Budget 2018: 10 Things To Watch Out For

Budget 2018: Many analysts expect the government to announce measures to improve farm sector productivity and income.

Budget 2018: 10 Things To Watch Out For

Budget 2018: Arun Jaitley will be under pressure to moderate tax rate for corporate industry.

To be unveiled on February 1, Budget 2018 would be the last full-year Budget of the NDA government, as the general elections are due in 2019. Therefore, all eyes will be on Finance Minister Arun Jaitley's Budget 2018 speech in which he will outline the government's priorities for the next fiscal year. Experts say the government is likely to increase funding for the farm and rural sectors for the coming fiscal year. Tax sops for the middle class and corporate India could also be unveiled, say experts. Analysts would also be closely watching the government's stance on fiscal deficit.

Budget 2018: Here are 10 Things To Watch Out For 


1) Fiscal deficit: The Economic Survey, which was tabled on Monday, called for a pause in fiscal consolidation, leading to concerns that the government could widen its fiscal deficit targets for 2018-19. The bond yields have already surged on fiscal concerns. Though some analysts say that the government may relax the fiscal consolidation roadmap targets, Deutsche Bank says it may stick to curtailing the fiscal gap at 3 per cent for 2018-19. For 2017-18 however, Deutsche Bank expects fiscal deficit to be revised higher to 3.4 per cent of GDP.

2) Farm focus: According to Central Statistics Office data, the expansion in activities in 'agriculture, forestry and fishing' is likely to slow to 2.1 per cent in the current fiscal year from 4.9 per cent in the preceding year. Many analysts expect the government to announce measures to improve farm sector productivity and income. 

3) Infra push: The government is also likely to give a big push to the infrastructure sector that will help in job creation and accelerate economic growth. In Budget 2017-18, the government made an allocation of nearly Rs 4 lakh crore for the sector.

4) Corporate tax: Finance Minister Arun Jaitley will be under pressure to moderate the tax rate for the industry.  In his Budget speech of 2015-16, Mr Jaitley had said proposed reduction of the rate of corporate tax from 30 per cent to 25 per cent over the next four years. With the US substantially cutting corporate tax, the minister will also need to keep India's tax rate globally competitive, say experts. Last year, the finance minister had reduced the income tax for small companies with annual turnover of up to Rs 50 crore to 25 per cent. Not expecting the government to cut corporate tax rate to 25 per cent in view of fiscal constraints, industry body FICCI's president, Rashesh Shah, said the finance minister should endeavour to bring it down to 28 per cent.

5) Review of income tax laws: The government had in November formed a task force to draft a new direct tax law to replace the existing Income Tax Act, which has been in force since 1961. The move is which is aimed to make direct taxes - income and corporate - simpler.

6) The government will infuse an unprecedented Rs 88,139 crore capital in 20 public sector banks (PSBs) before March 31 to boost lending and to revive growth. This is part of the Rs. 2.11 lakh crore bank recapitalisation plan announced in October last year. But the government also said lenders must implement a series of reforms. Analysts would be looking at any further announcement in the Budget 2018, particularly on the merger front. 

7) Income tax: In Budget 2018, the government may tweak income tax slabs and rates to bring down the burden on individuals, according to a survey by tax and advisory firm EY. A wide majority of 69 per cent of the respondents felt that the threshold limits for taxation could increase to boost disposable income in the hands of the people.

8) Standard deduction for salaried individuals may make a comeback. The government may bring in standard deduction in Budget 2018 to reduce the tax burden of salaried individuals, according to majority of respondents in a pre-Budget survey by EY. Standard deduction allows for a flat deduction from income of a salaried individual towards expenses an employee would incur in relation to his or her employment. 

9) Dividend distribution tax: The Finance Ministry may consider taxing dividend in the hands of shareholders and do away with the dividend distribution tax (DDT) in the Budget 2018, according to EY. DDT has become burdensome for corporates due to various factors such as high rate, litigation on disallowance and hence the return on capital employed has significantly diminished, it added.  

10) Long-term capital gains tax regime: Though some analysts say that the government may look at tweaking the long-term capital gains tax regime, Garima Pande, partner at EY India, says: "There is a strong stock market momentum and the government may not risk to slow down the same by introducing long term capital gains tax on equities market."  Currently, if an investor holds a stock for more than more than 12 months, it is considered to be a long-term investment and any long-term gains from transactions in such stocks are exempt from taxes.

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