Income tax cut to relief for farmers: What Budget 2018 is likely to bring

In less than 48 hours from now, the Narendra Modi government will present the last full Budget of its first term in office.

The Budget preparation exercise is sure to have kept the finance minister on the edge given the timing of the presentation. With eight Assembly elections due in 2018 and general elections just about a year away, the Budget is expected to be a populist one.

However, given the government's promise of keeping the fiscal deficit under check, Jaitley is likely to present a Budget speech with elements of fiscal prudence. How Modi's financial team meets this challenge is going to watched very closely by both his supporters and detractors.

Here's what to expect from the Budget speech on February 1:

Income tax

Based on what industry chambers such as the Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industry (CII) have recommended, it is likely that the government would lower the tax rate by 10 per cent on income between Rs 5 lakh and Rs 10 lakh, levy a 20 per cent rate for those with income between Rs 10 lakh and Rs 20 lakh and 30 per cent for income beyond Rs 20 lakh.

Currently, there is no tax slab for income between Rs 10 lakh and Rs 20 lakh.

Experts at Deloitte have also told The Indian Express that Budget 2018 could be expected to focus on delivering relief to taxpayers and simultaneously enhance the tax base.

Rural economy

The agrarian crisis has been staring at the government for quite some time now and not doing anything about it could cost it dear in a year that is electorally so important.

The Budget may increase allocation toward existing schemes related to MGNREGA, crop insurance, irrigation works and other social security measures along with infrastructure related to cold chains to boost agriculture and the overall rural economy. Allocation under the Pradhan Mantri Fasal Bima Yojana (PMFBY) too is likely to get a boost from Rs 10,701 crore for the current financial year to Rs 13,000 crore for 2018-19. PMFBY is a scheme under which farmers pay a nominal amount as premium and get full claim in case of crop damage.

The speculation is based on the fact that agriculture growth is estimated to have slowed down to 2.1 per cent (more than 50 per cent) from the last financial year and in the aftermath of the Gujarat election results, where the Congress scored an edge over the BJP.

Infrastructure

Vikas Khemani, president and CEO of Edelweiss Securities, told The Economic Times that India is in the midst of its second grey revolution, an era of massive infrastructure capacity creation and the government is likely to continue expenditure on key infrastructure projects.

Khemani said, "Affordable housing shall also continue getting attention with more fund allocations to credit-linked interest subsidy schemes (CLSS) for housing loans, in line with the government's objective of Housing for All by 2022."

Jaitley too has reiterated the government plans to focus on infrastructure and rural economy. Mint quoted a government source as saying that Jaitley "is likely to accord priority to projects related to affordable housing, rural roads and railways that could quicken the pace of economic growth as well as create jobs."

"Building rural infrastructure will be among the government's top priorities given widespread farm distress and upcoming elections to eight state assemblies," the source added.

Real estate

Both builders and homebuyers are looking forward to the Budget hoping it comes up with announcements which can provide an impetus to the otherwise sluggish sector.

The sector's biggest expectation from this Budget would be inclusion of the sector in entirety under the GST regime. Hitherto, only under-construction properties are included and the sale of fully constructed property is not covered under the ambit of GST.

This partial exclusion has resulted in denial of input tax credits, cascading of taxes and a case for imposition of other local levies like stamp duty, registration fees et al. Given government's National Mission for Urban Housing, which envisages "Housing for All by 2022", major relief is expected for this segment on February.

Tackling fiscal deficit

Experts believe the government will try to boost public spending despite the risk it poses to widening the fiscal deficit gap. With elections round the corner, no government can be expected to keep its purse strings tightened. The Modi government is targeting a fiscal deficit of 3.2 per cent in the current fiscal, that is 2017-18, and 3 per cent in 2018-19.

Anubhuti Sahay, head, South Asia economic research (India), Standard Chartered Bank, told Mint, "We believe after a temporary slippage in FY18 fiscal deficit, the government will target a narrower deficit next year but not all the way to 3 per cent as mandated by the fiscal consolidation path."

"The additional space can provide support to growth and can take the form of tax relief, increased rural and infrastructure spending."

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