We are taking a plain vanilla example below, with amounts. Assessee has incomes totalling to INR 20,00,000 and no exempt incomes within that, or no deductions (80C, 80D, Housing loan, rental allowance, etc)

As most of the readers must have noticed, there was not much in it from Individual Income Tax perspective. However monotonous or cliched this may sound - the budget still had many strategic announcements that were a must, to eventually move towards a developed economy. We will move straight to the updates, followed by our view of the budget. Of course, there will also be the originally written article covering the Interim Budget post that.

Budget Updates:

1. New surcharge ‘slabs’ are added. Till now, the surcharge on income tax was 10% for Total income exceeding 50 lakhs upto 1 crore, and 15% for incomes exceeding 1 crore. Now, for total income exceeding 2 crores, surcharge on income tax will be 25%, and for income exceeding 5 crores, it will be 37%.

2. Corporate income tax rate at 25% for companies with turnover upto 400 crores (up from 250 crores), if they meet the conditions specified in section 115BA. This is expected to cover 99.3% of corporates.

3. 1.5 lakh additional interest deduction for home loans availed for purchase of Affordable housing (Section 80EEA).

Conditions:

• Loan is sanctioned between April 1, 2019 and March 31, 2020.

• Stamp Duty Value of the property does not exceed INR 45,00,000.

• Assessee does not own any residential house property on the date of sanction of loan.

4. 1.5 lakh interest deduction for loans availed for purchase of Electric Vehicles (Section 80EEB). Only condition to be met is - loan is sanctioned between April 1, 2019 and March 31, 2023.

Of course, these 2 new sections are over and above the 80C limit of INR 1.5 lakhs. Further, to promote Electric Vehicles, it is proposed to reduce the GST from 12% to 5%.

5. Department will gather more data from more sources, by removing some thresholds to enhance pre-filling of Income tax returns, thus improving accuracy and reducing the time spent by taxpayer in filing the return. This includes collecting data even from Stock Exchanges to gather Capital Gains data, or from EPFO to collect EPF contribution or even redemption details.

6. Faceless e-assessment, involving no human interface is launched in a phased manner. Even the identity of Assessing Officer will not be disclosed, as the single point of contact between the taxpayer and the Department, will be a single Central Cell. This will eliminate certain undesirable practices on the part of tax officials.

7. TDS @ 2% to be levied on withdrawals exceeding INR 1 crore from a bank account in a year (Section 194N). This will curb businesses from transacting in cash, and increase transparency.

8. TDS on payments for purchase of immovable property, to now be calculated after including other charges like club membership fees, car parking fee etc.

9. PAN & Aadhar number are now interchangeable. For those who do not have PAN, the Department will allot a PAN, based on Aadhar number, obtaining the other details from UIDAI database. Wherever PAN is required to be quoted, a person may choose to quote Aadhar number, including, even for filing the Income Tax return.

There are a number of measures announced to improve Ease of Compliance with respect to GST. It is important to note that many GST related changes are subject to approval by GST Council. Below are some of the key measures :

10. Free accounting software for return preparation has been made available to small businesses. A fully automated GST refund module shall be implemented. Multiple tax ledgers for a taxpayer shall be replaced by one.

11. It is also proposed to move to an electronic invoice system wherein invoice details will be captured in a central system at the time of issuance. This will eventually be used to prefill the taxpayer’s returns. There will be no need for a separate e-way bill. Its roll out would begin from January, 2020. Electronic invoice system will significantly reduce the compliance burden.

12. A simplified single monthly return is being rolled out. Taxpayers having annual turnover of less than INR 5 crore shall file quarterly return.

Some other highlights :

13. Start-ups in India are taking firm roots and their continued growth needs to be encouraged. To resolve the so-called ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department.

14. Businesses with annual turnover more than 50 crore shall offer low cost digital modes of payment, like UPI, Aadhar Pay, NEFT etc to their customers. It is important to note here, that recently RBI had announced an abolishment of NEFT and RTGS charges.

