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Budget 2018 - 2019
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Mr Milind Kothari, Managing Partner, BDO India
The much anticipated introduction of LTCG is now back with a new avatar. As we know in tax legislation, this could only get worse over a period of time with every successive budget diluting the original commitment of taxing long term gains. " The FM announcement of application of 25% tax rates to MSME with a new threshold of Rs.250.00 crores while welcome, is still narrow in impact on the economy and business. Still lot more to be done to increase India's competitive advantage as the headline tax rates are falling all across the world, with now even USA joining and leading the race."
 
Ms.Nidhi Seksaria, Partner, Real Estate, BDO India
"The FM announced a 5% deviation from circle rates to remove hardship faced by the Real Estate industry. However, this may not be enough as the actual deviation of circle rates to prevailing market is in many cases as high as 30%, crippling transactions"
 
Mr Monish Panda, Founder, Monish Panda & Associates
The Finance Minster in his budget speech has again confirmed that the Government does not recognise crypto currency and will take all steps to stop usage and circulation of such crypto currency. This clearly indicates that the Government will now either come out with a legislative mechanism or make suitable amendment in existing legislation to ensure that dealing and trading in crypto currency is made illegal and to penalise entities and individuals who are involved in trading and circulation of crypto currency. We will have to wait and watch as to what will be final framework of such legislation, if such legislation is introduced.
 
Mr Monish Panda, Founder, Monish Panda & Associates
The Finance minister has indicated several amendments to the Customs Act like pre-notice consultation, this measure will ensure a definite and meaningful discussion between the Customs Officer and the Assesse and will give an opportunity to the Assesse to try and settle their case. Another amendment suggested is providing for time lines in which Customs Department has to adjudicate the dispute and in the event Adjudication is not complete within such time it will be deemed that the Notice issued to the assessee and the adjudication process is closed. This is again a welcome move because currently no time period has been specified for completion of Adjudication and these proceedings keep on languishing for years. The Government should also consider to introduce similar changes in the present GST regime to streamline and provide for time bound Adjudication proceedings and pre-notice consultation to ensure minimising disputes under the new GST legislation. - The budget has proposed a long term capital gain Tax on profits over 1 lakh from equity transactions made post 31st January, 2018 at 10 percent of total gains. However, any profit made till 31st January, 2018 is exempted from LTCG. This move was expected. Introduction of LTCG will lead to the Sensex falling at least in short term. - Most investors will attempt to book their profits made during the recent bull run and escape imposition of LTCG to be imposed post 31st January 2018. - The Finance minister has only indicated changes in the Customs law in the Indirect Tax side. The Customs duty on Mobile phones and accessories of Television and other electronic parts have been increased to 15 percent. This will definitely boost local manufacturing of electronic items and seems to be a step towards Governments Make in India initiative.
 
Mr.B. Gopkumar, Executive Director & CEO , Reliance Securities
There are all efforts in Union Budget 2018 to appease rural and EWS population but at the same time Government tried to maintain the fiscal discipline by keeping fiscal deficit target at 3.5% and 3.2% for FY18E and FY19E, respectively. Although deficit targets are higher as compared to previous estimates but considering surge in prices of crude oil these are respectable numbers. Higher than estimated expenses and lower than expected revenue on account of lower GST collection and no spectrum auctions lead to miss on fiscal deficit targets. However, the gradual pickup in GST collection in coming months along with better tax compliance will augur well for fiscal maths. Budget speech has talked about total expenses from all agencies at Rs 14lac crore towards aiding rural economy / farmers' income. This will have far reaching impact on growth rates of country and reduction of income gaps in society. On the flip side, visible hardening of oil prices can play a major spoilsport in government's estimated fiscal target. In addition to appeasing rural population, Budget 2018 continued to put strong focus on infrastructure development, which is in line with the expectations. FM has allocated an extra budgetary support of Rs5.97 lakh crore v/s Rs3.96 lakh crore in last budget for infrastructure sector, which is encouraging as India needs large amount of investment in infrastructure due to growing needs. However, road construction for FY19E is likely to be ~9000km, which is tad lower as compared to earlier guidance given by the road ministry. We understand higher allocation in infrastructure segment will essentially expedite infrastructure development in the country, which in turn will aid many industries i.e. metals, cement, building materials, etc. Govt has also decided to impose 10% tax on Long Term Capital Gains (LTCG) for equity and equity oriented investments for amount exceeding capital gains of Rs1 lakh. The tax will be applicable based on cost prices prevailing on 31st January 2018, which will prevent any large scale selling in stock markets. While LTCG tax has been imposed, there is no tinkering on Securities Transaction Tax, which makes India as probably only country in the world to have both taxes at the same time. Grandfathering of cost prices for LTCG will prevent any knee jerk reaction in stock prices but imposition of tax is a clear negative for equity markets as far as sentiments are concerned. To summarise, we believe that amid the challenges from soaring oil prices, dwindling revenue collection led by transitory impact of GST and lack of private capex, FM has managed to provide a balance of maintaining fiscal prudence and spurring economic growth.
 
