Union Budget 2019 expectations

Finance Minister Arun Jaitley is all set to present the sixth union budget on 1^st February 2019. Given that the general elections are due in a couple of months, the budget will be interim budget and not a full budget. However, keeping decisions like demonetization and GST in mind, a few surprises can be on the cards.

This year, the Modi government may go for some positive surprises in the union budget to bring cheers for the middle class segment through tax exemption limits.

Last year, the government reintroduced tax on long-term capital gains (LTCG) exceeding Rs.1 lakh from the sale of shares/equities. Given how unpopular the decision turned out to be & the decline in stock markets, this could be withdrawn this year. There is also a suggestion that long term capital loss should be allowed to be set off with short term capital gain if LTCG is not withdrawn.

Since the introduction of Rs 40,000 standard deduction for salaried employees and pensioners in lieu of the exemption for transport and medical expenses in the last budget failed to please this segment much, expectations for tax exemption limit in this year’s budget is no doubt a natural outcome. CII has proposed the government to double the income tax exemption threshold to Rs.5 lakh, tax at 10% between Rs.5 lakhs to Rs.10 lakhs and increase the deduction limit under Section 80C to Rs 2.50 lakhs (from Rs.1.5 lakhs) to incentivize savings in the union budget.

The budget is also expected to bring some relief to small & medium enterprises (SMEs). The central government has been focused on MSMEs since GST was rolled out. Recently the government has also been vocal about job creation. The government believes that MSMEs are major employment generators & focusing on MSMEs might give a thrust to job creation.

There are expectations that the government might announce farm loan interest waiver for farmers who repay crop loans on time. Lowering insurance premium and income support are some other expectation. Some experts also expect a farm loan waiver announcement.

We can also expect some updates on Universal Basic Income & Direct tax Code. There have been a lot of discussions going on regarding the above & with elections round the corner some announcements cannot be ruled out.

In the union budget, fresh taxes may be imposed, old ones may go. Direct taxes like income tax and indirect taxes are both open to change. It is slightly different from a vote-on-account which presents an estimate of expenditures to be sanctioned by the exchequer till the budget is passed. A vote-on-account cannot alter direct taxes since they need to be passed through a finance bill.

For all practical purposes, the interim budget speech is a de facto election manifesto. Arun Jaitley’s interim budget speech is unlikely to be any different.

Stocks to watch out for in budget-2018

Equity markets in election mood

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 10 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’