15. No charges or Merchant Discount Rate (MDR) shall be imposed on customers as well as merchants. RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to digital modes of payment.

16. The Government is proposing to streamline multiple labour laws into a set of four labour codes. This will ensure that the process of registration and filing of returns will get standardized and streamlined. With various labour related definitions getting standardized, it is expected that there shall be less disputes.

17. Custom duty on gold and other precious metals increased from 10% to 12.5%.

Our View:

As mentioned at the start, this is a budget that would sound monotonous to most people. However, a deeper analysis of it reveals that there have been many structural changes to give a smooth path to the growth drivers of this economy, for the upcoming decade. By now, you must have already gone through the changes we have listed out. These are just some of the major changes announced - we did not cover the others since our focus still remains just around taxation, that too mainly for individuals and small businesses. 

Going forward, we expect the compliances to get easier to accomplish and less costly - the results of which, will only reflect in next few years. The honorable Finance Minister acknowledges that the lesser invasive the tax collection process, the more efficient the collection will be, by drawing an analogy to a Tamil verse in the Budget Speech (Can be found on Page 24 of the Budget Speech, as point no. 106, linked below).

We have used the Budget Speech and Finance bill as our reference documents.

Interim Budget 2019

We are back with our Budget analysis for the 2019 Interim Budget. We would start off quoting the Honorable Finance Minister as is from the Budget Speech available here:

“On behalf of all the people of India and our Government, I would first like to thank all our taxpayers for their valuable contribution to nation building and for providing a better life to the poor and marginalized sections of society. Your tax helps provide dignity to our sisters and mothers with toilets and cooking gas connections. Your tax pays for the electricity connections to the poor who lived in darkness for generations. The tax you pay will provide health care to 50 crore brothers and sisters, and children. It is you who is ensuring respect, dignity, and a secure future to our retired jawans through One Rank One Pension. Thank you, taxpayers.”

This is a paradigm shift in the way we taxpayers are looked at by the Government - The Honest Taxpayer has been openly thanked by the Finance Minister on National TV, in a Budget Speech.

Coming to the topic, the 2019 Budget - being a Central election year, this was supposed to be, and has been an Interim, vote on account budget. Like our analysis last time, the focus of this article primarily is on direct taxes relevant for individuals & domestic businesses and the overall economic outlook provided in the budget speech.

Our view of this budget - the Finance Minister has been able to provide benefits to almost every section of the society possible, without tinkering much with the fiscal math, and without making too many changes to the Direct & Indirect taxes - a job well done.

Key Highlights:

1. First things first - Slab rates, 80C/80D, Home Loan deduction limits stay unchanged.

2. The obvious Question - If slabs have not changed, what is the meaning of “No income tax till income of INR 5,00,000”? Answer: It is covered as a part of rebate under section 87A. In layman terms, if your Net taxable income is upto INR 5 lakhs (earlier, this limit was INR 3,50,000), then your tax will still be calculated as before, but, that same tax amount will be adjusted against an equal amount of rebate, and hence, you will not be paying any taxes. More on this, with an example is covered in a later section.

3. Another major change - One can have upto 2 Self Occupied Properties (SOPs). Till now, if you had 2 properties, and both were used for own purposes, or one of them was just simply left vacant throughout the year, that property would have been considered as “Deemed Let Out Property”. With that tag, one was required to pay income tax on notional rent. From now on, one can own 2 SOPs and still will not have to pay tax on notional rent.

4. Standard Deduction has increased from INR 40,000 to INR 50,000.

5. Threshold for TDS deduction on Interest (sec 194A) and Rental (sec 194I) payouts have been increased to INR 40,000 and INR 2,40,000 respectively. This is expected to benefit people who have only Interest and/or Rental income, but whose total incomes are below taxable limits. Such people were required to either obtain a no deduction certificate or had to file their returns just to get refund of TDS.