Mr Vishal Gandhi, Founder & Director, Gandhi & Associates
Some of the positives of the budget are the reduction of the corporate rate of tax to 25% for companies with a turnover of up to 250 crores, and the emphasis on areas such as agriculture, health, education, tackling pollution, senior citizens, etc. However, the 10% long-term capital gains tax on sale of listed securities, and the introduction of tax on distributed income of equity oriented mutual funds could have been deferred.
 
Shilpa Divekar Nirula, CEO, Monsanto India Region
The Union Budget 2018 has reiterated the government's rural focus and its commitment towards India's agriculture sector. Announcements through measures regarding farm output seem to be the key highlight. These include MSPs, improved market linkages and increased allocation towards the food processing sector. The continued emphasis on irrigation and farm insurance will provide further impetus to help farmers manage risks associated with cultivation. An unbridled focus on agriculture coupled with enabling policies will go a long way in benefitting the larger farming community. These initiatives if complemented with enabling policies would go a long way in achieving the government's target of doubling farmers' incomes by 2022.
 
Dr Suresh Surana, Founder, RSM Astute Consulting Group
The Budget has provided certain relief on account of personal taxation particularly for those falling in lower income slabs and salaried employees and senior citizens: Restoration of Standard Deduction for salaried employees The standard deduction of Rs. 40,000 is proposed to be allowed to the salaried employees. However, the tax deduction available of medical reimbursement (Rs. 15,000) and Transport Allowance (Rs. 19,200) i.e. cumulatively Rs. 34,200 has been taken away. Exemption on Long Term Capital Gains on sale of listed shares and equity oriented mutual funds withdrawn As present, long term capital gains exemption under Section 10(38) of the Income-tax Act is available on sale of listed shares or equity oriented mutual funds or a unit of a business trust (held for more than 12 months and on which STT has been paid). From FY 2018-19 onwards, it is now proposed to tax such long term capital gains exceeding Rs. 100,000, at the rate of 10%. Further, tax on distributed income by equity oriented mutual fund at the rate of 10%. This would remove the disparity between growth and dividend plans. It may be noted that relief is provided in respect of grandfathering of long term capital gains upto 31 January 2018 and gains after that period shall be taxable under the new rate of 10%. The gains from equity share held up to one year will remain short term capital gain and will continue to be taxed at the rate of 15%. However, the period of holding will be considered from the date of original investment and not from January 31, 2018. It may be also be noted that the long term capital gains arising in the financial year 2017-18 (even arising between February 1, 2018 to March 31, 2018) will continue to be exempt. Tax-exemption to partial withdrawal from National Pension System (NPS) extended to non-employees subscribers It is proposed to extend the exemption to partial withdrawal not exceeding 40% of the total amount payable to him on closure of his account or on his opting out. This exemption was earlier available only for employee subscribers Rationalization of deduction for Senior Citizens At present, payments towards annual premium on health insurance policy, or preventive health check-up, of a senior citizen, or medical expenditure, a deduction under Section 80D has been allowed upto Rs. 30,000 which it is proposed to be raised to Rs 50,000/-. Similarly, deduction of Rs. 60,000 to Rs. 80,000 is available to an individual and Hindu undivided family with regard to amount paid for medical treatment of specified diseases of senior citizens which is now proposed to be raised to Rs 1,00,000/- for both senior citizens and very senior citizens. Deduction upto Rs. 50,000 of Interest earned from bank deposits for senior citizens At present, a deduction upto Rs 10,000/- is allowed under section 80TTA to an assessee in respect of interest income from savings account. It is proposed to insert a new section 80TTB so as to allow a deduction upto Rs 50,000/- in respect of interest income from bank deposits or deposits with post office held by senior citizens. Further, there would be no TDS deduction for senior citizens upto interest income of Rs 50,000/-. One of the widespread apprehensions High Net Worth Individuals (HNIs) had regarding the Union Budget 2018 was the introduction of Inheritance Tax or Estate Duty. HNIs can now heave a sigh of relief as the Budget does not contain any such proposals. This reflects the pragmatic approach of the government which is focused on growth, revival of investment cycle and employment generation.
 
