Highlights of Union Budget 2019

Economic growth has been slowing down, amidst the hiccups of credit defaults and liquidity squeeze within the economy. With a thumping win for the ruling Govt. in the General Elections 2019, it was expected that the Union budget would be a pro-growth budget, providing some relief to the taxpayers on the one hand and fuelling the economic growth on the other. While there have been many beginnings, this Budget might be falling a little bit short on the expectations of the Common man, as well as the corporate and the investing fraternity. This disappointment was largely reflected in the movements in the broader equity markets. Here are some of the key highlights of the Union Budget 2019:

Macroeconomic Situation

The Govt. has pegged the fiscal deficit for the current year 2019-20 at 3.3% of GDP, as against 3.4% projected at the time of the interim budget. This was, in fact, opposite to what most of the analysts had been expecting, that the public expenditure would be increased to push economic growth. However, the deficit target has been kept at an optimistic level.

Personal Taxation

With the recent relief to small taxpayers with taxable income up to Rs. 5 lakh during the interim budget, no further relief has been provided to the small and medium taxpayers. While it was widely anticipated that the ceiling limit for deduction under Section 80C would be enhanced to spur savings, there has been no change in this limit. However, the Govt. has proposed to offer investment option in ETFs (the existing ETFs floated by Govt. being CPSE ETF and Bharat 22 ETF) at par with Equity Linked Savings Scheme (ELSS) to encourage long term investment in CPSEs.

Surcharge on Super Rich taxpayers has also been enhanced to 25% and 37% for the taxpayers having taxable income from Rs. 2 crores to Rs. 5 crore and Rs. 5 crores and above respectively. This is to shore up the revenue collections. With this increase in the surcharge, the effective tax rates have increased by around 3% and 7% respectively for such taxpayers.

Corporate Taxation

The Govt., in its first tenure, had resolved to steadily bring down Corporate tax rate from 30% to 25% in a phased manner. Moving in that direction, the tax rate has been specified at 25% for all the companies with turnover less than Rs. 400 crores. This rate of 25% was earlier applicable for companies with turnover up to Rs. 250 crores only.

Affordable Housing

The Govt. has proposed an additional tax deduction of up to Rs. 1.50 lakh in respect of interest on loan taken for affordable housing projects of value up to Rs. 45 lakhs. However, the taxpayer must not own any other residential house property, and further, the loan must have been sanctioned by a financial institution during the financial year 2019-20. This deduction has proposed to be in addition to the existing deduction of Rs. 2 lakh in respect of interest on housing loans. As such, the taxpayers can avail a total benefit of Rs. 3.50 lakh.

Incentive for Electric Vehicles

To incentivise the use of electric vehicles, Finance Bill has proposed a tax deduction of up to Rs. 1.50 lakh to the taxpayers in respect of interest on loans taken to purchase their first electric vehicle.

Disinvestments and Capital Markets

The target of disinvestment receipts during the next year has been enhanced from Rs. 90,000 crores set out in the interim budget to Rs. 1.05 lakh crores. This target will be achieved through the strategic sale of PSUs along with regular disinvestment of the partial stake sale in Govt. Companies and Exchange Traded Funds (ETFs). Further, the Govt. has also shown its inclination to allow the shareholding to go below 51% and still retain its control on a case-to-case basis. Government has also decided to modify the present policy of retaining 51% Government stake to retaining 51% stake inclusive of the stake of Government controlled institutions.

An action plan to deepen the market for long term bonds including for deepening markets for corporate bond repos, credit default swaps, etc., with a specific focus on the infrastructure sector, has also been proposed to be put in place. This will help in the development of the Indian bond markets further. Further, easing the pressure on the domestic markets, Govt. would start raising a part of its gross borrowing program in external markets in foreign currencies. This has been proposed considering low India’s sovereign external debt to GDP ratio at less than 5%. This announcement itself was enough to soothe the debt markets, as the benchmark yields moved favourably after this announcement.

Concerns in the Financial Sector

Govt. has committed an infusion of Rs. 70,000 crores this year into Public Sector banks to cushion their capital concerns. Further, tax deductions in respect of loans towards affordable housing and purchase of the electric vehicle are also expected to fuel credit growth, especially in the NBFCs. Further, several steps have been taken to address concerns in the financial sector, including liquidity issues in the NBFC sector:

• Eliminating the requirement of maintenance of Debenture Redemption Reserve (DRR) in case of public issue of debt securities by NBFCs
• Providing one time six months’ partial credit guarantee to Public Sector Banks for first loss of up to 10% for purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rupees 1 lakh crore during the current year.
• Allowing all NBFCs to directly participate on the TReDS platform
• Bringing Housing Finance Companies under the regulatory oversight of the Reserve Bank of India (RBI), as against National Housing Bank (NHB) currently.

Other Noteworthy Highlights

Certain other noteworthy mentions in the Union Budget 2019 are:

• A proposal has been moved before SEBI to increase the minimum public shareholding threshold to 35%, as against 25% currently.
• PAN and Aadhaar have been proposed to be used interchangeably. As such, the taxpayers without a PAN can file their Income Tax Returns (ITR) by quoting their Aadhaar Number instead.
• Jal Jeevan Mission has been launched to enable Har Ghar Jal (piped water supply) to all rural households by 2024. This Mission will focus on integrated demand and supply-side management of water at the local level, including the creation of local infrastructure for source sustainability like rainwater harvesting, groundwater recharge, and management of household wastewater for reuse in agriculture.
• Every verified woman SHG (Self Help Group) member having a Jan Dhan Bank Account will be eligible for an overdraft of Rs. 5,000. Further, one woman in every SHG will also be made eligible for a loan up to Rs. 1 lakh under the MUDRA Scheme.
• Approximately 35 crores LED bulbs have been distributed under UJALA Yojana leading to cost saving of Rs. 18,341 crores annually.

The Union Budget has been high on hopes and dreams. Many revenue projections have been kept at optimistic levels, and the achievement of these targets would be an interesting thing to watch out over the remaining nine months of the financial year.