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#Budget2018: What it means for you and me

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While Budget 2018 brings cheer to the agriculture and allied sectors, promises to unfold the world’s largest healthcare scheme and talks of asset recycling in the infrastructure sectors, job creation and education what does it really mean for the common man – net outflow or more money in the pocket? Let’s deconstruct it.

Income Tax Slabs Unchanged

The finance minister has not changed the tax slabs for the salaried class. Moreover, he has re-introduced standard deduction, which seemingly puts more money in the salaried class’ pocket. Mr Jaitley feels standard deduction of Rs 40,000 is likely to bring parity between the disposable incomes of salaried individuals and business owners (last year the average tax paid by salaried employees was higher than individual businessman). However, the standard deduction will replace the present exemption on transport allowance and reimbursement of miscellaneous medical expenses.

A segment which seems to benefit from the budget proposals is the senior citizen. The exemption limit on the senior citizen’s interest earnings from bank and post office deposits has been increased to Rs 50,000 from 10,000 and with no TDS. They have also been assured an earning of 8% on investments upto Rs 15 lakh. Tax-exempt expenditure on serious illness has been increased across senior citizens to Rs 1 lakh from 80,000 for very senior citizens and 60,000 for senior citizens. In addition, pensioners will avail the benefit of standard deduction.

However, with one proposal – increase in the health and education cess on income tax – the perceived advantages have been mitigated. The combined impact of the increase in cess and removal of allowances (transport and medical) may have a net negative impact on the salaried class. In fact, those in the middle-to-higher tax bracket might have to shell out more.

Introduction of Long-Term Capital Gains Tax

Long term capital gains tax of 10% has been introduced for gains exceeding Rs 1 lakh with grandfathering till Jan 31, 2018. Though it will fill the government coffers, it reduces the investor’s incentive to stay in the market for long-term as he has to pay STT and short-term capital gains tax of 15%. Tax of 10% on distributed income by equity oriented mutual fund has also been proposed. Equity market returns for the salaried middle class, which invests with a long term view, are going to be lower.

Corporate Tax

The corporate tax for Micro, Small and Medium Enterprises has been reduced to 25% from 30% for companies with having a turnover upto Rs 250 crore. Currently, the rate is 25% for companies having a turnover upto 50 Rs crores. Though it means a revenue of loss of Rs 7,000 crore for the government, it hopes that MSME’s will put that amount into investment and job creation. In the long-run rise in employment will benefit the economy as whole.

Customs Duty

The finance minister proposes to levy or hike customs duty on various items across sectors such as increasing duty on mobile phones from 15% to 20%. It will act as an import barrier giving impetus to local manufacturing under Make in India initiative. Finance minister said that items in seven sectors have been carefully selected for this. Growth in manufacturing is directly linked to rising investment and jobs creating.

Crypto Currency

The finance minister reiterated that crypto currency is not a legal tender or coin and measures will be taken to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system. But he said that the government will explore the use of blockchain technology to fuel digital economy.
Net, net the salaried may end up shelling out more by way of cess on income tax and long-term capital gains tax, while pensioners may have more money to spend. In the long-run job creation and the consequent improvement in overall economic health may benefit the middle class. But for now, it seems that the salaried have nothing to cheer.

 

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