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  • Union Budget 2018-19 Highlights- Funding and Reforms in the Finance Sector

    The Union Budget 2018-19 announced on 1st February 2018 is the first budget by the present government after the introduction of landmark financial initiatives like demonetisation and GST (Goods and Service Tax). Despite the desperate attempts of the government, unfortunately, the outcome of these financial initiatives was not as good as expected leading to a financial crisis in the economy. Hence, at this point, when the country is at a critical juncture, a well-structured budget affecting all the sectors positively was the expectation of the finance market.

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    Challenges Faced by the Indian Economy

    The financial sector has faced stiff challenges mainly due to the two unexpected steps were taken by the current Modi government in the year 2017. Demonetisation and introduction of GST (Goods and Service Tax) had resulted in a huge loss for the Indian economy. As per the estimation, approximately Rs.61, 500 crore of loss is recorded in the current fiscal due to the sudden steps like demonetisation and implementation of GST. So, the budget 2018-19 was expected to be designed to cover all the losses and boost economic growth. Though various economists were having different expectations from the budget, they were expecting a good outcome for the financial sector. After all, it is the time to initiate big changes and take long-term reform measures.

    Union Budget 2018-19 Allocations and Reforms

    Banking and Insurance

    • The government proposed recapitalisation of public sector banks to enable them to lend additional Rs.5 lakh crore.
    • Rs.3 lakh crore loan disbursement target set for the next fiscal under the ‘Mudra’ Scheme. Rs.4.6 lakh crore is sanctioned by the government under this scheme.
    • Instant farm credit of Rs.11 lakh crore is proposed for the next financial year.
    • For allowing open gold deposit accounts in a hassle-free way, the ‘Gold Monetisation’ scheme will be revamped.
    • The limit of Rs.7.5 lakh for investment in interest-bearing LIC schemes for senior citizens is doubled to Rs.15 lakh.
    • United India Insurance, Oriental insurance, and National insurance are suggested to be merged while listing.

    Tax

    • Proposed 100% tax deduction for farmer-producer companies with Rs.100 crore of turnover.
    • Reduction of corporate tax to 25% for companies having Rs.250 crore turnover in the financial year 2016-17.
    • 100% deduction on tax is offered to the co-operative societies.
    • Long-term capital gains more than Rs.1 lakh will be levied by a tax rate of 10% without indexing. Short-term capital gains tax will continue to be 15% as before.
    • 4% increase in the Health and Education cess for collecting Rs.11,000 crore additionally.
    • There is no change in the tax rates of personal income. The structure and the income tax slab continues to be same.
    • Standard deduction of Rs.40,000 for transport and medical reimbursements for salaried tax-payers.
    • 10% tax charged on distributed income.
    • Surcharge of 10% on income over Rs.50 lakh but within Rs.1 crore and surcharge of 15% on income over Rs.1 crore will continue for next fiscal.
    • 50% exemption of interest income for bank and post office deposits including FDS for senior citizens. The deduction has been increased to Rs.50,000 from Rs.10,000.
    • Senior citizens will get Rs.50,000 tax deduction per annum for medical insurance under Section 80D.
    • Medical expense deduction for senior citizens for certain critical illnesses is increased to Rs.1 lakh under Section 80DDB.
    • The government will help to reduce the adversities faced in realty deals. There will be no adjustments if the circle rate doesn't surpass 5 pc of sale consideration.
    • PAN has been mandatory for any organisation or entity conducting a monetary transaction of Rs.2.5 lakh or more.

    Custom Duties

    • Excise on unbranded diesel and branded petrol is cut by 2 rupees to 6.33 rupee per liter and 4.48 rupee per liter.
    • Customs duty on mobile phones and television parts is increased by 20%.
    • Solar tempered glass for the manufacture of solar cells is excused from customs duty.
    • There is a reduction of customs duty on raw cashew from 5% to 2.5%.
    • Hike in the customs duty on crude vegetable oils such as groundnut oil, sunflower seed oil from 12.5% to 30% and on refined edible vegetable oil from 20% to 35%.
    • Increase in the customs duty on imitation jewellery from 15% to 20%, toys, sunglasses, duty for cigarette lighter, bus and truck tyres and selected furniture is also increased, the duty is doubled on watches to 20%.
    • The LCD, LED, OLED panels and TV parts import duty increased to 15% and the duty on footwear and other wearable devices are doubled to 20%.
    • 10% social welfare surcharge levied on imported goods.
    • The government proposed introduction of new schemes to provide electronic assessment for elimination of person-to-person contact.
    • Central Board of Excise and Customs proposed to be renamed as the Central Board of Direct Taxes and Customs.

    General Economy

    • Rs.3,794 crore is sanctioned to the MSME sector in the form of interest subsidy and capital support.
    • The government has raised MSP (Minimum Support Prices) to 1.5 times of production and also proposed to implement MSP for all crops.

    Expectations from the Union Budget 2018-19

    The economists and financial analysts were anticipating plenty of new reforms to cushion the losses incurred previous year. As per the speculations of the analysts, while the previous budget of FY18 was a reformist one, the new budget was likely to be populist in nature. Here are some of the initiatives that the finance sector was expecting

    the Modi government to take in its last budget before the General Elections 2019:

    • The credit flow was expected to be easy for small, micro and medium-sized business enterprises with an affordable interest rate.
    • For banking sector, the FDI was anticipated to jump from 49% to 100%. It was 49% if permitted through proper approval and 79% after taking approval.
    • Health Insurance premium being low compared to the cost of medical treatment which was going high unprecedentedly, a hike in the premium of the health insurances was expected.
    • The tax benefit for 5 years in Retail Term Deposit was supposed to be reduced to 3 years in the budget.
    • Reduction of Corporate tax from 30% to 25% for facilitating the sector was also on the expectation list.

    Considering all the reforms and allocations made, the new Union Budget 2018-19 is a fairly good one meeting most of the expectations of the finance market along with the citizens of the country. However, according to the experts, there are a few more aspects that could have been considered in the budget to make it a better one.

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