The Finance Minister, Shri. Arun Jaitley presented the fifth budget before the parliament on 1st February, 2018. The Finance Minister had to tread a very fine line in finalising the tax proposals for this year’s Budget. On the one hand, there was an expectation that the demonetisation exercise warranted granting of a fiscal largesse to taxpayers, both individuals and corporates, through lower rates and increased deductions. On the flip- side, there was a view that as the fiscal benefits of demonetisation were yet to crystalise, talk of a bonanza for taxpayers was premature. There was a further expectation amongst the tax paying citizens of India that this budget would be a populist budget carving out special benefits to salaried tax payers to help the government in the next elections.
The Economic Survey conducted by the GOI states that despite global sluggishness, the domestic economy has sustained a macroeconomic environment of relatively lower inflation, fiscal discipline and a moderate current account deficit coupled with broadly stable rupee-dollar exchange rate. At the same time, there is a need to overcome the three ‘meta challenges’ viz., inefficient redistribution, ambivalence about the private sector and property rights and the improving but still challenged state capacity. The fiscal deficit for FY2018-19 is targeted at 3.3 per cent of GDP and government remains committed to achieve 3 per cent in the following year. The country’s economic growth is facing challenges such as subdued manufacturing, lower exports of services and lower capital expenditure.
The agenda set for FY2018-19 is ‘transform, energise and clean India’ which is evident from various positive steps initiated by the GOI as well as those recommended in the Budget 2018. The GOI has delivered its promise of reduced income tax rates for corporate sector during its election drives and has slashed the income tax rate to 25% for the MSME sector (only eligible companies). Thus, the plan of the GOI to empower the MSME sector is greatly on path with all the beneficial provisions aimed at improving the distributable surplus in the hands of the MSME for spending more on the development of business and in turn increasing employment.
While coming to power, four years ago, the BJP government had promised to the people of India to give this nation an honest, clean and transparent Government. The GOI has
fairly delivered the promises in terms of taking difficult decisions ranging from demonitisation to GST to creation of NCLT to The Insolvency & Bankruptcy Code and many more measures during the last 4 years. The GOI has been constantly focusing on its aim to uplift the poor and to provide basic necessities to the under privileged and ignored category of the society by implementing various schemes like providing LPG connections to houses for free, providing financial assistance in building toilets, introducing aadhaar based direct subsidy transfer to eliminate the middlemen and thus give direct benefit to the people in their bank accounts.
Overall, Budget 2018-19 strives hard to keep India on a growth track and is well intended to encourage greater compliance and strict enforcement. One hopes that the provisions are administered in an even handed manner in a business friendly spirit of mutual trust. In the aftermath of demonetisation, and the gathering gloom around globalisation, this is critical to ensure that India’s current sweet growth spot endures in a sustainable manner.
Some of the key highlights of the proposals laid down in the Union Budget 2018 are as under:
- Long term capital gains exceeding Rs 1 lakh to be subject to tax at 10 per cent without indexation.
- Health and education cess has been increased to 4 per cent.
- For senior citizens, exemption of interest income on bank deposits raised to Rs.50,000.
- FM Jaitley proposes to introduce tax on distributed income by equity oriented mutual funds at 10 per cent.
- For senior citizens, exemption of interest income on bank deposits raised to Rs 50,000.
- Standard deduction of Rs 40,000 for salaried employees in lieu of transport and medical expenses.
- Companies with turnover of up to Rs 250 crore to be taxed at 25 per cent.
- FM Jaitley says that the government does not propose any changes in tax slabs for the salaried class this year.
- 5 lakh WiFi hotspots will be set up in rural areas to provide easy internet access.
- Government will take all steps to eliminate use of cryptocurrencies which are funding illegitimate transactions.
- NITI Aayog will establish a national programme to direct our efforts in the area of Artificial Intelligence towards national development.
- All railways stations with footfall more than 25,000 to have escalators.
- FM Jaitley announces capital expenditure of Rs 1,48,528 crore for Indian Railways in 2018-19.
