Rs 6.71 lakh crore estimated to be collected from corporate tax and Rs 5.29 lakh crore from individual income tax in the fiscal ending March 2019. Considering this it is quite unlikely for the government to increase the basic income tax exemption limit in this year's Union Budget as the relief through rebate was already given in interim budget. Further, increasing the basic exemption limit to Rs 5 lakh will defeat the purpose of the interim budget announcement and could result in a dip in tax return filing.
The previous finance minister had extended the benefit of 25 percent corporate tax rate to businesses with Rs 250 crore in sales in his FY19 budget. This has benefited most of the over 800,000 companies that file returns, but the cream of about 7,000 companies with sales above Rs 250 crore that contribute the lion’s share of corporate tax collection remain in the 30 percent slab.
The figures suggest that the government may not reduce the tax rate for large companies to 25 percent from 30 percent in the budget, as it is currently dealing with a potential revenue shortfall and additional spending commitments.
Deductions from gross total income
There are expectations that the government may increase the tax deduction limit under Section 80C to Rs 2 lakh. The tax deduction benefit under Section 80C of the income tax laws is one of the key investments and tax saving tool for many taxpayers, especially the salaried people. The increased limit may incentivise people to save more and invest more in long term investment plans like PPF, LIC and NPS.
Budget 2018 had introduced various changes whereby senior citizens (aged 60 years and above) could claim a deduction up to Rs 50,000 from income from bank deposits (both savings and fixed), interest on deposits held in cooperative societies and post offices. The deduction currently available to individuals (aged below 60 years) for savings bank interest is up to Rs 10,000. There is a possibility that the government might enhance the limit to Rs 25,000 and include interest Income from fixed deposits as well.
Capital gains tax
With effect from financial year 2018-19, long-term capital gains arising from transfer of equity share, or equity oriented fund or a unit of a business trust shall be taxed at 10 percent when capital gains exceed Rs 1 lakh. This move indicates that the government is trying to tap fresh sources to generate additional tax revenue from big investors and further a rise in the rate of capital gains tax can be expected in the budget.
Interest on housing loan
Taking the Pradhan Mantri Awas Yojana (PMAY), the ‘Housing for All’ initiative, forward where the government promised provision of affordable housing to the urban poor with a target of building 20 million affordable houses by March 31, 2022, there are expectations that the government may introduce new tax reliefs for the first-time homebuyers and developers of affordable housing. Presently the Interest deduction on self-occupied house property is restricted to Rs 2 lakh which may be increased further.
Incentivisation of cashless transactions
A recent report indicates that the use of cash in the economy is again on the rise. As a measure to curb this the government may reduce the presumptive tax rate from 6 percent to 5 percent of gross receipts if received through banking channels. This move would also reduce the compliance requirement of small businesses.
Real estate investment trusts
The government may also allow a tax benefit for investments in Real Estate Investment Trusts (REITs). REITs offer a fixed return from a pool of rent-yielding assets, along with the prospect of capital appreciation making it an attractive investment option in the current situation where Interest rates in India are on a downward track after successive rate cuts by the Reserve Bank of India since January.
Overall it would be rational to have realistic expectations from the Union Budget 2019 considering the fact that the government has limited fiscal space. Rather than focusing on one particular event we should consider the fact that the reform process is a phenomenon which continues beyond the Budget.
Gaurav Mohan is the CEO of AMRG and Associates.