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Posted on 01-Feb-2019 Comments  0

Aam Aadmi Budget

Budget 2019 is a big boost to the middle income groups


The Union Budget ahead of an election was always going to be a lot more about politics than about economics. Not surprisingly, the budget has been liberal in doling out tax exemptions for the middle and lower income tax payers. Here are 3 ways the government has sought to pamper the Aam Aadmi.

Income tax exemption

The Union Budget 2019 has made incomes up to Rs.5 lakhs fully exempt from tax. Of course, this will be given as a tax rebate and not as an exemption. That means; the existing slabs of tax will remain exactly the same. Currently, income up to Rs.3.00 lakhs is entitled to a rebate of Rs.2500 making it entirely tax free. In the new model, that rebate will be increased from Rs.2500 to Rs.12,500 making income up to Rs.5 lakhs fully tax free. The limit for rebate applies to the net taxable income and hence if the person were to avail other exemptions like Section 80C, Section 24 and Section 80D, then the actual exempt income can go as high as Rs.10 lakhs. From the perspective of low tax payers, this is not only a boost to the disposable incomes but also an incentive to invest in specified assets and also to secure the health of the family through health insurance. The overall value of the benefit is likely to be Rs.23,000 crore and that is a huge quantum of purchasing power especially considering that this is the set of people with a high propensity to consume.

Hike in standard deduction

In the previous Budget 2018, the standard deduction was introduced at a flat annual rate of Rs.40,000. However, this was in lieu of medical and transport allowance. This had reduced the overall impact of standard deduction. By increasing the limit to Rs.50,000 per year, the government has actually expanded the benefit of standard deduction vis-à-vis the previous regime. Also, this standard deduction applies to pensioners too and hence should come as an added advantage for senior citizens. The higher limit of standard deduction becomes a lot more valuable when looked at in conjunction with the higher tax exemption.

There are more benefits

That is not all and there are more benefits. The TDS limit on bank and PO deposits has been hiked from Rs.10,000 per year to Rs.40,000 per year. The idea of notional rent on second property has been scrapped encouraging people to invest in second property. Thirdly, the limit of TDS on rent has also been increased higher from Rs.1.80 lakhs to Rs.2.40 lakhs, reducing the compliance burden further. Lastly, there is the added benefit on the capital gains front. Under Section 54F, now you can reinvest the proceeds in two properties instead of just one. This will be a boost to buying properties in smaller towns. It is surely a people-friendly budget!


Grameen Budget

The Budget 2019 has surely played the rural card astutely


With farm distress at a high, the focus of the budget was obviously going to be on the farmers. The government had committed to double farm incomes by 2022 and it was time for serious steps. Here are 3 key steps that the budget took towards giving a boost for rural India.

Come, helicopter money

If the Congress had just suggested the idea of Minimum Income Guarantee, the NDA government actually implemented the same in its budget speech. As per the plan, marginal farmers holding less than 2 hectares of land would be given an annual supplementary transfer of Rs.6000. This would be done in 3 tranches of Rs.2000 each and would be executed by DBT. The idea is great as it would give these farmers subsistence in bad years when the crops fail or when drought conditions are prevalent. For an average farmer, this would be an approximate income accretion of around 20% and that should come as a big relief in bad times. The plan will cover a total of 12 crore farmers across India and will cost the exchequer Rs.75,000 crore. That is one of the reasons the government has projected a higher fiscal deficit of 3.4%. In the last one year, the government has realized that the MSP may be good on paper but is hard to implement unless it manages procurement. This helicopter money payout is a lot simpler, immediate and can be done without leakages.

Benefits for MSMEs

The budget has thrown a plethora of incentives for the medium and small enterprises. They form the backbone of the Indian industrial system and create a chunk of the employment in the rural and semi-urban areas. The government has announced a special interest subvention scheme for MSMEs to the extent of 2-5% if the MSMEs repay their loans on time. In addition, these MSMEs also get an interest subvention in case they register for GST. The government, in the budget, also committed to do 25% of all its sourcing requirements only through MSMEs. All these are likely to be a leg up for MSME, which form the backbone of the economies of rural and semi-urban India. 

Social security net

In the previous budget, the government had assured the Ayushman Bharat scheme to provide medical insurance cover to nearly 10 crore families to the tune of Rs.5 lakhs per family. Union Budget 2019 has announced the much sought after pension scheme for labor in the unorganized sector. A monthly pension of Rs.3,000 for life will be paid to these workers against a nominal contribution of Rs.55-100 per month. This will provide the much needed social security to the unorganized workers. Even as MSP stabilizes, these moves will ensure that the rural sector has genuine reasons to cheer about!


Realty Budget

Budget may have given the much needed boost to realty sector


Over the last few years, the one sector that has really struggled has been the realty sector. It all began with the excess inventory in most of the major cities running into several years of sales. Then there was demonetization, RERA and GST, which spooked real estate transactions in a big way. Real estate has always been a cash based sector and the cash crunch hit this sector really hard. Recently, the NBFC crisis also shut the funding taps for realty. In these conditions, the budget has some really positive provisions for realty?

Boost for realty sector

There were two positive announcements that are likely to directly impact the realty sector. Firstly, realtors had a problem with holding inventory because after 1 year they had to book notional rent on these properties. Now that has been extended to 2 years, giving some real relief to the realty sector. Realtors can now afford to hold inventory for a longer time period. Secondly, the tax benefits of low-cost housing have been extended by one more year till March 2020. This should spur investment in low cost housing by realtors. Stamp duty and GST have been the bone of contention. The budget has agreed to make a clarification on the GST on real estate deals and also standardize the stamp duties across cities. While no announcements have been made, the budget has clearly underlined that this work in progress.

An income boost to realty

The decision to raise the tax exemption limit to Rs.5 lakhs will also give a boost to housing demand. Since the net taxable up to Rs.5 lakhs will now be tax free via rebates, people in the middle income groups can plan their property investments accordingly. For example, if the individual structures the home loan in such a way as to get the full benefit of Rs. 2 lakhs under Section 24 of the Income Tax Act, then the exemption can really work in their favor. It is estimated that the higher exemption limit for taxpayers will give a boost to investment in housing as it could now become doubly tax efficient.

Second home thrust

Interestingly, this budget has also given a thrust to people intending to buy a second home. There are two specific provisions in the budget. Firstly, the notional rent on second home will no longer be taxable. Thus taxpayers can show zero rent if it is not leased out and also claim the dual exemption of Section 24 of the Income Tax Act. Secondly, there is also a kicker on the capital gains front. Currently, under Section 54, if the proceeds from the sale of a house are invested in another property then it is exempt from capital gains. Now the proceeds can be invested in two houses instead of one. This will give a boost to demand in smaller towns and tier-2 cities, boosting realty demand!


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