1. No change in tax slabs / slab rates-
After the historic event of Demonetization in 2016, the common man was looking for some "Reward"... an evident one!... Whether demonetization was a correct or a wrong decision is a different argument...but a common man accepted the decision and suffered for the betterment of India..and thats a fact!! In Budget 2017, the common taxpayer was applauded by the FM. A genuine tax payer was addressed as "one in millions" but was not "rewarded".
The ongoing news of raids on the tax evaders, benami property holders gave a feeling that Indian treasuries are expanding.. various measures were introduced to increase the tax payer base.. with GST implementation, the dream of lower prices of goods and simplified tax was not experienced and hence that one reward of lower taxes was an expectation...
Finally, a lower tax rate is an indication of "achhe din" which everyone is looking for... especially at the onset of elections in 2019, some evident tax breaks could have facilitated the government stability!!
The expectations were high.. but not necessarily realistic... a change in a slab rate means a direct cut in the tax revenues.. it impacts all categories of tax payers.. Further, for a growing economy like ours, the more concerning areas are creation of jobs, rural growth and infrastructure development. Fundamentally, tax cut will not do any good to the growth or jobs creation.. rather more tax revenues will help the development of the nation. Maybe thats why, the honorable FM chose to incentivise taxpayers by offering rebates in piecemeal forms but not a straight forward tax cut! Standard Deduction of Rs 40,000 is offered to Salaried individuals.. the taxable income will be reduced to that extent and so will the tax on it.. Simultaneously, the existing medical allowance or travel allowance has been withdrawn.. so one need not worry about keeping or faking medical bills and travel bills...
Moreover the senior citizens and growth oriented small companies are looked after by the FM. Senior citizens got a bounty in form of increase in exemption of interest income on deposits with banks and post offices. The government has proposed to increase the amount from Rs. 10,000 to Rs 50,000. Another dose of sops for the senior citizens entails rise in deduction limit for health insurance premium and medical expenditure from Rs. 30,000 to Rs 50,000 under section 80D. Senior citizens with certain critical illness are allowed an exemption of Rs 1,00,000/- This would leave little taxable income for the senior citizens.
Though for few individuals these tax-breaks are negligible... My word to those wise individuals, "probably you earn well enough to pay taxes and contribute for better India!!..so let the good work continue.. :)"
2. Long Term Capital Gain (LTCG) tax on Equity
This is certainly the biggest announcement of Budget 2018. After 2014, especially after the victory of Modi led BJP government, the Stock market continually witnessed a rising trend.. During last few months before the budget, SENSEX was gaining a new High almost everyday. The Retail investor's participation in the stock markets was growing significantly inspite of Risky nature of stock markets. Probably, because the risk had a reward of "Nil" Long Term Capital Gain tax for holdings over a mere one year! Needless to say, the incentive was more attractive than the risk... A certain amount of savings of large number of individuals was parked for equity / equity led MF investments.
As soon as the FM introduced tax on LTCG from equity investments, the stock market witnessed a crash.. The correction in the stock market was bound to happen.. but a fall on levy of LTCG tax was unpleasant....
LTCG tax on equity is not a new phenomena. Till Oct 2004, i.e. untill the introduction of STT (securities transaction tax) the equity instruments held for more than 1 year were taxed at 20%. Since 2004, the SENSEX has grown exponentially from below 5000 levels to 35000 levels. So there is a significant capital appreciation.. and in comparison the tax levied is not a significant one.. This is purely by giving relief to the gains made till date.. FM announced the grandfathering of all the gains till 31st Jan 2018. What does that mean? For example, assume an individual bought shares in January 2017 for Rs.100, which touched a high of Rs.300 on January 31, 2018. Now, if he or she sells the shares at Rs.350 in, say, May 2018, then his taxable gains would be Rs.50. (350-300). and not Rs. 250 (350-100).
So to escape the LTCG, the individual can sell its equity shares held for more than one year till March 31, 2018. Further, as per the transcripts of the Budget, no LTCG tax arises for gain upto Rs. 1 lacs.
Theoretically, the capital appreciation is a source of Income. Accumulated wealth of the richest in the world is almost completely made up of appreciation in capital assets.The Capital assets of Bill Gates or Warren Buffet will not be significant without their stock valuations. So exempting capital gains tax, favours the richest. At the same time, it is argued that capital gains are the primary incentives to entrepreneurship. However Nil LTCG tax might enable some risky entrepreneurship and hence most of the tax regimes tax the capital gains.
Incidentally, the Centre has brought in LTCG tax while retaining STT as well. So, investors will have to pay both the taxes. However STT is not a significant tax.
At last, my words to the wise: "1. If you envisage to sell your equity holdings in an year anyway then, Sell your long term equity holdings till March 31, 2018 so that you don't pay LTCG... if you are a reasonably long term investor, don't worry about 10% LTCG. Its not substantial.
2. Keep investing in SIPs
3. Invest in unit linked insurance schemes as they still enjoy benefit u/s 10(10d). But some popular insurance plans continue to have very high charges and hence low returns.. so choose wisely.
4. Keep some money aside to invest on corrections."
3. Modicare
Honourable FM announced a mega healthcare scheme which is likely to cover over 10 crore poor and vulnerable families. Each of the families will stand to receive (not in hand) Rs. 5,00,000 for secondary and tertiary care. The new scheme will cover tertiary care such as liver, heart related ailments. Also, the policy might offload some of the burden of government hospitals since the scheme would be extended to the private hospitals in the same way as the private health insurance schemes do. Total budget for this might extend beyond Rs 11,000 crores. Looks like the revenues from taxing LTCG will be invested in such schemes.
Prima facie this appears like a copycat formula of healthcare benefit schemes in the world. However, the step taken to improve the health of the nation is appreciable. Especially, considering the scarcity of government facilities, and a significant number of people with healthcare deprived, the inclusion of private hospitals in the scheme is appreciable. This will also create job avenues and growth in insurance sector. Its a very good announcement with a big budget implementation plan. Hopefully, the implementation will materialize before the elections in 2019.
In the nut-shell, the Budget 2018 was more centered around rural growth, Infrastructure development, technological advancements and uplifting the health of poor people. To facilitate these, the government took some tough decisions like LTCG tax. The so called non-populist Budget still took care of majority section of the country i.e. Rural India, farmers and poor people. At the behest of Elections in 2019, the large amount of voters are still in rural India and are still deprived of basic necessities. No levy of tax on agricultural income or large income group farmers takes care of maximum population of the country. Modicare can be a good election point as it takes care of healthcare needs of the masses.The bottom-line is, huge growth plans are laid by the FM at the cost of disappointment of genuine tax-payer. Hopefully, this will bring "acche din" sooner than never!!
