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February 04, 2019

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Budget and Its Analysis- a Balance of Populism and Economic Prudence


- L Badri Narayanan, Partner [ Lakshmikumaran & Sridharan ]
- Karanjot Singh Khurana, Principal Associate [ Lakshmikumaran & Sridharan ]

L-Badri-Narayanan-&-Karanjot-Singh-Khurana

The Interim Budget 2019 was crucial in more ways than one for the incumbent government. While it was a mega platform to remind the House of the milestones achieved during the past five years, this also presented an opportunity to provide relief to the ailing lower and middle class which witnessed a 45-year high unemployment during 2017-18. Needless to say, the masses had their eyes glued to their television sets on the morning of 01st day of February expecting some goodies before they go out to vote for the general election.

In this backdrop, the new Finance Minister became the first Chartered Accountant to present the interim budget 2019 to the nation. While he checked most of the boxes of what was expected of him, the fact that he was able to maintain all of that at an expected fiscal deficit of 3.4% of GDP highlights that economic prudence went hand in hand with populism. While the lower and middle class took the centre stage, the real-estate was collateral beneficiary of the proposals made by the Finance Minister.

As an aid to the small farmers, the Finance Minister introduced Pradhan Mantri Kisan Samman Nidhi (PM-Kissan) Scheme which promises an annual assistance of Rs. 6,000/- to the farmers having a cultivable land upto 2 hectares. This amount will be credited in 3 equal instalments of Rs. 2,000/- to the farmer’s bank account directly. The scheme is a legislative policy which has been brought with retrospective effect from 01st December 2018. Thus, the farmers satisfying the aforementioned condition should be getting their first instalment of the promised sum by the end of March 2019.

Under the newly introduced Pradhan Mantri Shram-Yogi Maandhan, workers in the unorganised sector having income upto Rs. 15,000/- will be entitled to a monthly pension of Rs. 3,000/- from the age of 60 years by making contributions during their working years. In his speech, the Finance Minister explained that a worker joining at the age of 18 will have to contribute as little as Rs. 55 a month to avail the promised sum and the government will deposit an equal matching share to the pension account of worker.

The Finance Minister while reminding the nation of implementation of One Rank One Pension during the tenure of the government, highlighted the fact that the year 2019-20 marks the year when the defence budget will be crossing Rs. 3 lakh crores.

On the tax front, the Finance Minister reminded the nation that the tax collection had almost doubled during the tenure of current government and went upto to Rs. 12 lakh crores in 2017-18 from Rs. 6.38 lakh crores in 2013-14. It was therefore stated that the benefit of such higher tax collection must pass to the middle-class Indians by reducing their tax liability. It has been proposed that the individuals earning income upto Rs. 5 lakh will be exempt from paying income-tax with effect from financial year 2019-20. However, ensuring the benefit reaches to the intended group, the exemption has been introduced in the form of tax rebate under section 87A of Income-tax Act, 1961. The amendment proposes that individuals earning income upto Rs. 5,00,000/- will get a tax rebate of Rs. 12,500/- (which is the tax liability of a person whose income is INR 5,00,000/-) or amount of tax whichever is lower. The increase in tax rebate rather than increasing the tax slab ensures that tax buoyancy is maintained beyond INR 5,00,000/- but at the same time the middle class gets a big relief. The amendment which is expected to benefit 3 crore taxpayers comes at a relatively lower cost of Rs. 18,500 crores.

The standard deduction of salaried employees has also been increased by Rs. 10,000/- and now stands at Rs. 50,000/-. The other concession that the Budget has extended is in the form of relieving the taxpayers from payment of tax on notional rental value of the second house property held by them. However, it has been clarified that the deduction of interest in respect of both these house properties shall continue to be restricted at Rs. 2,00,000/- only. The fact that the taxpayers can now hold two properties without incurring any income-tax liability may encourage individuals to invest in housing and may prove to be a boon for the real-estate sector.

Individuals will now be able to enjoy exemption from capital gains of upto Rs. 2 crores from sale of residential house property even if the gains are invested in two residential units (as against earlier condition wherein the gains could only be invested in one residential property only). However, this exemption can only be opted once in a lifetime of the taxpayer. The amendment addresses the long-standing demand of the individuals residing in tier-2 and tier-3 cities, wherein, due to the advent of the nuclear family concept, the individuals sought to invest capital gains into multiple properties. The amendment though intended to provide benefit to individuals may also result into an indirect benefit for real-estate sector.

In terms of direct relief to real-estate sector, it has been proposed that the builders holding unsold inventory upto two years (as against one year before the proposed amendment) from the project completion will not be required to pay tax on notional rent. Further, the due-date for getting housing projects registered to enjoy tax deductions under the affordable housing scheme has been increased from 31st March 2019 to 31st March 2020. The threshold for tax deduction on rental income has also been increased from Rs. 1,80,000/- to Rs. 2,40,000/-.

The Bill also seeks to amend the Stamp Act for levy and administration of stamp duty on securities market instruments by the States at one place through one agency, viz., through ‘Stock Exchanges’ or its ‘Clearing Corporation’ or ‘Depositories’ on one instrument and for appropriately sharing the same with respective State Governments based on State of domicile of the ultimate buying client. The Prevention of Money Laundering Act, 2002 is also sought to be amended to extend the time limit of 90 days for which the attachment of property remains valid during the period of investigation to 365 days.

The fact that the Finance Minister expressed his gratitude towards the taxpayers shows a degree of positivity and a stark difference from traditional budget sessions wherein tax amendments are synonyms to increased tax cost or introduction of anti-abuse provisions. While the lower-middle class and the real-estate got their fair share in the interim budget, the Corporate sector will have to wait for the post budget sessions to get their concerns addressed.

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