The Modi 2.0 government’s maiden Budget Friday hiked petrol and diesel prices, raised import duty on dozens of items and increased tax on the super-rich as it sought to spur growth through higher spending and sops for start-ups, housing and corporates.
Presenting the Budget for 2019-20, Finance Minister NirmalaSitharaman announced further opening up of aviation, insurance and mediasectors to foreign investment while throwing a lifeline to the strugglingshadow banks (NBFCs) to boost investment and lending in the economy.
She made no changes to the income tax slabs but hikedsurcharge on the super-rich. Those with a taxable income of Rs 2 to 5 crorewill now pay 39 per cent tax while those with more than Rs 5 crore income wouldpay 42.47 per cent.
“Those in the highest income brackets need tocontribute more to the nation’s development,” she said.
Also, 2 per cent TDS on cash withdrawals exceeding Rs 1crore and mandatory filing of returns by certain category of individuals wasbrought in with a view to tighten compliance.
With sluggish growth in tax revenues, she announced plans tosell stakes in PSUs and sought more dividend from the RBI and public sectorbanks and companies in order to boost revenue and bring down the deficit.
For the same, excise duty and cess on petrol and diesel werehiked by Rs 2 per litre each and import duty on dozens of items ranging fromgold to automobile parts and tobacco products was increased.
The customs duty on gold has been increased to 12.5 per centfrom 10 per cent.
To spur consumption, she lowered corporate tax on companieswith revenue of up to Rs 400 crore to 25 per cent from 30 per cent. Currently,the lower rate is applicable only to companies with revenue up to Rs 250 crore.
Sitharaman said the reduced tax rate would cover 99.3 percent of corporates in the country.
The Budget also sought to boost ‘Make in India’ by way ofreducing duties on certain inputs and raw materials and creating a levelplaying field by increasing duties on certain goods. Emphasis has also beenplaced on promoting electrical mobility by reducing customs duty on parts usedto manufacture electric vehicles.
While customs duty on some parts used in EV manufacturinghas been brought down to nil, the GST rate on electric vehicles will be loweredto 5 per cent from 12 per cent.
To boost the use of electric vehicles, an additional incometax deduction of Rs 1.5 lakh on interest paid on loans taken to purchase EVshas been proposed.
“The Indian economy will grow to become a USD 3 trillioneconomy in the current year (from USD 2.7 trillion last year). It is now thesixth largest in the world,” she said, adding the target is to take it toUSD 5 trillion in coming years. “This budget is setting out a vision, atarget, for every sector of our society.”
Sitharaman surprised most analysts by narrowing the budgetdeficit target to 3.3 per cent of the GDP for the current fiscal from 3.4 percent previously.
In addition to funding an expansion of cash support schemefor farmers, a new pension scheme and relief for small taxpayers, as previouslyannounced, the Budget includes a Rs 70,000 crore capital infusion in publicsector banks.
First-time homebuyers, buying a house not exceeding Rs 45lakh, would get an additional deduction of Rs 1.5 lakhs towards interest.
For NBFCs, she announced measures to improve their access tofunding by providing a limited backstop for purchases of their assets. Thegovernment will provide a partial guarantee to state banks for the acquisitionof up to Rs 1 lakh crore of highly rated assets from non-bank financecompanies.
Also, the Reserve Bank of India will take over as theregulator of housing finance firms, replacing the National Housing Bank, shesaid.
Sitharaman, who in the first term of the Narendra Modigovernment was the defence minister, exempted some defence equipment from basiccustoms levy. She also said the government would allow more foreign investmentin the insurance and media industries.
The government will also sell its first global bond to raisefunding for infrastructure spending.
Meanwhile, opposition Congress described the Budget as”insipid”, saying it belied expectations and gave no “meaningfulrelief” to any section of the society.
Moody’s said there are risks of India missing 3.3 per centfiscal deficit target for the current financial year if tax revenue falls shortof projection.
“In today’s budget, India’s government announced alower fiscal deficit target for fiscal 2019, while maintaining its support forgrowth and incomes. Achieving these competing goals will be very challenging.We expect the economy to grow relatively slowly, despite the government’sincome support measures,” it said.
The Finance Bill proposed to bring about several changes intaxation to remove pain points of companies undergoing insolvency resolution.The losses of the company would be allowed to be carried forward despite thechange in shareholding of more than 49 per cent, albeit with conditions.
Giving relief to startups, she said they will not be subjectto ‘angel tax’ scrutiny where the companies and investors file certaindeclarations. A mechanism of e-verification will be put in place and with this,the funds raised by startups will not require any tax scrutiny.
She also said the government will spend Rs 100 lakh crorefor infrastructure in the next five years.