Minister responsible: Piyush Goyal

Deputy Ministers:

1. Shiv pratap Shukla

  1.  Pon Radhakrishnan

Date:  1st February,2019

How is an interim Budget different from a normal or full-fledged budget?

Conventionally a government in the year of election or at the end of its 5 year term does not present a full-fledged budget but goes for “Vote on Accounts”. But the incumbent government opted to go for an interim budget which is more or less similar to a full-fledged budget.

Vote on Accounts: It is device generated to overcome the functional difficulty of withdrawing money from consolidated fund of India. As per constitutional provisions the government cannot withdraw money from consolidated fund of India before the enactment of “Appropriation Act”. Appropriation Bill usually becomes an act around the end of April. As we know, our financial year ends on March 31st, in this time the government needs money to run the nation. Hence the constitution has authorized the Lok Sabha to make any grant in advance in respect to the estimated expenditure for a part of the financial year.

To understand clearly, a vote on account means that the government seeks the approval of Parliament for meeting necessary expenditure like paying salaries, ongoing programs in various sectors, etc for nearly a period of 2 months. It impresses no changes in the taxation structure. After elections the newly elected government takes over and presents a full Budget that is revised for the full fiscal.

Read more about the Process of Budget from Preparation to Appropriation here https://www.electiontamasha.in/what-indian-constitution-lays-down-for-budget-preparation-and-presentation/

 Why the government instead of a vote on Account passed an Interim Budget:

There are no answers to this, only questions and speculations. The government is very well in a position to constitutionally pass an interim budget or a vote on account, it played its card well before the election battle.

Is the government in complete oblivion of the fact that it can very well not come in the power? Or is the government too sure of its resounding victory in 2019. The major reason an incumbent government does not make a full-fledged budget in the 5th year of it’s term because a budget is indicative of the policies of the government which is taking charge after new elections. The fact that the Modi government presented an interim one, shows the BJP government is keen enough to let people have a sneak peak of the roadmap it is going to follow if it wins the Lok Sabha term 2.

Well, debatable for sure the unconventional approach Modi led government has taken in presenting the budget; it is yet to see if it can actually bring dividends in the elections.

Sectoral Allocation in the Interim Budget 2019:

Agriculture:

Total allocation for the Agriculture sector has seen an increase of 73% over 2018-19 (Revised estimate).

The Government announced the Pradhan Mantri Kisan Samman Nidhi (PMKISAN) scheme, which will provide a guaranteed income of INR 6,000 per year to small and marginal farmers. This will involve an annual outlay of INR 75,000 crore, which is around 0.36% of the GDP (2019-20 Budget estimate). Nearly 120 Million will be qualified for income transfers.

Interest subvention of 2% was announced for farmers affected by natural calamities. An additional 3% relaxation will be given for timely repayment of loans. This scheme has also been extended to farmers engaged in animal husbandry and fishery-related activities, and availing loans through Kisan Credit Cards.

Micro, Medium and Small Enterprises (MSMEs)

  • 2% interest rebate for MSMEs registered under GST for loans up to INR 1 crore
  • Requirement of sourcing by government enterprises from SMEs increased up to 25%, of which, at least 3% to be sourced from women-led SMEs
  • Government E-procurement Marketplace (GeM) platform extended to Central Public Sector Enterprises.

Social security for workers in the unorganised sector

  • The Pradhan Mantri Shram-Yogi Maandhan Yojana has been announced for workers in the unorganised sector with a monthly income upto INR 15,000. The scheme will provide them with an assured monthly pension of INR 3,000. The scheme is contributory and the government will make a matching contribution.
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Real estate/Construction

  • In the Affordable Housing sector, benefits under Section 80-IBA of the IT Act were extended by a year for projects approved till March 2020. This will allow Real Estate developers to deduct 100% of profits derived from development of affordable housing projects.

Infrastructure  allocation under four major themes:

This budget is Modi government’s last budget before the country votes a new government to power during the Lok Sabha election due around April-May 2019.

Railways

Announcing the third combined railways budget, a budgetary support of Rs 66,768.67 crore was proposed for India’s travel lifeline.Presenting the Budget, Goyal, who also holds the portfolio of railways, said that Indian Railways has “experienced the safest year in its history”.He proposed to allocate Rs 1,58,658 crore as the capital expenditure, up from Rs 1,38,857.52 crore. The capital expenditure for FY19 was revised downwards, by 5.216 percent, from Rs 1,46,500 crore.

Allocation for railway safety fund (Rashtriya Rail Sanraksha Kosh) was Rs 20,000 crore, same as FY19.The overall budgetary allocation was up from Rs 55,135 crore to Rs 66,768.67 crore, up by 21.10 percent.

