Union Budget Demystified

Although demonetisation may have not cured the black money epidemic, it has certainly brought relief to our banking system whose balance sheets were rotting with toxic debts. Thanks to the huge influx of cash, banks have generously reduced lending (loan) rates which will boost economic consumption. Demonetisation may have briefly created chaos but overall it will ensure the tax payers base increase (currently not more than 3% of the population pay tax).

On 1st Feb 2017, all eyes were on the budget with an air of optimism, considering that the world is already witnessing the tremors of the Trump era. No news is good news and that’s what the budget encapsulated. The budget was neither populist nor popular. It was a simple, realistic budget. The focus of the budget remained on rural and agriculture sector which is the heart of our economy. Affordable housing has also been given a boost. Tax for small businesses has been reduced as also for personal income tax at lower income bracket. It also didn’t spare the Richie Rich and rightly so, considering that 52% of our country’s wealth is owned by only 1% of the population!

Without getting into more details, let’s understand how the budget impacts the aam aadmi:

Personal Income Tax:

Existing rate of taxation for individual assesses between income of Rs 2.5 lakhs to Rs 5 lakhs has been reduced to 5% from the present rate of 10%. Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between Rs 50 lakhs and Rs 1 crore.

Changes For Tax Savings Avenues:

Partial withdrawal upto 25% of contribution is tax-free for NPS (National Pension Schemes). No change in 40% withdrawal tax-free at maturity for NPS. Also, deduction allowed for self-employed increased to 20% of income from 10% of income earlier.

Real Estate, Housing And Infrastructure:

• Infrastructure Budget allocation increased to the highest ever at Rs 5.1 Trillion. (Rs 5 lakh Crores).
• Real estate sector long term capital gains tax is applicable at 2 years holdings in place of 3 years.
• Affordable housing to be given infrastructure status and subsidy.
• Push from Cash to Digital transactions, widening tax net.
• Limit of Rs 3 lacs on cash transactions to curb black money.

Equity/ Stock Market:

From the equity market’s perspective, gradual waning of the demonetisation impact, increased spending on rural, agriculture and infrastructure sectors are good signs, and should mark the beginning of recovery in earnings (also aided by a low base). Another positive is the budget maintaining status quo on long-term capital gains tax on equity and the definition of ‘long-term’. Supportive domestic factors notwithstanding, uncertainties with respect to the new US administration’s policy stance, sluggish global economic growth, and headwinds (such as rise in crude oil and commodity prices) will have a bearing on next year’s performance.

Global growth has slowed down from 3.4% in 2014 to 3.1% in 2015. Financial markets have been battered and international trade has contracted. Amidst all these global headwinds, the Indian economy has held its ground firmly and continues to grow at around 7%. The International Monetary Fund has hailed India as a ‘bright spot’ amidst a slowing global economy. This budget just reassured the growth story of our economy.