The Parliament’s budget session 2019 is expected to be held from January 31 to February 13 and the Finance Minister Arun Jaitley will present the Interim Budget on February 1, reportedly scrapping the standard practice of a vote-on-account. This will be his sixth and last budget presentation under the current government before the 2019 general polls.
In the past, a vote-on-account or approval for essential government spending for a limited period was taken in an election year – since the Union government requires parliamentary approval to draw money from the Consolidated Fund of India to cover its expenditure as per the Constitution – ahead of a full-fledged budget presentation by the new government. Jaitley had presented his first budget of the Modi government on July 10, 2014.
While a vote-on-account only deals with the expenditure side of the government’s budget, an Interim Budget is a complete set of accounts, including both expenditure and receipts, akin to a full budget.
While previous governments have avoided introducing major changes in an Interim Budget, the regime at the Centre has often used this opportunity to woo voters and outline its economic policy vision for the next five years should India vote to keep it in power.
For instance, in the previous interim budget in 2014, former finance minister P. Chidambaram had met the long-pending demand of the Armed Forces to have ‘One Rank One Pension’ (OROP), a key poll promise with an eye on the electorally significant community of veterans. He had also announced a subsidy for education loans.
In the face of reality checks in the Rajasthan, Madhya Pradesh and Chhattisgarh polls, the ruling BJP party, too, could take the populist route in the upcoming budget.
In 2017, Jaitley got rid of a separate Railway Budget and merged it with the annual budget and had advanced the date of presentation to February 1 instead of the colonial-era practice of end-February.
In line with the above schedule, the Economic Survey, which is typically tabled a few days ahead of the Budget announcement, is expected to be presented on January 31. According to media reports, President Ram Nath Kovind may address the joint sitting of the two Houses the same day.
What’s on India’s wishlist for the upcoming budget?
According to a recent budget expectations survey conducted by LocalCircles, a citizens connect platform, 64% of the respondents wanted the government to include tax measures in the Interim budget and 64% have asked for a Universal Basic Income Scheme to counter unemployment.The ‘Citizens Budget 2019’, one of the largest of its kind, saw 40,000 respondents from more than 200 districts in the country. Furthermore, the survey revealed that in terms of sector-wise allocation, 43% of the respondents want agriculture to be the top priority while 23% voted for infrastructure, 18% for skilling for employment and 16% for the environment. However, a whopping 71% of the citizens do not want the government to announce agricultural loan waivers.
Affordable housing remains a key election issue. While 31% of the respondents wanted the government to give interest rate subvention for first home buyers, 29% said separate income tax exemption limit for EMIs on housing should be made to make housing affordable for middle class and 18% demanded an increase in the home loan caps eligible for subsidy. Moreover, 22% of the voters wanted an increase in the definition of affordable housing from 60 sq mtrs to 120 sq mtrs.
In response to the survey question, what should the government do in the budget to drive faster growth, 35% of the respondents voted for increasing public expenditure followed by 30% for giving incentives for digital transactions and 26% for giving SMEs priority sector status for lending.
When it comes to the Railways, 32% want improvements on the safety front to be a focus area in 2019, while 38% want it to be on services and amenities.
Not surprisingly, 73% of startups, SMEs and entrepreneurs want Budget 2019 to abolish angel tax for Government recognised startups . An ‘angel tax’ is currently applicable if a startup company receives capital from an angel or HNI based in India. If the capital is raised at a value higher than the fair value of shares, the startup becomes liable to pay 30% income tax on the capital received.
According to LocalCircles, CBDT has started enforcing this and many startups reported receiving notices several years later for a 30% tax liability when they have already used the capital raised.
Although CBDT has said that it will not take any immediate coercive action against startups on the angel tax issue, it has not accepted the larger demand of startups which is to accept DCF (Discounted Cash Flow) method as official valuation method.
Meanwhile, the Confederation of Indian Industry (CII) has also submitted its wishlist. The industry chamber has urged the government to double the income tax exemption threshold to Rs 5 lakh and increase the deduction limit under Section 80C to Rs 2.50 lakh to incentivise savings.
In its pre-Budget recommendations to the finance ministry, the body also suggested lowering the highest personal income tax slab to 25 per cent from 30 per cent at present and allow exemption for medical expenses and transport allowance.
The CII further suggested that the corporate tax rate should be reduced to 25 per cent, irrespective of turnover, and should be brought down to 18 per cent in a phased manner.
What’s on the cards?
The finance ministry is mulling a couple of measures like providing tax benefits to pensioners and lowering of interest rates on housing loans. If announced, all these measures could directly benefit the middle class, which could give an edge to the government that has fallen short of its 2014 poll promises on jobs and other benefits for the middle class.
Some reports also say that the government could also announce measures on the macro front like reduction in the customs duty. This will benefit consumers as well as businesses. Discussions on these measures are in final stages.