Union Budget 2022 is expected by Feb 1,2022. What are all the expectations that we have from the Budget?. Here below we have given some basic expectations that we have, which would probably be relevant to many investors.

 

Will it be a populist Budget?

At this hour Equities are expensive, bonds are a bad idea, real estate is to be looked at as selective. So everyone’s eyes are on the Union Budget now. There is a clear need to stimulate consumption and spending to sustain the economic revival.

 

There is a necessity to boost Employment opportunities and so will there be focus on Urban MNREGA? Attraction is to be brought to convert savings to investments for prolonged growth story.

         Can India be part of global supply chain management through Make-in India move?

         Will disinvestment plans become clearer with the Budget?

         Gold imports since these 21 years amounts to $433 billion net even excluding gold jewellery?

         So will Govt be planning to bring the Gold imports under control?

         Education being the key driver, how would the Govt focus on Education?

         How to promote tourism and what attractions GOI would bring in?

         Will pandemic settle down or will we forget and move ahead?

 

At this hour the Govt has to be ideological. So frankly we hope to see a Practical Budget keenly focused on Consumption, Economic recovery, Creation of employment opportunities with more focus on Growth and reduction of inflation and Fiscal deficit control well within 6-6.3%, Capital expenditure, etc. Public-Private Partnerships would be like hanging fruits and, hope Govt would look into utilisation of this.

 

GOI invited ideas on Union budget 2022:

The Ministry of Finance had invited public suggestions from Dec 26 2021 until Jan 7 2022 on the official online portal and more than 3000 suggestions have come in from citizens as per the data from the MyGov website.

 

Top suggestions/demands made by citizens in that:

Citizens have demanded that the exemption limit under the Income Tax Act for salaried people must be increased and an exemption from long-term capital gains taxes must be provided. 

Citizens suggested that Provident Fund and Voluntary Provident Fund investments must be encouraged, and should be exempted from tax.

People have demanded a reduction in taxes on petrol & diesel by the Finance Ministry and want more spending on sanitation and health by the government.

People have also requested making education accessible for all by removing education cess and also supporting jobs in small businesses, like the tourism sector.

Many people have also requested the Ministry to legalise cryptocurrencies and digital currency. 

 

Will the basic exemption limit go up?:

We hope that the exemption limits will remain the same. Also hope to see standard deduction doubling from Rs 50,000 to Rs 1,00,000 per year to keep up with escalating medical and gasoline costs.

 

Fate of Corporate tax:

GOI brought down the corporate tax from 30 to 22% for Domestic companies in FY 2019-20 and then kept branches of foreign companies to 40%. As the gap is very wide,we hope to see a shrinkage to invite the interest of overseas companies.

Corporate Tax rate of 15% for the new manufacturing companies with a main condition that the manufacturing activity should start before March 31,2023 is there now.Given Pandemic GOI, should extend the deadline date to commence operations.

 

Production Linked incentives:

Focus on manufacturing would be the prime task and so PLI for telecom,steel,Pharma,food processing,IT hardware,solar,etc. would be given as the main expectation of us.

 

LTCG:

We hope that the /securities transaction tax (STT) should be removed or LTCG should at least be reduced because initially STT was introduced in the place of long-term capital gains.Looks like government has been turning it down citing they will lose a good amount of revenue if they remove LTCG Tax or reduce STT Tax.This space is a must watch in the Budget.

 

START UP INDIA MOVE:

India has produced 44 unicorns in a single calendar which, in turn, drive job creation, spur entrepreneurship and revitalise the digital ecosystem. We hope Budget 2022 would continue to deliver on the government’s vision under Startup India to strengthen innovation, spur entrepreneurship ,revitalise the digital ecosystem and give research incentives to biotech firms.

 

IS RISING INTEREST RATE A CONCERN?:

Yes.Raising rates are a concern.Raising interest rates would put a lot of MSMEs out of business, leading to increase in unemployment. To achieve the $5 trillion economy dream, India needs to grow at 14.8 % per year. So GOI should focus on having an attractive Loan structure for MSMEs to give a boost to the growing companies and Make in India push despite the rising interest rates..

 

 Looks like SBI has recommended GOI recently. What’s it about?:

State Bank of India (SBI) economists have urged the Centre to not focus much on fiscal consolidation in the upcoming Budget 2022-23 as there is a need for more stabilization measures to sustain economic recovery.

 

SBI feels that completing the LIC share sale this fiscal, will repair the overstretched balance sheet, which in turn will lower fiscal deficit to 6.3 % in FY23 and the exchequer will have a cash surplus of at least Rs 3 lakh crores.

 

SBI feels that a lower GST, low surcharges and a relaxation of personal income tax will boost consumption, which will help the economy recover after the COVID-19 pandemic…

 

Is there a possibility of bringing Wealth tax? 

Wealth tax at this point as it could do more harm than benefit is slightly ruled out only.