Mr Pranay Bhatia, Partner, Tax and Regulatory Services, BDO India
Income tax act treats certain loans and advances to substantial shareholders or related entities as dividend on the ground of anti-avoidance measure. The amendment now proposes to levy DDT on the company giving the loans and advance at 30% in the wake of bringing clarity and certainty. However, it is not clear how the return of loan will be treated from the perspective of DDT. It is also noteworthy that, if the dividend income was taxable in the hands of the shareholder or the recipient related entity, the tax would have been paid based on their tax status. Once the company advancing the loan is liable to pay DDT, the tax status of the recipient is no longer relevant. Further, some of the tax treaties provided for a reduced tax on dividend income which will now not be available as the liability is now shifted on the Indian company.
 
Sunil Kumar Sinha, Principal Economist, India Ratings
As expected the focus of FY19 budget was on agriculture, says India Ratings and Research (Ind-Ra). A slew of measures which include keeping the minimum support prices (MSP) of agricultural crops henceforth at least 1.5x of their production cost, allocation of INR20 billion for upgrading the existing rural haats into Gramin Agricultural Markets, promoting cultivation of horticulture crops in clusters, launching of 'Operation Green' with a corpus of INR5 billion for cultivation of basic vegetables and allocation of INR100 billion for creating infrastructure for fisheries, aquaculture and animal husbandry etc. were announced in the budget. In addition, the target of farm credit has been increased to INR11 trillion for FY19. Agricultural Productivity: No doubt, these measures will help in mitigating the agrarian crisis that has been unfolding over the past few years, but Ind-Ra opines that the most crucial aspect of unfolding agrarian crisis continues to be productivity. Without adequately addressing the issues relating to farm productivity while relying more on MSP to keep farming remunerative can stoke food inflation, which indeed happened during FY07-FY13. In fact, once MSPs are announced the wholesale prices of farm produce also move in tandem and feed into the retail inflation. Therefore, no mention of how some the measures announced in the FY16 budget and addressed towards raising agricultural productivity such as - 'soil health card scheme' and 'water use efficiency programme per drop more crop' has progressed so far is disappointing. This also raises a question with respect to announcements made and their actual implementation. Infrastructure: Another focus area of the budget was infrastructure, and road, port, railways and power received a higher allocation in this budget. Although there is very little for the salaried class but the standard deduction of INR40,000 has been reintroduced. Fiscal Maths: Now turning to the fiscal arithmetic - the FY19 Union Budget assumes that nominal GDP growth would be 11.5% (7.2% real GDP growth and 4% GDP deflator growth). While Central Statistics Office in its first advance estimate of national income pegged FY18 nominal GDP growth at 9.5%, the budget has used nominal GDP growth of 10.5%. The use of higher nominal GDP means it will impact all ratios. Direct tax buoyancy used in the FY19 budget is 1.25, lower than 1.74 in FY18. But, indirect tax buoyancy used in FY19 is 1.66 higher than 0.82 in FY18. This is plausible because GST collections in FY19 will be for 12 months as against 11 months in FY18 (three months of excise, customs etc. and eight months of GST). Disinvestment target of INR800 billion appears achievable (FY18 (RE): INR 1 trillion), provided capital markets remain buoyant. Non-Tax Revenue: Aggregate non-tax revenue is budgeted to grow 3.86% in FY19 as against