Roadways

Despite highways seeing the maximum projects being taken up under the infra category during the last four years, the roadways was given a relatively smaller increment among the various infra-based sectors of Rs 83,015.97 crore.

Furthermore, Budget 2019 saw for the first time, government’s intent to have electric mobility by 2030.

“New India will drive on Electric Vehicles with renewables becoming a major source of energy supply,” Goyal said while presenting the budget.Apart from National Highways, Centre upgraded fiscal spending on rural roads at Rs 19,000 crore under Pradhan Mantri Gram Sadak Yojana (PMGSY). The allocation was Rs 15,500 crore during 2018-19 and Rs 16,862.12 crore during 2017-18.Higher allocation underscores government’s pledge to provide connectivity across all “unconnected villages” by March 2019.During FY19, PMGSY saw rural road construction of only 24,609.73 km as against the target of 58,000 km.

Shipping

The government has pitched for development of India’s Blue Economy with the Finance Ministry proposing an impressive Rs. 550 crore under Sagarmala. This allocation was up from Rs 381.08 crore (revised estimates) allocated during 2018-19.

Underlining importance of developing India’s 7,500 km long coastline and converting them into industrial hubs, Centre’s launched its flagship program for port development and modernization, Sagarmala, in 2015.It aims at promoting “port-led direct and indirect development” and augmenting infrastructure facilities to “transport goods to and from ports quickly, efficiently and cost-effectively”.The total budgetary support to shipping sector was Rs 1,902.56 crore, down by 1.86 percent from Rs 1,938.76 crore during FY19.

Aviation

Under aviation, the finance ministry allocated Rs 4,500 crore for fiscal year 2019-20. This was down by 54 percent from Rs 9,700 crore (revised estimate) allocated during 2018-19. Ministry of Civil Aviation has many tasks at hand, including reviving the national carrier, Air India, and supporting its regional connectivity scheme, UDAN. The scheme, whose third phase was launched recently, also plans to start flights for international destinations. The ministry was allocated a total amount of Rs 9,700 crore during 2018-19 and Rs 2,663.99 crore during 2017-18.

Education:

The Centre Friday earmarked Rs 93,847.64 crore for the education sector for 2019-20, an increase of over 10 per cent from the last budgetary allocation.Last year, then finance minister Arun Jaitley had allocated Rs 85,010 crore for the education sector. While Rs 37,461.01 crore has been allocated for higher education, Rs 56,386.63 crore has been earmarked for school education. The overall fund availability for the higher education sector for 2019-20 would, therefore, be Rs 69,193.68 crore. Hence, the fund availability for 2019-20 is almost double as compared to the previous year, the ministry added.

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The government has provided additional equity of Rs 2,100 crore to HEFA to enable it to mobilize the required funds for building high-quality infrastructure in higher education institutes. The IITs have been allocated Rs 6,223 crore. Apart from this, projects valued at Rs 12,028 crore have been sanctioned from HEFA for the IITs.

Defense Sector and Health Sector:

An analysis of the government’s budget allocation on major items shows that India continues to spend approximately five times more on defense than on health care. Defense accounts for 11% of India’s overall expenditures and health accounts for 2%.India’s defense allocation this year (2019-2020) is Rs 2,82,733 crore and health allocation is Rs 63,538. The defense budget is 4.8 times the health budget.

An in depth Analysis of the Tax structure this Budget brings:

Personal Taxes

While there are no changes proposed in personal Income Tax rates and slabs, the Government has made certain key proposals to provide relief to small taxpayers, especially to middle class and salaried earners in the form of:

  • Rebate on tax for total income of up to INR 5,00,000 for individuals.

Tax Rebate is different than Tax Exemption. The government has not changed the tax slab.

No tax on income up to ₹500,000. The benefit will be available through rebates. The current limit for zero tax is ₹250,000.

“The benefit will be to only those taxpayers whose total income doesn’t exceed ₹500,000. The moment it exceeds ₹500,000, tax will start from ₹250,0000 at 5% up to ₹500,000 and 20% from ₹500,000 to ₹1 million,” according to Ved Jain, former president of the Institute of Chartered Accountants of India. You won’t have to pay any tax if you have ₹7.5 million tucked away in fixed deposits and no other income because you’ll only be earnings ₹450,000 a year assuming an interest rate of 6%.
Piyush Goyal, the interim finance minister who presented the budget, also clarified that even people will gross income of up to ₹650,000 may not be required pay any income tax if they make investments in provident funds, specified savings and insurance etc. This means that the government has NOT proposed to change tax slabs by including taxpayers earning up to Rs 5 lakh under the “exempt” category. It has, in fact, proposed to give them a full rebate in case they pay more than their tax liability. According to the current tax slabs (which are to continue for FY 2019-20), individuals with an income of up to Rs 2.5 lakh do not need to pay taxes. When the total income exceeds Rs 2.5 lakh but not more than Rs 5 lakh, taxpayers are liable to pay 5% tax on the amount exceeding Rs 2.5 lakh. For instance, if your taxable income is Rs 3.5 lakh, you are required to pay a 5% tax on Rs 1 lakh.