6. Long term capital gains on sale of property, of upto INR 2 crores, can be utilised for construction or purchase of 2 residential houses, as against one residential house up till now. This is beneficial for people who have large accumulated gains on their existing property and they are looking to go for 2 residential houses by selling the existing one.

7. 99.54% of the income tax returns filed last year, were accepted as is - no changes were proposed by the Income Tax department in these, and refunds have been issued successfully wherever applicable. Over a period of next 2 years, almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymised back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers. Separately, the Department is looking to process the filed returns in 24 hours, and issue refunds going forward. These steps are expected to bring more transparency in processing of returns, and reduce the uncertainty faced by the honest taxpayer.

8. Changes to Stamp Duty on Equity transactions - earlier, stamp duty was levied on equity transactions differently across states. It will now be levied uniformly by exchanges and will be distributed to states according to the domicile state of the buyer. This is against what brokers had expected - an abolition of Stamp duty, in view of STT already being levied. However, considering that it is still there, this will bring in more uniformity and is expected to streamline the process of stamp duty collection across the states.

These may appear to be large scale changes, however there are only about 8-10 overall material changes to the Income Tax Act, as compared to 40-50 or even more changes in any full budget, coupled with similar number of changes in Indirect Taxes.

These changes however, will have to be approved in the full budget, that will be presented by the Finance Minister of the newly elected Government post the Central elections.

Rebate of tax for incomes upto 5 lakhs:

You might still have unanswered questions on the “no tax upto income of INR 5 lakhs” part. We can take it up with an example here:

Suppose someone earns INR 10,00,000 in a year. Now, that person can effectively have a tax liability of INR 0.

* Assumed for salaried person

Now there are implicit assumptions here that can easily change or may not be possible for some. However, as can be seen - we have not even counted tax free incomes in this example. One may have lesser NPS / 80C / 80D / Home Loan Deduction, but that can be compensated by some tax free incomes, or any other combination.

However, one thing to note - even though there may be no tax liability post these changes, one is still required to file the income tax return on time. This rebate itself was driven by the data available with Government. And that exactly is the intention this time round - that people file their tax returns, and Government can still get the data, to give more benefits to the same set or even broader set of people.

Another aspect noteworthy enough, for a mention in this piece (despite the focus being on Direct Taxes), is that the Government has promised a basic income scheme for the farmers (From the budget speech) - “Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)”. Under this programme, vulnerable landholding farmer families, having cultivable land upto 2 hectares, will be provided direct income support at the rate of INR 6,000 per year. This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of INR 2,000 each. This programme will be funded by Government of India. Around 12 crore small and marginal farmer families are expected to benefit from this. The programme would be made effective from 1 December 2018 and the first instalment for the period upto 31 March 2019 would be paid during this year itself. This programme will entail an annual expenditure of INR 75,000 crore.

Economic performance:

Despite giving so many benefits to various sections of the society, the Fiscal Deficit number for FY 2018-19 has come at around 3.4%, against a target of 3.3% as per the last budget. This is very important, since we still cannot afford to increase the deficit, as mentioned in our article last time round. This marginal miss has been due to the INR 20,000 crore of outflow towards farmer income support outgo, that is expected before 31 March 2019 itself. In absence of that, the Fiscal Deficit number would have come at around 3.1%.

Conclusion:

Our view as mentioned first up is that this is a really good budget, considering the fact that it is an election year and almost everyone will be hoping for their share of benefits, and most have got it. This, despite being the fact that this is just a vote on account budget, and also, you do not want to appear spendthrift in the eyes of Foreign Investors and the rating agencies.

There has been a lot of talk around Cryptocurrency / Digital Assets in the past few months - be it for the kind of swings observed in the prices of these assets, or be it the statements issued by various authorities.

To begin with let's go through some of the announcements and statements from some key people in respect of dealing in Cryptocurrency in India followed by a plain interpretation of these statements and lastly, we will cover our view on it.

Statements:

Most recent one by RBI, during it's bi-monthly Policy review on Apr 5, 2018 -

“Ring-fencing regulated entities from virtual currencies:

Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.

Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.”

However, below commentary was a part of the same announcement, just prior to above piece -

“Central Bank Digital Currency:

Rapid changes in the landscape of the payments industry along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money have led central banks around the world to explore the option of introducing fiat digital currencies. While many central banks are still engaged in the debate, an inter- departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency. The Report will be submitted by end-June 2018."

Statement from the budget speech by the honourable Finance Minister in the budget speech, on Feb 1, 2018 -

“The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system. The Government will explore use of Blockchain technology proactively for ushering in digital economy”

On this, there was an opinion shared by Head of the Blockchain and Cryptocurrency Committee of India (BACC) -

“What the Finance Minister might be saying is that cryptocurrency is not considered to be a part of these payment systems. Similarly, gold is not part of a payment system, but people still barter assets like gold for goods, as long as both parties record the transaction. It is an asset barter transaction.

There is a little subjectivity on the matter. Can an individual swap cryptocurrency for another cryptocurrency?

Interpretation:

Apart from the opinion shared above, a plain interpretation of the above statements can be summarised as below -

1. The RBI as well as the government is primarily concerned about the illegitimate use and frauds / Ponzi schemes run by various persons, in the name of Cryptocurrency. A prime example of a Ponzi scheme is a very recent incident that was identified by the Police and ED. The people detained in connection with this Ponzi scheme used to lure people to invest into Bitcoin through their company and they promised 10% returns on the invested amount every month. Investors were issued a new Cryptocurrency - MCAP, which was supposed to yield the return. However no such return was given and investors ended up losing their money.

2. Also in parallel, various government and / or RBI backed studies are in progress, to come up with our own Digital Asset, which can be regulated by the RBI, plus there can be regulations in various Financial Laws regarding the same. Income Tax Act, GST, FEMA, are few primary regulations which will need amendments amongst a host of other laws, in order to have a foolproof legal framework around this new form of asset/payment/settlement mechanism.

3. In the interim, RBI has in its recent announcement, directed all entities regulated by it, to refrain from rendering any services to businesses/individuals dealing in Cryptocurrency. Also, those entities already into such business relationships, have been given a deadline of 6 July 2018, to stop providing such services. This means that banks/payment gateways etc which are already providing services to persons dealing in Cryptocurrency, are expected to discontinue such arrangements by July 6.

Our view:

We had briefly touched upon this topic in this article on our blog. We are looking to build up on that, in light of this recent announcement as well.

What happens to our holdings in Cryptocurrency?

This surely must be the first question that would have come up in your mind.

Simple answer - It is not going anywhere. Holding of Cryptocurrency / Digital Assets is not illegal in India. In fact, most purchases in India, would have been done after following stringent KYC procedures, funded by fiat currency (INR for us in India) transferred from the buyer’s own bank account. It would be tax paid money of the buyers and again, taxes would be paid on the grains realised from cryptocurrency trading.

Only change that has happened is - you might not be able to buy more of such assets using fiat currency or encash your holdings into fiat currency - after 6 July 2018. Only things you need to be cautious of, are:

1. Your own liquidity needs: To begin with, you would have already invested that money, which you must have been willing to lose at the time of investing. Nonetheless, if that wasn't the case, and you expect to use that money now, it would be better to exit at this point, and get fiat currency against your Cryptocurrency / Digital Assets.

2. The manner of your holding: Amongst other ways to hold your digital assets, the most popular way is to hold it in your wallets with various exchanges. Smaller exchanges could find it difficult to sustain in shorter term, given the ban on conversion from and to fiat currency at this point (starting July 6). In the extreme case that the exchange is not able to sustain, your holdings with that exchange could be at a risk. However, that might not be the case with bigger exchanges.

How do we trade now?

Since from July 6 2018, the banks are expected to discontinue serving persons dealing in Cryptocurrency, it can be reasonably expected that fiat currency can be deposited and / or withdrawn upto July 5. Accordingly till July 5, exchanging Cryptocurrency for fiat currency should not be any issue.