a contraction of 13.51% in FY18. The share of dividend and profits (INR1,073.12 billion) has been budgeted at 43.78% and receipts from the economic services at 36.55% of non-tax revenue, respectively. Realising non-tax revenue targets crucially hinges on these two heads. Lower non-tax revenue from dividends and profits in FY18 was responsible for the 74.5% slippage in fiscal deficit. Dividend/surplus of the Reserve Bank of India, nationalised banks and financial institutions is budgeted at INR548.17 billion in FY19 as against INR516.23 billion in FY18. In view of bank recapitalisation and demonetisation-related cost pressures waning, the probability of achieving INR1,073.12 billion dividends and profits from these agencies in FY19 (FY18: INR1,199.84 billion) is high. However, the revenue pressure may emerge from the non-tax revenue head, i.e. other communication services, mainly license fees from telecom operators and receipts on account of spectrum usage charges. Non-tax revenue from other communication services is budgeted to increase to INR486.61 billion in FY19 (FY18 (RE): INR307.66 and FY18 (BE): INR443.42 billion). Based on the present position of telecom sector - low revenue growth and elongated/deferred spectrum payments to the government - this budget head may see some slippage in FY19. Deficit: Although the revenue growth assumed in the budget at 14.63% looks plausible, the expenditure growth at 10.12% looks an underestimate. This may make achieving the fiscal deficit target of 3.3% feasible. However, in case of any deviation from the budgeted estimates, Ind-Ra believes the government like in the past can cut the capital expenditure to achieve the fiscal deficit target. SECTORAL IMPACT Affordable Housing to be the Fourth Avenue for PSL Shortfall: Traditionally, Rural Infrastructure Development Fund investments, priority sector lending (PSL) certificates and pool buyouts/securatisation have largely supported the PSL shortfall for the banks. Affordable Housing Fund in National Housing Bank could add additional medium through which banks can bridge their shortfall requirements. It solves the dual purpose of garnering the funds for affordable housing while filing the PSL shortfall of banks. This coupled with the government's target of 5100,000 rural housing could provide significant boost to rural housing. Hospitals: The announcement of National Health Protection Scheme, which proposes to provide coverage of INR0.5 million for secondary and tertiary care hospitalisation to 100 million families, is positive for the hospitals sector, as it will increase addressable market size for the sector. Construction: The budget is neutral for the sector, given the moderate increase in allocation for roads & bridges (including rural roads and highways), while the allocation for other key schemes such as Pradhan Mantri Awas Yojana (including rural and urban), rural electrification and railways has been reduced. Education Sector: Ind-Ra believes higher allocation for the Revitalising Infrastructure in School Education (RISE) scheme is a step in right direction for the improvement of school infrastructure. Teacher training and integrated B.Ed programme to 1.3 million teachers will improve quality of education.
 
Sumit Joshi, Vice Chairman and Managing Director, Philips Lighting India.
"We welcome the union budget's strong focus on inclusive development, with allocations for enhancing both rural and urban infrastructure. It gives a big boost to rural infrastructure by ensuring electricity access to all rural households under the Saubhagya scheme. Additionally, the allocation of Rs 2.04 Lakh crores for developing smart cities will go a long way in creating world class urban infrastructure" said Sumit Joshi, Vice Chairman and Managing Director, Philips Lighting India.
 
