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Last Updated : Feb 02, 2018 04:52 PM IST | Source:

Budget 2018: Jaitley's election Budget balances populism and discipline, but leaves salaried class and investors cold

The budget also marked the beginning of a new public accounting process. There were fewer indirect tax changes following the launch of the goods and services tax (GST) that kicked in on July 1.

Gaurav Choudhury @gauravchoudhury

Finance minister Arun Jaitley on Thursday blended prudent economics and electoral populism, delivering a Union Budget that placed villages at the centre of a new development framework but maintained reformist intent and fiscal discipline.

But there was not much on offer for the salaried class, which could leave India’s 40 million individual tax payers underwhelmed. The Budget also disappointed investors by reintroducing long-term capital gains on stock trading.

In his budget for 2018-19, Jaitley announced a raft of farm-centric measures, including to raise the minimum support prices (MSP) for crops, allocated Rs 10,000 crore two special funds for fisheries and animal husbandry, launched of the world’s largest government-funded health care programme that would benefit 500 million people and raised farm bank credit to Rs 11 lakh crore in 2018-19 from Rs 10 lakh crore this year.


There was an element of grandness and sense of occasion in Jaitley’s fifth and the Modi government’s last full budget that spelt out an ambitious plan to fix the lingering problems of India’s most unreformed sector: Agriculture.

“The focus is on low-cost farming. The Minimum Support Price (MSP) of all crops shall be increased to at least 1.5 times that of the production cost,” he said.

The budget also marked the beginning of a new public accounting process. There were fewer indirect tax changes following the launch of the goods and services tax (GST) that kicked in on July 1.

There were tax breaks and concessions for the unorganised sector workers and small and large businesses, which endured twin disruptions of demonetisation and the GST.

The minister reimposed the LTCG tax on stock trading, as feared. He levied LTCG at 10 percent for investments over Rs 1 lakh.

This triggered an immediate sell off in bourses, which could force a shuffle in stocks portfolio of many individuals and institutional funds. Stock markets reacted adversely to the proposal, with benchmark 30-share Sensex falling over 300 points, before recovering to close 59 points down.

Jaitley lowered the corporate income tax rates to 25 percent for all companies with a turnover of upto Rs 250 crore.

Roads, ports, railways and power got special attention, signals that the sector would be the primary vehicle for job creation. “Strengthening the railway network and enhancing Railways’ carrying capacity has been a major focus of the government. Railways’ Capex for the year 2018-19 has been pegged at Rs 1,48,528 crore,” he said.

Keeping at it, Jaitley proposed tweaks to the Income Tax Act’s Section 80JJAA to reward companies for creating employment by giving them more tax incentives for every additional person hired.

The focus on jobs is seen as a move to counter the Opposition that has repeatedly accused the government of failing to create opportunities for millions of young hopefuls despite the 2014 poll promise of Acche Din (good days).

To ease the fiscal squeeze, customs duty on a few goods were raised — a move that could make some products such as imported mobile phones costlier.

The minister pledged to the keep the fiscal deficit — a measure of how much a government borrows to meet its expenses – at 3.3 percent of the gross domestic product (GDP) in 2018-19, a deviation from the medium-term consolidation target set last year when Jaitley said the fiscal deficit would be contained at 3 percent of the GDP from 2018-19 onwards.


Thirteen years after it was removed, Jaitley brought back the concept of “standard deduction,” a base amount of Rs 40,000 that is not subject to tax in addition to the basic exemption limit, providing relief to every tax payer. In a recent report, the Easwar panel on income tax simplification had recommended the return of standard deduction.

The salaried class, however, could be disappointed. Tax breaks on money invested in savings instruments, including bank fixed deposits, insurance premium and mutual funds, remained unchanged at Rs 1,50,000 under the popular “Section 80C” scheme.

The annual tax exemption also remained unchanged at Rs 2.5 lakh. He also did not rejig tax slabs. He also raised education cess on all tax payers from three percent to four percent.