However post July 6, it remains to be seen as to which pairs will be traded on various exchanges across India - probably there could be Crypto to Crypto pairs introduced by them. Or they can continue to allow trading with fiat currency - but certainly no fiat currency can be deposited or withdrawn to/from the INR wallets with these exchanges. We shall keep updating this article, as and when we come across new information about trading post July 5.

**Note: We strongly recommend everyone to refrain from transferring your Cryptocurrency / Digital Assets to exchanges or other persons outside India, as already covered in our previous article referenced above. It could be seen as a violation as per Section 3 of the FEMA.

Conclusion:

• Cryptocurrency / Digital Assets as against the general perception about them, represent the underlying technology. There is a general perception that these assets just “represent thin air”. But after having read about quite a few Digital Assets, we genuinely think that these represent the underlying technology, a technology that is trying to address some of the pain points faced in trade/commerce across the world as of date. Of course there could be newer, improved versions of some or all of these technologies in the coming years, but that only means that investment in these assets holds genuine value. If you are in for a long term, there is no need to worry at this point - just ensure that you have diversified in various cryptocurrencies, across multiple Cryptocurrency Exchanges in India.
  
• We reiterate - as of date, holding of Cryptocurrency / Digital Assets is not illegal. Just that exchanging it for fiat currency, has been restricted (from July 6) by the recent announcement by RBI. Also, since RBI and Government are already working towards bringing our own Digital Asset and its related regulations, our calculated guess would be that holding of Cryptocurrency / Digital Assets might as well never be illegal in India.
  
• Additionally, as we write this article we have been coming across communications being sent out by various popular Cryptocurrency Exchanges operating in India, that all of them are seeking a dialogue with the RBI, in order to seek a mutually agreeable way to tackle this. There could very well be a completely different picture by July 6. As mentioned earlier, we shall keep updating this article with newer information, as and when it is available.

**Disclaimer - Through this article, we do not intend vouch for or recommend investing / related activities in Cryptocurrency / Digital Assets, and not intend to vouch for or recommend any exchange or any other entity dealing in Cryptocurrency / Digital Assets. Also, we do not intend to provide any suggestions in terms of manner of holding any Cryptocurrency / Digital Assets.

Lastly, our sole intention here is to provide an opinion on the various announcements and their implications, based on our understanding of the existing rules and regulations.

Please share your feedback on this article in the comment section. As always, feel free to reach out to us on our email: help@ayanshfinsights.com

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This is the first article that we are publishing on our website, and we couldn't have asked for any better topic than the buzzword since past couple of days - the Union Budget of India, 2018. The focus of this article primarily is on direct taxes relevant for individuals & domestic businesses.

Our view on this budget overall is that it has provided the required support to Agriculture, Infrastructure and Employment generation and at the same time, ensured that the Revenue does not take any hit - just like all of us would like to do - protect our revenues, when we expect higher expenses. This will ensure that the nation can continue on its path to reduce the Fiscal Deficit in the longer run - an extremely tightrope walk, which has been tread quite well.

We are looking to divide this article into 3 main parts:

1) First we are covering the Key Highlights.

2) We will follow it up with our detailed analysis connecting the dots, explaining the rationale for our view.

3) Lastly, we are also covering our view on the legal position of Crypto Currency in India, since it had a mention in the budget speech, and seems there is some misinformation spreading around it.

1) Key Highlights:

• Individual Tax slabs for FY 2018-19 remain unchanged from FY 2017-18. We have covered the slabs and rates of income tax in the tabbed table above.
  
• Corporate (Domestic companies) income tax rate is reduced from 30% to 25%. This will be applicable for domestic companies if the total income or gross receipts do not exceed 250 crores in FY 2016-17. For all other domestic companies, the rate continues to be 30%. 99% of the domestic companies are expected the fit the criteria for the 25% tax rate.
  

• Education Cess and Secondary & Higher Education Cess will be replaced by Health & Education Cess, levied at 4% (On amount of tax and/or Surcharge as applicable) from FY 2018-19.

