As Finance Minister Arun Jaitley gets ready to deliver his government's last regular union budget ahead of 2019 elections, speculation is rife that the Finance Minister may present a populist Budget 2018 after taking into account the political considerations. The hopes of common man is particularly high as the government is likely to dole out some sops for the middle class.
Here's what we expect Finance Minister Arun Jaitley to announce in his budget speech
Revising tax slabs and exemption limit
A proposal was recently made to the finance ministry calling for expanding the exemption limit from Rs 2.5 lakh per annum to Rs 3 lakh, if not Rs 5 lakh, and many predict that Jaitley will deliver this on February 1. After all, that's what India has clamouring for since the run up to Budget 2017. According to a recent survey conducted by LocalCircles, a citizen engagement platform, 31 per cent of respondents want the tax exemption limit to be increased from the current Rs 2.5 lakh to Rs 3 lakh. The survey, which received 1.25 lakh votes from more than 200 cities across India, also found that 37 per cent want tax slabs to be raised to lower the tax burden on people.
Industry bodies CII and FICCI have both demanded rationalisation of personal income tax slabs in their memoranda submitted to the finance ministry.
Under existing slabs, 20 per cent tax is levied on annual income of Rs 5-10 lakh while 30 per cent tax rate is applicable for personal yearly earning above 10 lakh. In the coming Budget, Jaitley may indeed tinker with tax slabs to give substantial relief to the middle class to help them tide over the impact of retail inflation, which has started inching up. He may announce a cut of 10 per cent tax rate for the Rs 5-10 lakh slab bringing it to 10 per cent. Also, a new tax slab may be introduced for annual income of Rs 10-20 lakh. There is no separate tax rate for this slab at present. An income tax rate of 30 per cent may be levied on income above Rs 20 lakh, raising the base of the slab from Rs 10 lakh.
According to FICCI, there is a likelihood that demonetisation effects may linger on for some more months and hence there is a need to further boost demand. A revision of income tax slabs, by raising the income level on which peak tax rate would trigger, "would improve purchasing power and create additional demand."
In the last Budget, the finance minister had given marginal relief to small tax payers by reducing tax rate on the Rs 2.5-5 lakh bracket to 5 per cent. This time, if the above come through, he will make many more tax payers happier.
Hiking investment in tax-saving schemes
At present, deduction of a maximum Rs 1.5 lakh is allowed to all individual taxpayers for investing in various tax saving schemes, such as EPF, PPF, life insurance schemes, National Savings Certificates, ELSS, etc. under section 80C . An increase in this limit will allow individuals to save more and channelize long-term savings into capital markets. Section 80C could see an increase in its limit by Rs 50,000, perhaps even higher, in Budget 2018.
Creating more jobs
The projected figure for unemployment in India in 2018, according to a UN Labour report, is 18 million. It's a worrying picture, especially for a government that came to power promising to create 1 crore jobs after the UPA's reign of "jobless growth". So the government could finally start delivering on Prime Minister Narendra Modi's electoral promises by introducing the country's first National Employment Policy (NEP) in the Budget. The multi-pronged policy will reportedly outline a comprehensive road map for creation of quality jobs across sectors through economic, social and labour policy interventions and introduce reforms to attract enterprises and help medium and small scale industries, which are major job providers.
Focusing on skill development
The other big finding by the LocalCircles survey is in the area of skill development and jobs, an issue on which the Opposition has repeatedly targeted the current government. The PM launched his government's flagship scheme 'Skill India' in July 2015, under which the government had set itself a target of providing skill training to 40.02 crore people by 2022. According to the survey, nearly 56 per cent of respondents want Budget 2018 to allocate sizeable funds for skill development aimed at employment. After all, for a growing economy like ours, skill development is a crucial driver of employment.
