It’s convention vs compulsion for Goyal in Interim Budget

On Friday, Stand-in Finance Minister Piyush Goyal will present the Interim Budget followed by Vote-on-Account to meet the expenditure for the first four months of the next fiscal, but there are expectations that there will be some goodies for the farmers and the middle class, in the form of relief on tax fronts, as general elections are round the corner.

There is a strong possibility that Goyal, in his maiden Budget speech, may announce relief package in the form of income support — paying the difference between market price and minimum support price to the farmers — to help them get better returns on their produce.

According to sources, based on the study of schemes being implemented in three States — Rythu Bandhu (in Telangana), KALIA (in Odisha) and Bhavantar (in Madhya Pradesh) — alternatives have been worked out which are likely to focus on making payment on the basis of land size.

A debate had been initiated in the Budget with the Opposition alleging that the government was proposing to deviate from the tradition by making announcements. Norm is that the outgoing government does not announce major tax measures or key policy initiatives in the Budget, but there is no rule that prohibits them from making such announcements.

If one looks at the last three interim Budgets — Jaswant Singh in 2004, Pranab Mukherjee in 2009 and P Chidambaram in 2014 — all saw some changes in indirect tax proposals. But there were no big-bang policy measures initiated.

Options before the govt

On the tax front, there are two options before the government — either to rejig the income tax slab or to incentivise savings through higher tax exemptions. Currently, the minimum threshold for I-T is ₹2.5 lakh, which could be raised to ₹3 lakh. Under the second option, there is a suggestion to hike the exemption limit (under Section 80C of the Income Tax Act) to ₹2 lakh from the present ₹1.5 lakh. Another suggestion is to an launch infrastructure bond and create separate limit of ₹50,000 for tax benefit. This will help the government add cheaper fund while the investor will get tax benefits plus safe avenue along with return for a longer period.

Amarpal Chadha, Tax Partner at EY India, believes that even though it is an Interim Budget, the wider expectation is that it will be a friendly-budget for the individuals. “Considering the increased inflation and lending rates to increase the disposable income, the government may consider an increase in the basic exemption limit, higher deduction for housing loan interest, increased deduction limit under section 80C which includes among others, housing loan principal repayment, contribution to Provident Fund, tuition fees etc,” he said.

Vikas Vasal, National Leader (Tax), Grant Thornton India, feels: “this Budget is likely to be more directional. While the Budget should build upon the achievements of the last few years, the government should continue with its three-pronged agenda: cut tax rates, introduce measures to increase the overall tax base and take steps to reduce the tax disputes,” he said.

Fiscal deficit challenge

Maintaining fiscal deficit according to the Budget Estimate of 3.3 per cent appears to be real challenge for the government. With lower-than-expected earnings from GST and non-tax revenues such as disinvestment, it will not be easy to stick to the target, though some experts believe that this could slip by 20 basis points. But Fitch echoed the government’s line but with a rider.

It said that populist spendings would aggravate fiscal pressures, which are already building up due to revenue shortfalls so far in FY19.

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