Adhil Shetty CEO and Co-founder BankBazaar
Views on Insurance "Rs5Lac is a great mediclaim amount and 50 Cr individuals is a great target. This will create tremendous awareness for medical insurance in the same way as Jan Dhan which ensured every Indian to have a bank account. This will push for every Indian to have medical insurance. On life insurance the PM Jeevan Jyoti Bima Yogana including Rs 2Lac Life cover is being pushed across a larger base which is a great sign. Rs 2 Lac critical cover is also being extended to a larger base." Views on Taxes "Reduction of corporate income tax for companies with revenue up to INR 250Cr is a big announcement and will benefit more than 99% of the companies in India. The framework is still to be analyzed to qualify the benefits. Another announcement on standard deduction of INR. 40,000 for salaried class is a great step to simplify the taxation process. Though the effect would not be much as the 40k deduction in lieu of medical and travel allowance effectively only means INR 40k- (15k+9.6k existing ) which is only INR 15.4K extra non-taxable income. At 20% tax slab, it is approximately INR 3080 in hand for full year. This will further get reduced because of the increase in health and education cess of 1% on tax (existing 3%) which means only approx. INR 2000 in hand per year increase" Fintech perspective : "The budget overall is positive. There is visible support for Fintech industry as the FM specifically mentioned that Fintech is playing an important role in countries growth and hence announced setting up a working group for its growth. The biggest announcement was about insurance and Rs5Lac is a great mediclaim amount and 50 Cr individuals is a great target. This will create tremendous awareness for medical insurance. Also, reduced corporate income tax for companies with revenue up to Rs250Cr is a big one. There are couple of points which will raise questions. The 3.5% fiscal deficit in FY18 and 3.3% fiscal deficit target in FY19 is slightly higher than expected which will impact the borrowing cost for Private sector. Second, introduction of tax on LTCG exceeding Rs. 1Lac after 14 years." On Investment: "The announcement of the LTCG on equity investments and 10% DDT saw the Sensex plunge 1% within minutes. However, the markets seem to have recovered immediately signalling that equity investors -- including mutual fund investors -- would absorb these blows and keep investing as per their financial objectives. After all, equity remains one of the best-performing asset classes."
 
Mr. Ujjwal Batria, Managing Director & Country CEO, Nuvoco Vistas Corp. Ltd
"The focus of the Union Budget 2018-2019 has been to boost investments in rural development, education, healthcare and social sectors. With sizeable allocations to the rail and road sectors; it clearly recognizes the infrastructure sector as a growth driver. Revisions in MSP, emphasis on rural MSME credit, and similar initiatives should lead to a significant improvement in rural incomes. A push in rural development, road and rail sectors, affordable housing and smart cities will all help the cement industry; as an increase in rural spending power should translate into more housing. With an increased GDP, which facilitates connecting and integrating the country with a network of roads, airports, railways, ports, and inland waterways; the infrastructure sector should see a growth in demand. The focus on roads and rails will also positively impact consumption of cement and concrete. A growth of 7-8% by the third quarter of the next fiscal is something that the cement industry would eagerly await."
 
Peeyush Naidu, Partner, Deloitte India
"The budget sets the right course for the Aviation Sector. It reaffirmed commitment to sustaining the growth in the sector by focusing on substantial increase in airport capacity! UDAN - a scheme where Deloitte has closely worked with and supported the Ministry, is expanding the aviation network through a transparent market-based model as a result of which hitherto unserved airports and helipads will be connected by existing and new operators. The budget has maintained focus on required capital expenditure for Indian Railways for the year 2018-19 - for modernization and safety related initiatives as well as capacity expansion. The key imperatives going forward would be for the Ministry to focus on leveraging technology and private sector involvement in effectively and efficiently meeting mobility solution expectations of its different Client segments (freight, different passenger segments, etc.)."
 
 
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