Currently, those with an income of less than Rs2.5 lakh a year are exempt from paying taxes. Those earning between Rs2.5 lakh and Rs5 lakh annually are taxed at 5 percent, those between Rs5 lakh and Rs10 lakh at 20 percent while anybody earning more than Rs10 lakh pays a tax of 30 percent.

In addition, there is an additional surcharge of 10 percent applicable on persons with annual taxable income between Rs 50 lakh to Rs 1 crore, and a 15 percent surcharge imposed on persons with a taxable income of more than Rs 1 crore.


He cut the corporate income tax rate for smaller companies. Those with an annual turnover of less than Rs 250 crore will now pay corporate income tax of 25 percent, lower by 5 percentage points from 30 percent.

In 2017, he had lowered the corporate tax rate to 25 percent for companies whose turnover was less than Rs 50 crore. This has now been extended to include companies with a turnover of Rs 250 crore.

“This will benefit the entire class of micro, small and medium enterprises which accounts for almost 99 percent of companies filing their tax returns,” he said.

After this, out of about 7 lakh companies filing returns, about 7,000 companies which file returns of income and whose turnover is above Rs 250 crores will remain in the 30 percent slab.

“The lower corporate income tax rate for 99 percent of the companies will leave them with higher investible surplus which in turn will create more jobs,” he said

Jaitley, however, did not lower the headline corporate income tax rate from 30 percent, leaving the larger companies disappointed. Business leaders have been asking for lower tax payouts to ensure that Indian companies do not lose their competitive edge over global peers.

In December, the US overhauled its tax code that would bring down the corporate tax rate to 20 percent from 35 percent. The lower corporate income tax rate is a carry-over from Jaitley’s 2015 to-do list when he had said the tax would be progressively cut to 25 percent in four years but would come with fewer deductions.

A six-member panel will draft a direct tax legislation that would draw from systems prevalent in other countries, international best practices and also keep in mind India’s economic needs, among others. The report is expected in the next few months.


In a departure from the past when farm economics used to be talked about in the middle of the budget speech, Jaitely took the bull by horns.

Fifteen minutes into his speech, he unveiled measures to turn the countryside into a robust growth engine, seeking to shift the focus to “farmers’ income” as opposed to the decades-old output-focussed “food policy”.

He announced a big jump of 1.5 times in MSP. An agriculture export plan and schemes for dairy and fishery are also on the cards. The steps are in keeping with the government’s promise to double farmer incomes by 2022.

Jaitley hinted that the government was open the idea of a nation-wide state-aided income support scheme for farmers.  “It is essential that if price of the agriculture produce market is less than MSP, then in that case Government should purchase either at MSP or work in a manner to provide MSP for the farmers through some other mechanism,” the finance minister.

NITI Aayog, in consultation with Central and State Governments, will put in place a fool-proof mechanism so that farmers will get adequate price for their produce.

NITI Aayog, the government’s go-to policy think tank, has favoured launching a deficiency payments system under which a subsidy would be provided on targeted crops if rates fall below a minimum support price (MSP)-linked threshold. The Madhya Pradesh government is currently implementing through its Bhavantar Bhugtan Yojana.

Such a system will be effective for those crops where procurement cannot be ensured.

MP chief minister Shivraj Singh Chouhan launched the Bhavantar Bhugtan Yojana scheme last October as rising discontent and farmer protests in Mandsaur in June became emblematic of a festering agrarian crisis across north, west and central India.

Under the scheme farmers compensated for the difference between the government-announced MSPs for select crops and their actual market prices.

A subsidy scheme for machine-aided crop residue shredding will help check stubble burning that adds to Delhi’s toxic air in early winter.

Another scheme, Operation Green, focussed on kitchen staples such as tomatoes, onions and potatoes, will be launched to protect farmers from a price crash. This year a glut leading to a fall in prices has seen farmers dump potato on roadsides and even mandis particularly in West Bengal and Uttar Pradesh.

The export policy will stipulate norms for making India’s farm produce, particularly fruits and vegetables, compatible with global food-safety or phytosanitary requirements. The policy will focus on nearly 25 farm export clusters.

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First Published on Feb 1, 2018 01:22 pm
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