A Budget for Bharat leaves middle India in a sulk
Senior citizens are possibly the only middle India cohort that gets to take home more money
There were few happy faces in India after the Budget speech got over, except for the senior citizens. Since we don’t have representatives of Bharat in the TV studios or as talking heads, their reaction does not get captured. Budget 2018 has given a big push to Bharat and tightened India a bit more. Bharat has got targeted spends on a whole range of items, from electrification to a massive health insurance programme—probably the biggest in the world.
Senior citizens should be happy. The morning laughing club should be laughing harder. They have reason to because they are possibly the only middle India cohort that gets to take home more money. Interest income for them will be exempt from tax up to Rs50,000, up from Rs10,000. This means that if a 60-plus person had an income of, say, Rs10 lakh as interest, she will now be taxed on Rs9.5 lakh, other exemptions and deductions remaining the same. The deduction on premiums on health insurance is up from Rs30,000 to Rs50,000. This is good because privately bought health covers for senior citizens are very expensive. The Pradhan Mantri Vaya Vandana Yojana has been extended till March 2020, and the Rs7.5 lakh-limit is doubled. A 60-plus person can now get an assured 8.3% annual return on Rs15 lakh of investment. A couple that has invested Rs30 lakh, can earn an interest of Rs2.49 lakh a year from it. These are important changes for a generation that is sitting on pension corpuses that were earned on pre-liberalization salaries, and which is finding today’s costs prohibitive.
Salary earners were first patted on the back by the FM when he said that they pay an average of Rs76,306 in tax in a year as compared to the business and professional tax payers who pay a paltry Rs25,753. To make amends he gave a standard deduction of Rs40,000. But the devil is in the detail—the real benefit was reduced to just Rs5,800 a year, or just Rs1,810 in tax saved for the 31.2% tax slab. Yup, the additional cess of 1% takes up the 30.9% tax bracket even further. The FM has given the standard deduction in lieu of the current exemption for travel and medical reimbursements from the place of work. Both these exemptions total up to Rs34,200, giving us a benefit of just a few thousand rupees.
The much dreaded long-term capital gains tax finally made a re-entry into our lives. Profits on equity on which the securities transaction tax has been paid and that have been held for more than one year will now be taxed at 10% if they exceed Rs1 lakh in a year. This is to harvest some of the Rs3.6 trillion-profits made in FY17. But your gains made have been grandfathered as on 31 January 2018. Suppose you had Rs5 lakh in long-term profits as on 31 January 2018, these will not be taxed. Profits made from then on, will be taxed. The Budget also plugs a loophole. Now a 10% tax will be levied on distributed income by equity oriented mutual funds.
The big announcement in the Budget takes the Rashtriya Swasthya Bima Yojana (RSBY) that insured the poor for Rs30,000 on medical expenses, further. The National Health Protection Scheme will hike this to Rs5 lakh per family for each year for secondary and tertiary care hospitalization. Over 100 million families, or 500 million people, will benefit. This will be the world’s largest government funded healthcare programme. The government will hopefully put in tighter controls on both insurance companies and hospitals on claims and costs. It must understand that as a large buyer it can beat down premiums and force hospitals to behave better. I expect an overall benefit as the sectors see a clean-up.
In an unusual move, the government has told the financial sector regulators to reduce their fixation on AA-rated bonds as being investment worthy and reduce it to A. Aimed at developing the bond market, surely it need not have taken a Budget announcement for the regulators to come to this conclusion on their own. A focus on fintech, the use of technology and the use of machine readable financial information in the future are steps in the right direction.
The fiscal deficit is not badly overshot at 3.5% and promises to be down to 3.3% next year. We need to worry about the deficit number because a large deficit usually means inflation. There were big worries on a spending splurge by the government in this pre-election year, but the conservative deficit number and a promise to be good once the GST inflows settle down is a big positive. No wonder the stock market can’t decide whether to go up or down.
Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint and on the board of FPSB India. She can be reached at firstname.lastname@example.org.
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