- Government to contribute 12 per cent of EPF contribution for new employees in all sectors.
- Target of 3 lakh crore for lending under PM Mudra Yojana.
- Govt will launch health scheme to cover 10 crore poor families.
- The Government is slowly but steadily progressing towards universal health coverage.
- Eklavya schools to be started for Scheduled Tribe populations.
- To tackle brain drain, Jaitley announces scheme to identify bright students pursuing B Tech in premiere engineering institutes, and providing them higher- education opportunities in the IITs and IISc. These students will receive handsome fellowships, and will be expected to dedicate a few hours to teach in higher education institutions weekly.
MAJOR DIRECT TAX PROPOSALS (slated to be effective from 1 April, 2018 i.e. Assessment Year 2019-20, unless stated otherwise)
A. Tax Rates
1. Tax Rates for Individuals, HUFs, AOP, BOI etc.
Slab rates for individuals below the age of 60 years and HUF, AOPs, BOIs and every artificial juridical person:
| Income Slabs for individuals below 60 years of age and HUF, AOP, BOI, etc (In Rupees) | Income Slabs for individuals more than 60 years but less than 80 years (In Rupees) | Income Slabs for individuals more than 80 years of age (In Rupees) | Tax rate |
| (1) | (2) | (3) | (4) |
| 0 to 2,50,000 | 0 to 3,00,000 | 0 to 5,00,000 | NIL |
| 2,50,001 to 5,00,000 | 3,00,001 to 5,00,000 | 10% | |
| 5,00,001 to 10,00,000 | 5,00,001 to 10,00,000 | 5,00,001 to 10,00,000 | 20% |
| 10,00,001 and above | 10,00,001 and above | 10,00,001 and above | 30% |
2. Tax Rates for Co-Operative Societies.
The tax rates shall continue to be the same as FY 2017-18 which is as under:
| Income Slabs (In Rupees) | Tax rate |
| (1) | (2) |
| 0 to 10,000 | 10% |
| 10,001 to 20,000 | 20% |
| 20,001 and above | 30% |
3. Tax Rates for Firms:
The tax rate on the whole of such income remains the same at 30%.
4. Tax Rates for Domestic Companies:
| Turnover Slabs (In Rupees) | Tax rate | Effective Rate |
| (1) | (2) | (3) |
| Turnover of FY 2016-17 below Rs. 250 crores | 25% | 29.12% * |
| Other than above | 30% | 34.94% * |
| *Considering Surcharge of 12% and Cess of 4% |
- Surcharge rate (subject to marginal relief)
| Total Income Slabs (In Rupees) | Rates for Individuals, HUF, AOP, BOI, etc | Rates for Co- Operative Society | Rates for Firms | Rates for Domestic Companies |
| 50 lakhs to 1 crore | 10% | – | – | – |
| More than 1 crore but less than 10 crores | 15% | 12% | 12% | 7% |
| More than 10 crores | 15% | 12% | 12% | 12% |
- Additional Cess rate (No benefit of marginal relief)
| Name of Cess | Upto FY 2017-18 | FY 2018-19 Onwards |
| Primary Education Cess | 2% | – |
| Secondary & Higher Education Cess | 1% | – |
| Health & Education Cess | – | 4% |
| Total Cess | 3% | 4% |
- Withdrawal of Long Term Capital Gains Exemption (LTCG):
- Exemption u/s 10(38) of LTCG from transfer of Equity Shares of a Company through a recognized stock exchange or a unit of an equity oriented mutual fund is withdrawn by inserting a new section 112A in the Act to provide for taxing the same @ 10%.
The concessional rate of 10% will be applicable to such gains only if:
- in a case where long term capital asset is in the nature of an equity share in a company , securities transaction tax has been paid on both acquisition and transfer of such capital asset; and
- in a case where long term capital asset is in the nature of a unit of an equity oriented fund or a unit of a business trust, securities transaction tax has been paid on transfer of such capital asset.