India Budget 2018: What's in the bag for NRIs?

Despite Prime Minister Narendra Modi's attempt to temperate them, expectations on India's 2018 budget remain high.

Expectations on India's 2018 budget remain high despite Prime Minister Narendra Modi's attempt to temperate them with an assertion that it would not be a populist one.

Nevertheless, the fifth budget of Modi government assumes critical significance for several reasons. As this year's is the final full-fledged budget before the 2019 Lok Sabha polls, it has to epitomise Modi regime's achievements over the past four years. It also happens to be the most eagerly awaited testament to the impact of the two landmark but disruptive decisions in India's economic history - demonetisation and implementation of Goods and Services Tax (GST).

Therefore, the budget offers Modi one last chance before the general elections to vindicate his actions that his opponents often blame for the economy's slow growth in 2016-17. And more importantly, as the budget precedes assembly elections in eight states, electoral politics is expected to be writ large on the budget.

Given the impending high stakes the government has in the 2019 polls, it will, therefore, be interesting to see how Finance Minister Arun Jaitley balances out the expectations and the need to increase its tax revenues.

State Bank of India chief economist Soumyakanti Ghosh, said he believes the budget would ultimately be a balance between pragmatism and fiscal consolidation.

"We expect the government to continue on its fiscal consolidation path. However, this may not be construed as the overarching criterion and should not come in the way of growth," he said in a report.

However, for most non-resident Indians, budget expectations are moderate.

Primarily, NRIs expect further liberalisation of baggage allowance, particularly customs duty exemption for gold ornaments for up to 50 grammes for males and 100 grammes to females. They hope that the overall tax on gold would be rationalised with a substantial reduction in 10 per cent customs duty.

NRIs also expect legal reforms to enable them to invest in agricultural properties and look for the removal of dividend distribution tax as it discourages companies from paying dividends, which dampens investor confidence. Another top agenda on NRI wish list is an individual retirement account for them in lieu of pension plans. They also hope for further relaxation is tax rules to encourage people to invest in pension plans.

Most NRIs hope to see reduced GST rate for property transactions - from 12 per cent to 5 per cent. Before GST, the service tax was around 4.5 per cent and value added tax was one per cent, taking the total tax outgo to 5.5 per cent instead of the current 12 per cent.

Despite Prime Minister Modi's assertion to the contrary, the general observation is that the government is expected to present a populist and please-all budget before elections due in 2019.

The thrust therefore will be on introducing measures to bring some relief and increase disposable income for the common man, which will in turn provide a shot in the arm to the economy.

With a number of fiscal reforms already in place, and with direct tax collections up by 18.7 per cent post the demonetisation period, the budget is widely expected to provide some relief in personal taxes.

"Naturally, the number one on the wish list of the common man is an increase in the basic exemption limit from Rs250,000 to Rs300,000, considering that the slab rates were last revised in Budget 2014. For senior citizens, the exemption limit should be enhanced from Rs300,000 to Rs350,000," said James Mathew, Group CEO, Crowe Horwath, UAE and Oman.

"A reasonable reduction in the existing personal tax rates would bring cheers to the taxpayers especially in the wake of rising inflation and reducing purchasing power," said Mathew.

The budget is expected to increase exemption limit for medical expenses claimed as a reimbursement. Currently, medical expenses paid by the employer up to Rs15,000 are exempt from tax. Considering that medical expenses have shot up manifold times and the limit was raised more than 15 years ago, it is expected that the limit would be enhanced to Rs30,000 per annum.

Increase the limit for deduction of home loan interest on self-occupied property is also on the wish list.

"Since real estate prices have shot up and the common man relies heavily on home loans for funding purchase of property, increasing the limit for interest deduction on home loan is very critical," said Sunny Kulathakal, president of the Global Organisation of People of Indian Origin (GOPIO).

"The deduction for interest on home loan for a self-occupied house property is restricted up to Rs200,000. It is expected that the Finance Minister could enhance the limit for deduction on home loan interest to Rs 300,000 per annum," said Kulathakal.

He said an increase in the deduction limit on contribution to National Pension Scheme (NPS) would lead to fulfillment of the Finance Minister's dream of a pensioned society "Under the Income tax Act, an assessee is eligible for an additional deduction on contribution to NPS scheme up to Rs50,000. It is suggested that this deduction should be increased to Rs100,000," said Kulathakal.

There will be a major stress for rural employment generation programmes and rural infrastructure development. To improve credit flow in the agriculture sector, the farm credit target is expected to be raised by Rs1 trillion to a record Rs11 trillion.

The government is expected to increase import duty on certain items related to power, capital goods and chemicals sectors to give a boost to domestic manufacturing and its 'Make In India' programme.

The health care industry is expecting a better role for private sector in the country's health system, a boost to the Public-Private Partnership (PPP) will also help, industry leaders say. Private healthcare players are also expecting that medical insurance coverage in the country will be strengthened in the Union Budget 2018-19.

Players in the Fast Moving Consumer Goods sector expect the government to make labour markets more attractive and resume stalled infrastructure projects to create more jobs across sectors. They have pitched for policies that focus on rural markets to reverse slide in wages, create more jobs and reduce personal tax slabs to give more purchasing power to the consumers. The industry has also sought incentives for setting up warehousing and cold chain facilities and efforts to increase Foreign Direct Investment (FDI) in the sector.

The corporate world expects reduction in tax rates. Given how the government has been true to its promise of bringing down the corporate tax rates in India in the past budgets, it is expected that it may reduce the standard rate of 30 per cent or expand the base for applicability of lower tax rate of 25 per cent by relaxing the conditions for applicability of the lower tax rate. Currently, companies having turnover of less than Rs500 million in past year are eligible for 25 per cent tax rate.

Similarly, the corporate world hopes that the MAT (Minimum Alternate Tax) rate would be reduced from 18.5 per cent to 15 per cent. The budget proposals are also expected to focus on addressing tax provisions that impact flagship programs of the government, such as 'angel tax' that impacts Start-Up India, and MAT on debt restructuring that worries the working of the Insolvency and Bankruptcy Code.

Analysts at Deloitte India said given that growth momentum was hit on account of certain structural changes, the focus of the current budget is likely to be on alleviating the built-up stress in the rural economy, especially in the agricultural domain given the prevailing agricultural distress, which has led to falling farm incomes.

"We may see policies aimed at eliminating supply side barriers to in agricultural markets while also trying to increase the efficiency with which markets function."

"Given the fact that agriculture continues to be a drag on overall GDP growth and the government's ambition of doubling farm incomes by 2022, Jaitley can't afford to neglect the rural sector," said Kulathakal.

Angel Broking, said in a report that the budget would continue its thrust on infrastructure although the focus could be predominantly on rural infrastructure.

"Rural roads, post-harvest infrastructure, last-mile connectivity, massive irrigation projects could all be a part of the budget package. The theme of the budget could be infrastructure with a big focus on rural infrastructure," it added.

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