The middle class to Benefit from Budget 2018

The Finance Minister Arun Jaitley is all set to present this government’s last full budget on 1 February 2018. The finance minister is likely to go with a populist Union Budget in 2018, going by various news reports and analyst comments surfaced recently in television media. Now that India has entered into the poll-bound 2018, the Narendra Modi government’s reforms sprint is taking a pause for populist measures in Union Budget 2018-2019.

Meanwhile, let us look at few major steps that Arun Jaitley took in the last Union Budget 2017 to ease the financial burden and pain of the middle class. Also some other measures which are likely to bring long term benefit to the common people.In the Union Budget 2017, Finance Minister Arun Jaitley reduced income tax rate to 5% from 10% for the income slab between Rs 2.5 lakh to Rs 5 lakh per year. While those earning up to Rs 5 lakh were the major beneficiaries of this move, all other taxpayers in subsequent brackets too got a benefit of Rs 12,500.In Budget 2017-2018, Arun Jaitley lowered the holding period to qualify for long-term capital gains exemption in the case of immovable property for two years from three years. This step significantly reduced the tax burden on those selling property after two years. The government also changed the base year of indexation to 1 April 2001 from 1 April 1981. This enabled people to improve the acquisition cost of their immovable assets, thereby reducing their overall capital gains.In order to promote and simplify the tax filing among young taxpayers, Modi government introduced a simple one-page return for the people with an annual income of up to Rs 5 lakh other than business income.

Housing scheme

Narendra Modi government laid an ambitious target to build houses for homeless people by March 2019. Under the scheme of housing for all, the government said that it will build about 1 crore houses by March 2019, raising Pradhan Mantri Awas Yojana allocation to Rs 23,000 crore from Rs 15,000 crore. Up until December 2017, 10 lakh houses were built, according to Rural Development Ministry.

 Power for all

The government also announced to another scheme in which it had promised to provide power for all. The government had set the deadline for electrifying all villages by 1 May 2018 and similarly, it was aiming to provide 24X7 power to all by March 2019. However, the government seems to have extended the deadline. In September 2017, Power Minister R K Singh said India will achieve the target of power for all by December 2018.

What to expect from this budget

Middle class can hope for a big relief in 2018-19 Budget.

The proposal before the ministry is to hike the tax exemption limit from the existing Rs 2.5 lakh per annum to at least Rs 3 lakh if not 5 lakh, sources said.

In the last Budget, Finance Minister Arun Jaitley left the tax slabs unchanged but gave marginal relief to small tax payers by reducing the rate from 10 per cent to 5 per cent for individuals having annual income between Rs 2.5-5 lakh.

In this Budget , the government could lower the tax rate by 10 per cent on income between Rs 5-10 lakh, levy 20 per cent rate for income between Rs 10-20 lakh and 30 per cent for income beyond Rs 20 lakh. Currently, there is no tax slab for income between Rs 10-20 lakh.

"Considering the steep rise in cost of living due to inflation, it is suggested that basic limit for exemption and other income slabs should be enhanced to give benefit to low income group. The income trigger for peak rate in other countries is significantly higher," industry chamber CII said in its pre-Budget memorandum to the Finance Ministry.

The subdued indirect tax collection following roll out of Goods and Services Tax from July 1 last year has put pressure on the fiscal deficit, which has been pegged at 3.2 per cent of the GDP for 2017-18.

According to industry body FICCI, there is a likelihood that demonetisation effects may linger on for some more months and hence there is a need to further boost demand and therefore, the government should consider revision of income tax slabs by raising the income level on which peak tax rate would trigger.

"This would improve purchasing power and create additional demand. For individual taxpayers, 30 per cent tax rate should be applicable only if the income is above Rs 20 lakh. Additionally, interest rates should be lowered to enable affordable finance for conducting business operation and expansion," it said.