The Union Budget’s pronouncements on taxation and tax measures were much anticipated. This was one of the key aspects of the Budget that were closely watched. Individuals, enterprises and the stock market closely watch these measures every year because these directly affect them. Budget 2018 has seen a great deal of reforms in the taxation structure. Let us have a look at some of these.
Corporate Tax Rates Slashed: Boost to MSMEs
In his Budget speech, the Finance Minister announced the slashing of the corporate tax rate to 25% from the current 30% in case of companies that have an annual turnover of up to Rs 250 crore.
In 2015-16, the government had announced a similar cut for companies with an annual turnover of up to Rs 50 crore.
The latest decision of extending this to companies with an annual turnover up to Rs 250 crore will benefit 99% of firms, which are mostly MSMEs.
The move is pegged to benefit around 7,000 companies directly. The government will forego revenue of around Rs 7,000 crore with this decision.
Further, there is a 100% deduction for farmer-producer companies, with up to Rs 100 crore turnover.
Increased Tax Compliance
A major feature of the post-demonetisation era has been the increase in tax compliance, which leads to greater revenue generation and collection for the state. Below are some key facts:
- 51 lakh new taxpayers filed income tax returns in 2017-18
- Growth in direct taxes (April 2017-January 2018) is at 18.7%
- Taxpayer base has risen from 6.47 crore in 2014-15 to 8.27 crore in 2016-17
- Excess revenue from personal income tax is at Rs 90,000 crore.
Benefits for Women & Senior Citizens
Budget 2018 has offered several important benefits to women and senior citizens.
The Employees Provident Fund Act will be amended to reduce the contribution of women to 8% from the current 12% with no change in the employer’s contribution.
For senior citizens, the exemption of interest income for deposits in banks and post offices (including TDS) will be increased from Rs 10,000 to Rs 50,000.
Further, they will now be able to claim the benefit of a deduction of Rs 50,000 for medical insurance. For critical illnesses, the deduction has been increased to Rs 1 lakh.
Why No Change in Personal Income Tax Structure?
The government has not made any changes to the personal income tax slab rates. Some media outlets have already portrayed this as an anti-middle class move.
But the fact that the government has kept the tax rates stable seems commendable in itself. The Finance Minister mentioned that many changes in the personal income tax rate applicable to individuals had been made in the last 3 years. Therefore, no further need was felt to change it again.
Further, a standard deduction of Rs 40,000 for transport and medical reimbursements for salaried individuals has been proposed. This will cost the government revenue of Rs 8,000 crore. Therefore, the myth that the new budget is not friendly to the middle class or the salaried class is just that – a myth and a false narrative being spun.