Budget 2019: Can Nirmal Sitharaman Solve Key Issues?Top Stories

July 04, 2019 10:49
Budget 2019: Can Nirmal Sitharaman Solve Key Issues?

(Image source from: Prediction Junction)

Finance minister Nirmala Sitharaman is set to announce the full-year budget for the year ending March 2020 on July 5. This will be the first budget of the Prime Minister Narendra Modi government in its second term.

As expected, the hopes among Indian citizens are already sky high as this will be the first budget of the Prime Minister Narendra Modi government in its second term.

Key Issues

Some of the key issues that are expected to feature in the budget are pointers on a lag in economic growth, agricultural distress, banking woes and a sharp fall in demand and investments.

Besides, the budget is expected to highlight taxation and job crisis.

Lower Taxation

Moreover, most of the demands that have been proposed in the run-up to July 5 refer to lower taxation, especially those belonging to the middle-income group.

They have demanded the center to either increase the total tax exemption threshold or propose tax breaks to cut down strain on their household expenses.

The government is however likely to take certain steps to alleviate taxation on the middle-income group though they may not honor all of their requests.

According to tax experts, the government may introduce some sops to boost demand and accelerate economic growth.

Reportedly below are a few likely income tax changes that could be announced by Nirmala Sitharaman:

1. Income tax exemption limit. Since a full tax rebate up to Rs 5 lakh was introduced under Section 87A in the interim budget, it is improbable that there will any other alteration in the exemption. But a large number of industry bodies and citizens want the government to increase the tax exemption threshold from the current Rs 2.5 lakh to at least Rs 3 lakh.

While many are optimistic that the government would make amends to increase the limit but it should be noted that the move would lead to a reduction in the current tax base as more people will be exempted from paying income tax.

2. Higher deduction on home loans. Since the real-estate sector has been affected in a negative way due to a demand slowdown, the government could put forward more tax benefits to buyers and give a much-needed encouragement to the sector.

As per recent information, people can claim a maximum deduction up to Rs 2 lakh under Section 24B of the Income Tax Act.

According to economists, the government could increase this limit further to incentivize buying housing properties for boosting demand in the sector. A person can claim this deduction from the year in which the construction of the house is completed.

3. Higher income tax deduction. People exempting a hike in exemption limit may end up being let down but the government may enliven them up by presenting higher deductions under several sections of the Income Tax Act.

The income tax deduction allowed under Section 80(C), currently at Rs 1.5 lakh, could be raised to Rs 2 lakh or above.

This will let people save more tax on investments made under Section 80(C) of the Income Tax Act. Investments towards PPF, EPF, NSC, fixed deposits and NPS qualify for deduction under Section 80(C).

4. More tax benefits towards healthcare. There are high possibilities that the government will increase deduction under tax saving instruments available in healthcare. Industry bodies have already asked the center to inflate tax saving under Section 80(D) of the Income Tax Act.

The limit could be increased from the current Rs 25,000, applicable to people aged below 60 years, under Section 80(D). The concession could also be raised under Section 80(D) for people above the age of 60 years. The current limit of exemption for people above 60 years is Rs 50,000.

5. The comeback of tax-free bonds. To boost infrastructure projects will be one of the key goals of the government in the budget as it holds key to boosting job growth and pushing up demand.

The comeback of tax-free bonds will help the government raise capital through government entities for infrastructure projects. Such bonds are called 'tax-free' as the interest earned on them is not taxable.

While these bonds have a long period of maturity - ranging from 10 years or more - they are safe than many other options available in the market.

India’s Job Crisis

India's unemployment rate stood at 8.1 percent as of June 25, 2019, according to data released by Centre for Monitoring Indian Economy (CMIE).

The World Bank said India needs to create 8.1 million jobs annually to achieve its growth targets.

Top economists have advised the Narendra Modi government to focus on creating more jobs through selective structural reforms - both short and long-term - even if it takes a toll on the fiscal deficit.

As per experts, Nirmala Sitharaman may not have the fiscal space required to announce major employment schemes in this year's budget, but she can instead form a committee or group to monitor jobs accurately in the country.

For example, the center should increase cooperation with states to keep an eye on job growth. It should try highlighting the issues by comparing states that have recorded higher job growth than others.

Apart from a proper mechanism to determine job creation, the government likewise needs to put into effect structural reforms to boost competition among business concerns while maintaining a favorable environment.

On the other hand, the government needs to focus equally on skill development at all levels to create equal employment opportunities for everyone.

Even if the government is faced by a twin macro-economic challenge, experts believe that there is still room to improvise and take baby-steps towards increasing labor participation.

By Sowmya Sangam

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Budget 2019  Nirmal Sitharaman