Summary: The last budget before the 2019 elections is keenly anticipated and expected to provide a growth stimulus to SMEs and startups. The budget will be an interim one as the full budget will be presented by the new government post elections. The interim budget generally includes both expenditure and receipts but may not contain big policy proposals. SME expert Anirudh Gupta shares his views on what various stakeholders of the economy can expect from the budget.
The forthcoming budget being an interim one implies that many changes may not be implemented in the future. However, since it’s an election year, the air is full of possibilities.
Here is my assessment of budget expectations from the perspective of various stakeholders in the economy.
- Reduction in tax rates for corporates - Generally, a status quo is expected. The tax rates for large companies may be reduced to 25% as has been done for companies with below INR 250 crores turnover.
- Reduction of GST slabs to 5% and 12% - GST has been structured in a way that it fits nearly 1,300 goods and 500 services under 4 slabs, 5%, 12%, 18% and 28% respectively. GST streamlining by way of reduction to two slabs is a long-standing demand of the industry, both at a corporate and SME level. It is expected that it may not happen immediately as tax collections on account of GST are yet to pick up to the desired levels.
2. Individual tax payers
- Revision of tax slabs - Tax slabs may be enhanced from INR 2.5 lakhs to higher slabs in the region of INR 3-4 lakhs of income per annum. This idea seems possible because of an increase in direct tax collections over the last one year. One of the old issues is that a fixed tax rate needs to be applied without any tax concessions. However, this seems unlikely on account of the low payout of taxes and a continuous need to encourage people to join the taxpaying base.
- Minimum income guarantee – Minimum income guarantee for employable citizens can lead to them remaining unemployed. As people who qualify under this would have less incentive to work on account of basic needs being fulfilled. It therefore needs to be seen which rules are governing it and for what duration is it granted by the government in question.
- Taxation on agriculture - Taxation on agriculture needs to be there for farmers owning land above five acres. This is not likely to happen given that there is an election year ahead.
Provision needs to be seen for irrigation in the budget. Currently 40% of land in India is irrigated. For our nation to not rely on rains at least 60% of land needs to be irrigated.
- Long Term Capital Gains - Long term capital gains (LTCG) have been proposed to be increased to 3 years instead of one year. This has been an issue which has been raised by industry bodies, however not yet implemented. This is critical from an industry point of view as it will encourage more people to invest in capital markets and allocate their savings judiciously to companies raising capital. This representation has been made by different associations from the financial community.
- Angel investing - The future of India, given its traditional strength in the services sector, is in startups. Startups have the potential to contribute sizably to alleviate unemployment in India. India can be the artificial intelligence capital of the world and for that to happen the investing ecosystem needs to expand. Currently there are about 300-500 angel investors and some family offices. That is why only 50-100 deals get funded at an angel level. Angel tax is a tax on funding received by startups from external investors. It is levied when startups receive funding at a valuation higher than fair market value (FMV). It is considered as income to the company and is taxed at the hands of the company. The problem is that the fair market value in startups is not streamlined like other asset classes such as real estate. However, for this to take off and reach its full potential, current anomalies in the taxation for investors at a startup level needs to be brought to similar treatment as that of long-term capital gains in listed equity. As of now, authorities suspect it to be nothing more than an exercise to convert undeclared income to assets and hence this is a key bottleneck from an ecosystem development point of view.
It will be interesting to see the implications and impact of the budget as a taxpaying citizen and a developing nation.
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Anirudh Anand Gupta
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