 

Fiscal Deficit expectation:

Assuming the government keeps the expenditure growth at 8% over FY22 estimates at Rs 38 lakh crore in FY23 and receipts (excluding borrowings and liabilities) would go up by 10.8 %, this would lead to a fiscal deficit of Rs 16.5 lakh crore or 6.3 % of GDP. Overall gross borrowings by the Centre and states are expected to be around Rs 21 lakh crore and net borrowings at around Rs 14.8 lakh crore. That’s the main reason for we citing the Fiscal deficit expectation between 6 to 6.3%

Any update or change that you expect in Crypto currency?:

Initially we thought that the Budget may consider imposing TDS/TCS on the sale and purchase of cryptocurrencies above a certain limit and such dealings should be brought under the purview of specified transactions for the purpose of reporting to income tax authorities. Anyway the overall discussion is deferred right now, as the Crypto Bill is on Hold, Govt may take Ordinance route on Cryptocurrency. The government of India may not table Crypto Bill in the ongoing session of the Parliament, as the government plans not to rush on this issue.

 

Can we expect anything great to Real estate as a Sector?:

Yes. We hope huge reforms and reliefs would be made to Real estate as a sector. Here below have  jot down a few:

1. Separate provision for deduction of 'principal repayment' on home loans up to Rs 2 lakh will boost real estate as a sector. Right now this is part of 80C which is just Rs.1.5 lakhs and most of the salaried individuals utilise it through their PF contribution and other committed savings.
2. Removal of restriction on setting off the loss from house property against other heads of income. This expected action if implemented will give huge impetus to the sector.The Finance Bill, 2017 introduced provisions to restrict the set off the loss from house property against other heads of income during the year. The existence of this restrictive clause severely dampens the investment sentiment in the housing market owing to lower effective post-tax returns.The removal of this restriction will enable the individual to claim the entire interest on his let-out property without any limit, resulting in a higher effective post-tax return on property purchase. This is expected to spur higher investments in the housing sector, at a time when developers are reeling under tremendous stress to push their inventory and generate sufficient cash flows for business sustenance.
3. We expect that the home loan interest deduction would be increased from Rs 2 lakhs to Rs 3 lakhs for tax rebate under section 24(B). This will effectively improve the savings of the home buyer and aid them in the home buying decision
4. Extension of benefit u/s 80EEA to avail additional Rs 150,000 interest deduction on home loans for first-time home buyers. This definitely would give kick to the new home buyers, as given the pandemic many salaried people demanded an exclusive space to WFH and so may look out for their own house if this is initiated. 

This benefit (currently available for home loans sanctioned till 31st March 2022), is likely to get extended until 31st March 2024

1. Tax deduction on profits from affordable housing projects is likely to be extended until March 2024 u/s 80IBA.A three-year window of extension would help the developers to construct affordable housing projects and boost the “Housing for All” objective.
2. A GST waiver for under-construction properties, and incentives for private investment in the affordable housing sector will be encouraging, 

Currently, there is a GST of 5 % on under-construction residential units and 1% on affordable housing, but without ITC. No GST is charged on completed units.

1. The GST on cement and steel is 28 and 18 %, respectively and the tax outgo has spiked along with the rise in these commodity prices. As the developers cannot claim tax credits for GST paid on input items, this amount gets added to the construction cost and leads to higher apartment prices for home buyers. So it demands a relook into these aspects by Govt in Budget.
2. There may be inclusion of petrol, oil, lubricants and natural gas under the purview of GST, although I can understand that oil is being imported and so price oscillates and addition of GST would be an added burden. Since these are currently outside the purview of GST, steel companies are not able to avail of any input credit against these materials.
3. The government may announce asset monetisation of public sector undertakings under National Monetization Pipeline (NMP). It can also monetise the housing and commercial real estate it owns by floating REIT. In India we have three publicly traded REITs now and two InviTs and so we hope that Govt may go gang-ho with REIT launch as well with its available inventories.
4. Since REIT units are like listed shares, the capital gains tax treatment should be aligned by reducing the holding period from three years to one year is what we expect to boost REITs. This will improve liquidity and help to increase retail participation apart from competing with equity instruments.

 

As Life Insurance is most sought given the pandemic situation, will there be any incentive to the sector?:

We hope as more numbers in India are still not insured, the GST rate on insurance might come down from the current 18 % to 5 %, to make it affordable for middle aged people.

 

Any impetus to Health Insurance as a sector be expected?:

The healthcare industry is eyeing a rise in the Centre’s budgetary allocation towards the sector and more public-private partnerships to strengthen indigenous manufacturing of essential equipments. 

 

The last Budget announced a 137 % increase in healthcare spending to address some of the gaps. Healthcare accounted for about 1.8 % of GDP in 2021. So we hope that it will raise to at least 2.5 % of GDP this year.

 

Further given the huge and rising hospitalisation costs, the tax benefit provided u/s 80D would go double. Right now less than 60 years are entitled to take a deduction up to Rs.25000 for the premiums contributed to their family and further Rs.50000 limit is for the Senior citizen parents. If in case the taxpayer is a senior citizen ,then together for his family and for the contribution to his parents, he ends up taking a deduction of Rs.1 lakh (Rs.50000 paid for his family and for his parents together)