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9
Jul

Highlights of Union Budget 2019 - the Budget of Hopes

Mrs. Nirmala Sitharaman, the first full-time woman Finance Minister (FM), presented the complete Union Budget 2019 before the Parliament on 5th July 2019. While setting up the financial roadmap for the economy and reflecting the priorities of the new government, the Budget has been an aspirational budget.

Economic Scenario

During the interim budget, the tax revenue figures were seen to be at optimistic levels, which have now been moderated to more realistic levels in the Union Budget 2019. This has caused the fiscal deficit to increase marginally as compared to the interim budget in February 2019. However, the fiscal deficit as a % of GDP has reduced on the back of increased economy size. The government has projected the fiscal deficit for the current year 2019-20 at 3.3% of GDP, as against 3.4% projected in the interim budget. With the government continuing its journey towards fiscal consolidation, benchmark bond yields also came down post this announcement.

The government has also shown its inclination to borrow partially from the international market, given the low levels of foreign debt in the country. This is expected to further take away the pressure from the domestic markets and hence, will be a positive for bond markets in the times ahead.

Changes in Personal Taxation

The interim budget had given a tax relief of Rs. 12,500 for taxpayers with an annual taxable income of up to Rs. 5 lakh. While continuing this benefit for small taxpayers, no changes have further been made in the income tax slabs. Additionally, with the ideology of taxing the super-rich, the government has increased the surcharge on taxpayers with taxable income from Rs. 2 - 5 crore and Rs. 5 crores and above to 25% and 37% respectively, as against 15% presently. However, even after this increase in surcharge, the effective tax rate for such taxpayers stays comparable with other major countries in the world. Given the limited number of taxpayers earning beyond Rs. 2 crores, this move has not attracted any widespread criticism.

Tax Incentive for Borrowers

The government has proposed a tax deduction of Rs. 1.5 lakh each to borrowers in respect of the loan taken towards first time purchase of affordable housing projects valued less than Rs. 45 lakhs and electric vehicles. As such, these two additional deductions can help borrowers save tax up to Rs. 93,600 (excluding the surcharge impact).

Mutual Funds Industry and Budget 2019

While there has not been any direct impact on the mutual fund industry, the government will offer an investment option in ETFs on the lines of Equity Linked Savings Scheme (ELSS) to encourage long term investment in CPSEs(Central Public Sector Enterprises). With no increase in the ceiling limit for tax deduction under Section 80C, this proposal is not expected to have any significant impact, given the already large bouquet of investment options available for the taxpayers under this section.

The government has also shown its commitment to deepen the market for long term bonds including corporate bond repos, credit default swaps etc., with a specific focus on the infrastructure sector. This is expected to augur well for debt funds, as new and innovative products may be available for investment allowing for diversification of the portfolio and also mitigating investment risk for investors.

Who will Benefit?

The government has showcased its long term vision through this budget and has set out its agenda for the next 5-10 years. While the taxpayers have only received appreciation and nothing significant, the budget seems to set out aspirations for various sectors, including education, space, finance and agriculture. Investors can look forward to getting better investment options, including investing in government securities, treasury bills and also additional ETFs proposed to be floated by the government. The tax incentives for affordable housing and electric vehicles will also help the government achieve its ‘Housing for All’ and green energy initiatives, and boost credit growth in the economy. With a vision of being part of a USD 5-trillion economy, the future offers immense opportunities for the credit and financial sector, while also offering enormous investment avenues for investors to create wealth over the long term.

While the continuing commitment towards fiscal consolidation is appreciable, achieving the targeted fiscal deficit is expected to be challenging and will largely depend upon the higher disinvestment target and expected GST collection figures.

 

Amit Dalvi

SVP & Business Head- Financial Products Distribution

Sarah John
Good blog on Union budget 2019!
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