• Long Term Capital Gains (LTCG) on sale of - equity shares of a company, or a unit of an equity oriented fund, or a unit of business trusts - exceeding INR 1,00,000 in a Financial year will be taxed at 10% (without indexation benefit). Currently, such gains are exempt from taxes. The current regime is inherently biased against manufacturing and has encouraged diversion of investment in financial assets, instead of the core business activities.

• This amendment will not apply if such gains are realized on or before 31 March 2018.

• The cost of acquisition for the purpose of computing such LTCG will be either the cost of purchase or the Fair Market Value/NAV of the equity share/unit of equity oriented fund as on 31 January 2018 - whichever is higher.

• Dividends distributed by equity oriented Mutual Funds will be subject to Dividend Distribution Tax at 10%. This is introduced to provide a level playing field between growth and dividend paying funds, in view of the new capital gains tax regime.

• Deductions allowed to Individuals and HUFs, in respect of premiums paid for health insurance or preventive health check up of senior citizens under section 80D, is increased from INR 30,000 to INR 50,000.

• Deductions allowed to Individuals and HUFs, for treatment of specified diseases (neurological disorders like dementia, Parkinsons disease, etc) in respect of senior citizens and very senior citizens under section 80DDB, is increased to INR 1,00,000. Currently, the deduction is allowed upto INR 60,000 for senior citizens & INR 80,000 for very senior citizens.

• Deduction for Interest income (in respect of interest earned on deposits with banks) for senior citizens is increased from INR 10,000 to INR 50,000.

• Standard deduction will be available to salaried individuals upto INR 40,000. Against this, the Transport Allowance of INR 19,200 and Reimbursement of Medical Expenses of INR 15,000 is being removed. However, Transport Allowance shall continue for differently abled persons.

 Note: This means that other allowances like Fuel/ Car Maintenance allowances will continue.

• Prima facie adjustments to Total Income declared in the filed income tax return, on the basis of incomes appearing in Form 26AS/Form 16/Form 16A, which are not included in the filed return, will not be allowed - a positive step for all people filing their income tax returns.
  

• E-assessment scheme is now extended to all assessees. This step will  impart greater transparency and accountability, by eliminating the interface between the AO and the assessee, optimal utilization of the resources, and introduction of team-based assessment.

• The benefit of tax-free withdrawal from NPS is now extended to non-employee subscribers as well. Currently, an employee contributing to the NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. This exemption was not available to non-employee subscribers.

• We are including this point primarily because there is a misinformation being spread, that deductions under section 80C, 80D etc will not be available, if return is not filed by due date:

1. Tax holidays in respect of certain incomes not to be allowed unless return is filed by the due date.
   

2. Currently section 80AC provides that no deduction of incomes would be admissible u/s 80IA, 80IB, 80IC, 80ID or 80IE unless the return of income by the assessee is furnished on or before the due date.

3. This provision is now extended to the entire heading “C.—Deductions in respect of certain incomes” in Chapter VIA like Sec 80P (Deduction in respect of income of Co-operative Societies), Sec 80RRB (Deduction in respect of royalty on patents) etc.

4. Accordingly, it is clear that there is no such requirement for deductions under sections 80C, 80D etc.

2) Our Analysis:

Our analysis of the holistic picture - this is purely based on:

• Highlights covered above and a few other aspects of the budget, which are not specifically covered in the points above, but are important to connect the dots.
  
• Our insights in respect of the macro factors relevant for India, viewed in conjunction with past and current budgets.
  

• The agricultural sector has been tested and under some stress since some time now - due to the drought situation for a couple of years, followed by flood situation in recent times. There have been lots of talks about the hardships faced by farmers due to these contrasting situations arising out of natural factors.
  
• In order to give some relief to the already stressed sector, the MSP for all summer crops will be 1.5 times the input costs. Additionally, there is a focus on infrastructure development in Rural areas. These measures include providing for wireless internet access in villages, coupled with the e-NAM portal, which will enable the farmers to sell their produce directly to bona fide buyers, rather than going through various layers of agents.
  
