(GIST OF YOJANA) Budget 2019-20: Some Reflections [AUGUST-2019]

(GIST OF YOJANA)  Budget 2019-20: Some Reflections

Budget 2019-20: Some Reflections

  •  Before the presentation of Budget for the year 2019-20. the Economic Survey for the year was presented in the Parliament. The Economic Survey throws up certain significant figures which one has to keep in mind while attempting to understand and analyse the Budget.

A few of these basic facts are summarised below:

  •  The rate of growth of Gross Domestic Product (GDP) in the year 2018-19 has been 6.8 per cent against 7.5 per cent in 2017-18. The Budget aims at 7 per cent GDP growth rate. The average growth rate during the last five years has been 7.5 per cent.
  •  There is a declaration of an intent to become a 5 trillion economy by 2024. This will necessitate 8 percent rate of growth of GDP in next 5 years.
  •  The Survey also informs that the macro economic conditions are expected to be stable during 2019-20. Thanks to the structural reforms affected during the last five years.
  •  The fiscal deficit has been at the rate of 3.4 percent of GDP. However, if the Central Government and State Government’s fiscal deficit is combined, it would go up to 5.8 per cent. This is actually a decline from the previous year; when it had been 6.4 per cent.
  •  Current Account deficit has increased from1.9 per cent in 2017-18 to 2.6 per cent in the period April to December, 2018. This has been because of higher trade deficit which rose from 162.1 billion dollars in 2017-18 to 184 billion dollars in 2018-19.

Budget: Main Points

  •  Excise and road cess on petroleum and diesel has been hiked by Rs. 1 per litre. This has caused an increase in the price of petrol and diesel.
  •  Customs duties on gold and precious metals have been increased from 10 per cent to 12.5 per cent. This would make gold costlier. Despite being costlier, gold has been a significant expenditure item because of traditional preference for it. To an extent, it is price inelastic. Therefore, one can argue that the gold would, in any case, get purchased in certain quantity even if it is costlier.
  •  An additional Rs. 1.5 lakh would be deductible from income tax for the spend on affordable housing(up to Rs. 45 lakhs). This is expected to give a flip to the sluggish housing sector. Budget also seeks to bring housing finance companies under the regulation of Reserve Bank of India (from National Housing Board at present).

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Income tax too is going to see significant changes:

  •  Income tax liability on annual income between Rs. 2 to 5 crore has been hiked by 3 per cent and income above Rs.5 crores has been taxed by additional 7 per cent.\
  •  Companies with turnover up to Rs. 400 crore shall pay lower tax at the rate of 25 per cent.
  •  In order to increase the ease of interaction with Income Tax Department, an element of automated tax assessment has been introduced to make it a faceless interaction. Besides, there would be pre filled tax return forms also.
  •  There is a new element of tax deduction at source by 2 per cent for the cash withdrawals of over a crore in a year. This is aimed at discouraging the cash transactions and at promoting cashless transactions. In an ideal situation, lesser currency in circulation and more cashless transactions would increase the velocity of money, and in turn the GDP.
  •  Government is willing to consider less than 51 per cent stakes in certain PSUs. It will be decided on a case to case basis. This would mean that while taking a decision to
    this effect, the peculiar facts and circumstances of the company and its business would he kept in consideration. The budget envisages 1.06 lakh crores as contribution from dividends and surplus from RBI and financial institutions including disinvestment.
  •  Public sector banks will get a capital infusion of Rs. 70.000 crores. Banks have been under stress because of nonperforming assets and stranded assets. This capital infusion is expected to ease the stress.
  •  Budget seeks to encourage the corporates of up to 400 crore by lowering the corporate tax rate to 25 per cent. For investors too. There are some incentives. The entire lump sum withdrawal from New Pension Scheme (NPS) which is otherwise limited to 60 per cent of the accumulated amount, shall be exempted from tax.
  •  Long term capital gains from the sale of housing property has been exempted from tax if capital gains are invested in a startup. To facilitate this, the Sunset Clause has been extended till 3L March, 2021.
  •  There is an interesting incentive for electrical vehicles which will entitle to a concession of up to Rs. 1.5 lakh on its purchase.
  •  NBFCs have now been brought under RBI’s pooled assets of NBFCs regulation. Further, a relief on defaults on loans in form of partial government guarantee has also been provided.
  •  There are some interesting steps on the consumption side. For example, those with foreign trips and massive power bills will also get into the tax net. This means that this aims at expanding the tax base.

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