If the total income is more than Rs 5 lakh per annum, not exceeding Rs 10 lakh, the tax liability is Rs 12,500 plus 20% on the amount over and above Rs 5 lakh. This means that if you earn Rs 7 lakh annually, you are required to pay Rs 52,000 (12,500+20% of 2,00,000) in taxes. Where the total income exceeds Rs 10 lakh, the tax liability is Rs 1,12,500 plus 30% on the amount over and above Rs 10 lakh.

  • Increase in standard deduction from INR 40,000 to INR 50,000 for salaried employees.
  • Relief for owners of more than one house; second self-occupied house not to be subject to tax on deeming/notional basis; aggregate deduction of interest on home loan for self-occupied properties retained at INR 2,00,000.
  • Prescribed monetary threshold for deduction of tax on interest from bank or Post Office deposits increased from INR 10,000 to INR 40,000.
  • Proportionate exemption on long-term capital gains arising from proceeds of sale of residential house extended to purchase of two residential houses from one house, subject to:
    • Amount of capital gain not exceeding INR 2 crore [no monetary threshold continues for investment in one residential house]
    • One-time opportunity to claim such exemption.
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Indirect Taxes:

The Government has estimated the CGST collection for FY 2019-20 at INR 6.10 lakh crore. This assumes a growth of around 20% over the revised estimate FY 2018-19 at INR 5.04 lakh crore. Given that overall growth in GST collection in the current year over last year is only 8% (INR 97,100 crore vs INR 89,700 crore on a month-on-month basis), it will be interesting to see how this ambitious target is achieved by the Government.

It will need substantial expansion in the tax base and stringent control over revenue leakages.

What is there for you in the Budget 2019-20:

Farmers:

First off is the benefit to the farmers. Farmers with less than two hectares to be offered Rs 6,000 per year as a direct transfer under PM Kisan Samman Nidhi. The benefit will be transferred directly into the bank account of beneficiary farmers in three installments of Rs 2,000 each. Around 12 crore farmers to benefit from the scheme. This scheme will cost the government around Rs 75,000 crore. But will this prevent political parties from announcing loan waivers in their poll promises is an open question?

Workers:

In a move to bring the unorganized workers in the mainstream government has started a monthly pension of Rs 3,000 for workers in the unorganised sector. Though the move is expected to benefit 10 crore workers the bill is not clear if it is compulsory or optional. If optional it will not be serving much purpose as few entrepreneurs and workers alike would be keen on joining it.

Salaried Class:

The finance minister increased the minimum income tax limit from Rs 2.5 lakh to Rs 5 lakh per annum. Doubling the limit would result in Rs 12,500 saving per annum for the salaried class. But this limit is applicable only for those who have a salary of Rs 5 lakh or below as the exemption is in the form of a rebate. This rebate used to be Rs 2,500 for salary up to Rs 3.5 lakh per annum, which has now been increased to Rs 12,500 for a salary of up to Rs 5 lakh. However, standard deduction has been increased from Rs 40,000 to Rs 50,000 which is a small relief across all salaried class.

Interest rate exemption:

Tax Deducted at source (TDS) has been increased from Rs 10,000 to Rs 40,000

Defense:

Marginal increase in budgetary support towards Defence expenditure from Rs 2.95 lakh crore to Rs 3 lakh crore.

MGNREGA allocations:

Marginal increase in support to the MNREGA scheme, which has been increased from Rs 55,000 crore to Rs 60,000 crore.

Government Borrowing:

Huge increase in government borrowing program from an expectation of Rs 6.50 lakh crore to Rs 7.60 lakh crore. The revised estimate for 2018-19 was Rs 6.34 lakh crore. Bond yields slippage by 12 basis points to 7.6 percent reflect the disappointment in the bond market.

Budget Deficit:

The victim of the government’s populist budget is the deficit which has slipped out of the glide path. At 3.4 percent to the GDP, fiscal deficit has missed the target for this year and its guidance for the next year is also higher than earlier estimates.

Divestment:

The government increased the disinvestment target to Rs 90,000 crore for the financial year 2019-20, up by 12.5 percent year-on-year from the current year’s target. The finance minister said that against a target of Rs 80,000 crore the government is confident of receiving Rs 100,000 crore.

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