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Everyone wants a tax cut in Budget 2019: Here’s what’s feasible

Finance Minister Nirmala Sitharaman has a daunting task to keep everyone happy.

, ETMarkets.com|
Last Updated: Jul 03, 2019, 01.36 PM IST
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For real estate sector, the wish list is old. One among them is recognising the sector as a full-fledged industry.
NEW DELHI: India’s rural economy is stressed, and the consumption story is falling apart. As the growth drivers slow, public spending needs greater attention than ever.

Finance Minister Nirmala Sitharaman has a daunting task to keep everyone happy, even as revenues fall short of expectations and fiscal deficit is on the brink.

The Budget has always been a process of filling one hole by digging another. It needs to be done smoothly so that it does not hurt anyone, says value investor Vijay Kedia.

“Every sector be it FMCG, automobile, real estate, banks or NBFC is in trouble and wants something from the Budget. The government must be looking at ways to fulfil those aspirations. But there is little room available and from that angle, the Budget could be disappointing,” Kedia told ETMarkets.com.

So what are the key expectations that the industry has from the first Budget under Modi 2.0?

Income, corporate tax & MAT
Given the demand side distress, India Inc is hoping against hope for some tax relief, be it in the form of a cut the corporate tax rate to 25 per cent from 30 per cent at present for all companies irrespective of the turnover or an abolition of lowering of Minimum Alternate Tax (MAT).

MAT, which is levied on businesses as per Section 115JB, is calculated at 18.5 per cent of book profits. It attracts surcharge and cess. Industry wants it brought down to 10 per cent, says Jairaj Purandare Chairman at JMP Advisors.

On the other hand, only companies with a turnover of up to Rs 250 crore come under 25 per cent corporate tax slab.

“We expect a rationalisation and simplification of the direct tax system along with reasonable certainty. Besides, we expect to see simplification of the GST compliance process and adoption of a three-tier rate structure,” Purandare said.

One section of industry is seeking the introduction of a tax deduction linked to additional investment in plants and machinery for industries with high employment potential.

Care Ratings expects a relief for aam admi, with a likely revision in income-tax rate for those in the Rs 5-10 lakh tax slab to 15 per cent from 20 per cent at present.

Nirmal Bang Institutional Equities expects some relief in the form of a higher exemption limit or introduction of a 10 per cent tax bracket between the current 5 per cent and 20 per cent slabs.

At present, the exemption limit stands at Rs 2,50,000 with a higher exemption limit for senior citizens at Rs 3,00,000. Incomes between Rs 2,50,000 and Rs 500,000 is taxed at 5 per cent along with a rebate for those with net taxable income below Rs 5,00,000.

Income between Rs 5,00,000 and Rs 10 lakh is currently taxed at 20 per cent.

Meanwhile, there are demands that the limit for highest income-tax rate of 30 per cent should be raised to Rs 20 lakh from the current limit of Rs 10 lakh. However, the chances are low that this demand will be met.

Stock investors want the government to consider reducing or abolishing long-term capital gains tax on listed securities, as analysts feel the levy introduced last year irked investors at large and generated insignificant revenues.

“There is no official data as to how much the government is making out of these taxes. To my mind, it would not be significant,” said Punit Shah, Partner at Dhruva Advisors. The government last year introduced 10 per cent LTCG on annual gains of over Rs 1 lakh in listed securities.

Nikhil Kamath, Co-Founder & Chief Investment Officer at Zerodha, says dividend distribution tax (DDT) for corporates should be reduced to 10 per cent from 20 per cent at present.

The Securities transaction tax (STT), Kamath said, was originally introduced in 2004 by the then Finance Minister P Chidambaram to stop avoidance of capital gains tax. We expect the current government to overthrow that rule, he said.

Sops for property buyers, developers
For real estate sector, the wish list is old. One among them is recognising the sector as a full-fledged industry.

Getting ‘industry’ status would enable developers to raise funds at lower rates, cut cost of capital and augment execution capabilities, said Shishir Baijal, Chairman & Managing Director at Knight Frank India. Besides, the sector is eyeing a separate income-tax deduction for repayment of principle amounts in housing loans.

“At present, Section 80C of the I-Tax Act does not provide for a focused tax benefit on housing. Taxpayers have numerous investment alternatives to choose from, and lack of tax benefit on the principal amount of home loans makes them put their home purchase decisions on hold. A separate annual deduction limit of Rs 1,50,000 for principal repayment could provide the much-needed push to opt for home loans, which can push real estate sales,” Baijal said.

Sectoral analysts believe the government could make an additional allocation of over Rs 26,000 crore in Interim Budget for Pradhan Mantri Awas Yojana. A higher allocation could be made for completion of affordable housing projects to achieve targets under PMAY by 2022.

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