• There have been quite a few other measures even in Agriculture support services, like extending the benefits under section 80P (100% deduction of profits for co-operative societies which provide assistance to its members engaged in agricultural activities) to Farm Producer Companies with a total turnover 100 Crores.
  
• Lastly, trading in commodity derivatives is now encouraged by treating it as a non speculative business, so that farmers can eventually get a better price for their produce.
  

Yes, one may want to paint these measures as freebie/populist measures, but there is no reason why this shouldn't have been done even from a pure economic standpoint.

• In terms of Healthcare, there was a historic announcement that could benefit almost 40% of the population mostly in the middle/lower middle income groups, to provide them a hospitalization cover of upto INR 5,00,000 pa per family - this number is currently INR 30,000.
  
• INR 1,200 Crores have been allocated to setup health & wellness centers across the country, coupled with a proposal to setup 24 new Medical colleges - making it 1 college in each state.
  

Employment:

Below direct measures have been announced to boost employment:

1. There are direct incentives like extending the additional 30% deductions to employers hiring first time employees, and also removing procedural difficulties in claiming this deduction - leaving more disposable income with businesses to expand operations.

2. Specified tax relaxations available to eligible startups have been extended to startups incorporating upto 1 April 2021.

In addition to this, our view is that below listed measures too will have a positive impact on the employment scenario:

1. Increasing customs duty on certain imported electronic items like mobile phones, smart watches etc. This step will encourage production of these goods in India (be it domestic or a foreign company), which will create more jobs in India.

2. Taxing of Long Term Capital Gains in excess of INR 1,00,000 in a financial year. It was observed that the non operating incomes of quite a few corporates were increasing on account of transactions in equity shares, which ended up being tax exempt. Effectively instead of expanding their core operations, they focused on non core activities like equity investments, to avoid taxes. Now these companies will be pushed to focus more on their core business, since one of the key attraction of equity gains is partly taken away.

3. All these, combined with a reduction in corporate income tax from 30% to 25% for companies with an annual turnover or gross receipts upto INR 250 Crores, will leave them with much more money to expand operations and give more incentives to their employees and/or create more jobs.

Now despite all this, the Finance Minister is still committed to a fiscal deficit target of 3.5% of GDP for FY 2017-18 and 3.3% for FY 2018-19 - a number just marginally above the original estimate of 3% for FY 2018-19. Fiscal deficit is nothing but the excess of expenditure over incomes of the government.

Why this kind of fiscal prudence is important? Below are some of key factors explaining the reasons:

1. Sovereign rating of the nation factors in the financial discipline shown by a government. If a nation always spends a lot more than it earns, it doesn't go down well with the rating agencies. This is because the government is viewed as a spendthrift, with less ability to sustain financial shocks. It's ability to repay debt/capital is dented in times of financial shocks. Around 2013-14, our sovereign rating was at the border of being classified as junk, with a negative outlook. But today, this rating is improved by 1 level, with a stable outlook. If a sovereign is given a junk rating, it would immediately increase the interest burden on the government and also, have a cascading impact on the foreign exchange rates (INR to USD, GBP, EUR, etc). Plus many investors would be forced to exit their investments in the country, forced by their policies to not invest more than a particular percent of their portfolios in junk rated economies. This will end up impacting the fiscal deficit further, leading to a downward spiral.

2. As covered earlier, there have been droughts and floods faced by our farm sector in past few years. Despite this, the inflation rates are pretty much under control. Even the Consumer Price Inflation rate for December of about 5.2% is the highest rate seen in 17 months. It seems we are way past those times when there used to be double digit or close to double digit inflation rates.

