Tax Cuts, 80C, giveaways and subsidy schemes, the annual budget can throw a lot of stuff your way, or take it away. Here’s a list of top expectations from Budget 2018.
LTCG on Equity
The stock market (and equity mutual fund investors) currently gets a sweet deal. Holding their shares for more than one year brings them under long-term capital gain tax (LTCG) which is nil.
This regime was brought about in return for levying the Securities Transaction Tax (STT) on stock market transactions in 2003-4 by then finance minister P Chidambaram. However, STT is levied on all equity transactions regardless of whether they make a profit or a loss and it is much lower than the long-term capital gains tax on say, real estate or debt at 20%.
An Economic Times report hints that LTCG on equity is a done deal for this Budget. Their government may either extend the qualifying period for LTCG from one to two years or may impose a tax on gains regardless of holding period.
Section 80C hike
The Rs 150,000 limit for tax deduction under Section 80C has been held constant since 2014. As a result, inflation of 4-6% per annum has eroded the real value of this deduction enormously. 80C is an umbrella provision for deductions ranging from home loan repayment to insurance premiums to ELSS funds. A great many sections of the financial services industry will benefit if this ceiling is raised.
Income Tax Exemption Limit
The annual income tax exemption limit is currently set at Rs 250,000 per year. The government did not raise it last year leading to speculation that an increase is overdue. However, this may come into direct conflict with the government’s need to bring more taxpayers into the tax net. Instead, the government may extend the lowest tax slab of 5% from 5 lakh to 6 lakh.
National Pension System
A number of long-standing reforms in the NPS are pending with the government. Chief among these are bringing Government subscribers into parity with private sector subscribers in terms of asset allocation and fund manager choice. This has led to drastically lower returns for government subscribers compared to private sector subscribers, as we write here.
Another major reform is the treatment given to gains on the NPS Tier II account which is not eligible for indexation in the way that mutual funds are, regardless of holding period. Finally, the NPS itself needs to be brought into parity with the EPF and PPF which enjoy a tax-exempt status on maturity. In contrast, only 40% of the NPS is tax exempt on maturity. The government may use the Budget to bring about these changes. The sector regulator, PFRDA has already given its approval to these proposals.
This remains a key theme of the government to achieve its target of ‘Housing for All by 2022.’ In November 2017, the government increased the carpet area of houses eligible for the credit linked subsidy scheme for affordable housing. It also gave affordable housing ‘infrastructure status’ in Budget 2017 to make it eligible for higher levels of bank credit. Affordable housing generates both a higher standard of living and employment in the construction industry. As a result, the government is likely to give this sector an additional push, through tax deductions or spending ahead of elections in 2019.
You can also participate and view the results of our online poll on this topic, here. Also look for our live coverage of the Union Budget on February 1 and also live tweeting on https://twitter.com/rupeeiq.