Re-introducing standard deduction on salaries
Finance Minister Arun Jaitley may re-introduce standard deduction for salaried individuals-the industry bodies have suggested a limit of at least Rs 1 lakh-on February 1 to ease tax burden and give the salaried class more money in hand to deal with rising inflation. Currently most salaried employees only get a conveyance allowance while businessmen are allowed to claim various deduction for expenses incurred towards their ventures. The concept is not alien to India. Standard deduction on salary had been introduced in India in 1974. But in 2006-07, then finance minister P. Chidambaram scrapped it in light of the recommendations of the Kelkar Committee on direct taxes-especially the increase in the basic exemption limit and the introduction of Section 80CCE. Bringing it back, according to Assocham, will give a boost to consumption demand and boost economic growth.
Rethinking limits for tax-free reimbursements
To further help salaried employees, Assocham has asked for re-fixing of monetary limits under HRA/transport allowance and children education. A more pressing need is to revise limits on medical reimbursements, which were capped at Rs 15,000 per annum back in 1999. Given the rising costs of healthcare, the ceiling is widely considered impractical and a revision has been on the common man's wish list for the past several years. In 2013, an Assocham survey revealed that 89 per cent wanted medical reimbursement limit increased to Rs. 50,000. A similar number of respondents raised the same demand in a 2016 survey by the body.
It has also suggested for leave encashment exemption limit for tax calculation to be raised to Rs. 10 lakh. "The current limit of Rs. 3 lakh was notified by the CBDT way back in 1998 and needs to be raised substantially," said Assocham president Sunil Kanoria.
Making housing more affordable
According to LocalCircles Citizens' Budget 2018 Poll, 33 per cent want the government to give interest subvention, or a subsidy on interest rates, for first time homebuyers. Meanwhile, to incentivise home buyers, realtors' body NAREDCO has suggested an increase in the deduction limit of interest paid on home loan by home buyers-from Rs 2 lakh to Rs 3 lakh-in its pre-budget memorandum to the government. This will see the taxable income of home buyers coming down. The body also wants the Budget to lower the effective GST tax rate for housing under construction houses to 6 per cent.
Increasing minimum wages
After the labour ministry raised the minimum wages substantially in 2016, the current floor level monthly income for a family is fixed at Rs 9,100 taking Rs 350 as the daily minimum wage. The labour ministry is said to be in the process of revising the minimum wage. It is, in fact, likely to be doubled in Budget 2018 to Rs 18,000 per month. On the other hand, traders' bodies have demanded that minimum wage for all the labourers across the sectors and states should be fixed at Rs 21,000.
The government is also likely to increase allocations for social security schemes. Noted activists Baba Jadhav and Aruna Roy recently wrote a letter to Modi on the behalf of the Pension Parishad, a body linking over 100 civil society organisations working in the field of social security. The current old age pension scheme provides an assistance of mere Rs 200 to vulnerable senior citizens. The activists have sought to increase it to the level of half of the monthly minimum wage notified by the government.
Passing the Payment of Gratuity (Amendment) Bill 2017
At present formal sector workers with five or more years of service are eligible for Rs 10 lakh tax free gratuity after leaving their jobs or at time of superannuation. The Payment of Gratuity (Amendment) Bill, 2017, which is likely to be passed in the forthcoming Budget session, will make formal sector workers eligible for tax free Rs 20 lakh gratuity, at par with central government employees after implementation of the 7th Central Pay Commission. The amendment will also allow the central government to notify the maternity leave period for "female employees as deemed to be in continuous service in place of existing twelve weeks". This comes against the backdrop of the Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks.
Reducing GST on insurance products
Currently, only around 4 per cent of the population in the country has health insurance coverage. Out of pocket healthcare spending constitutes 86 per cent of total healthcare spend in India, according to the Healthcare Federation of India 'NATHEALTH'. The sectoral body, in its pre-budget recommendations, has urged the government to make health insurance coverage mandatory for all citizens in a phased manner, initially covering the organised sector. Cheaper insurance products is a crucial first step in this direction
With agency inputs