3. There were quite a few internal and external macro events/disruptions like Chinese slowdown, Greek crisis, Brexit, Demonetisation and GST. Our economy has withstood all these shocks and we are still one of the fastest growing economy in the world. There was a mild dip in the quarterly GDP number a few months back, primarily due to destocking during GST, but we are already back on track. Additionally, it was estimated that Demonetisation will reduce the GDP, and GST will create inflationary conditions, as has been observed in few other countries. However, GDP is largely unaffected (we have already covered that one off dip), and inflation is well under control.

4. All this has enabled the RBI to lower the interest rates regularly. Today, most loan rates - be it home loans or personal loans or anything in between - are down by 2 percentage points across the board.

Conclusion:

Few classes, especially salaried class might be disappointed by looking at the budget upfront - if looked at the direct tax proposals for salary incomes in isolation. However, taking a holistic view - there are many more aspects which are having numerous positive impacts in an indirect way as discussed above. Be it employment generation, be it more disposable funds with the employers for incentives, or be it direct benefits like reintroduction of Standard deduction for salaried people (many salaried employees faced hardships in claiming the medical reimbursements, which are now gone), higher deduction on Health Insurance premiums, and medical treatments.

Investors could feel that the LTCG benefit has been removed, but in the long run, it will encourage the corporates to focus more on their core business. The corporate earnings have already started to pick up. This, coupled with the backdrop of a strong economy, which is all set to be the fastest growing economy in the world, will far outmatch the tax outflow due to the introduction of LTCG tax on such gains exceeding INR 1,00,000 in a financial year. Also, after all no one would be in the equity market purely because LTCG was tax free - it can be only 1 of the numerous factors.

Plus, there has been a sustained easing down of tax compliances in past few years, with 2 notable additions in 2018 budget - You won't get a tax notice for prima facie differences in total income declared in the income tax return as compared to your Form 26AS/Form 16/16A, and also, with e-assessment proceedings extending to everyone, you virtually won't be required to visit the tax office ever.

It takes real courage and a strong political will to announce this kind of a balanced budget, with minimal freebies which actually aren’t freebies, but more of a need of the hour, with focus on continuing with their plans laid out in the first budget, till the last full budget.

3) Crypto Currency:

There was a statement read out by the Finance Minister during the 2018 budget speech in Parliament:

“The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system. The Government will explore use of Blockchain technology proactively for ushering in digital economy”

This statement caused quite a stir amongst people already into trading in Crypto Currencies.

Our view:

• This statement is no different from the statements released in the past, where it was mentioned that crypto currency is not a legal tender in India.
  
• This only implies that no one in India is bound to accept any crypto currencies as a consideration and/or settlement of any dues. As a matter of fact, no one is bound to accept even gold or equity as a consideration, but still it gets used on numerous instances as a form of barter.
  
• Further, there have been instances where it was found that crypto currencies were used for illicit purposes. The only intent of the statement was to curb such illegitimate activities.
  

Accordingly, we do not see any violation in respect of trading in crypto currencies on Indian exchanges, where there are strict KYC procedures in place.

(This view has also been expressed by the Head of Blockchain and Cryptocurrency committee of India. Link to the full article.)

• As long as trading by Indian citizens is done purely on Indian Cryptocurrency exchanges, there is certainly no violation involved.
  
• However, when it comes to trading on exchanges located outside India, even if it is using digital assets acquired in India, it could be dicey.
  
• Our interpretation of the FEMA (Section 3) says that it could possibly be a violation if these digital assets are transferred to exchanges and/or wallets outside India.
  
• The scope of Section 3 is very wide, and covers assets that are not currencies too.
  

Until there is any explicit clarification relaxing the rules, it is strongly recommended to trade on Indian Cryptocurrency exchanges only.

Income Tax on Cryptocurrency transactions:

In terms of income tax, we suggest applying the existing provisions to select the relevant Head of Income for disclosing gains/losses on cryptocurrency trading - for large volume, high frequency transactions, especially in cases where digital assets are bought/sold on behalf of others, we would recommend disclosing the same as a business income, and all other provisions applicable to a business income may apply. In any other cases, it may be shown as Income from Capital Gains (Long term/Short term depending on standard holding periods).