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5 things in the Budget fine print you should know
Between 11am and 1pm on 1st February, many eyes and ears are glued to the television screen. All gather to hear the Finance Minister present his Union Budget for the upcoming fiscal year. However, what is said in those two hours is not the only news point. The actual Budget documents hold more valuable information than the speech.
We went through the Budget document for you and fetched out some more announcements and explanations:
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Higher customs duties:
The Budget speech mentioned it in passing. However, the fine print reveals a higher customs duty on 45 items as well as a Social Surcharge Levy of 10%. As a result, a lot of luxury goods like mobile phones, TVs, sunglasses, perfumes, silk fabrics, footwear and even edible oils are likely to cost more thanks to a higher duty of up to 15%. The Social Surcharge Levy too is much higher than the 3% education cess it replaces. The only products to be left untouched are gold, petrol, silver and high-speed diesel oil. But your loss could lead to a revenue gain of Rs 8,000 crore for the government.
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Excise duty on fuel price:
While other products face a surge in customs duty, petrol and diesel are basking in a cut in excise duty of about Rs 2 per litre. However, a closer look at the fine print reveals that while excise duty was cut, a new cess called Road and Infrastructure Cess of Rs 8 per litre has been proposed. This replaces the Additional Duty of Excise (Road Cess) on petrol and high-speed diesel oil worth Rs 6 per litre. So net-net, there is not likely to be any impact on petrol or diesel prices.
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Grandfathering of LTCG:
Many investors probably got disheartened at the announcement of a Long-term Capital Gains tax of 10%. However, to soften the blow, the FM also announced grandfathering of the tax as well as an exemption limit of Rs 1 lakh. The former may not be easy to understand. Grandfathering is when you continue older rules for a limited period of time. In this case, grandfathering means that tax will not be applied to any gains you made until 31st January 2018. So let’s say you bought a stock at Rs 1,000 in 2000. On 31st January 2018, the stock hit a peak price of Rs 5,000. You, however, sell the stock in 2020 at a rate of Rs 7,000. Then, the 10% LTCG will be applicable only on the gains you made after 31st January 2018. In this case, this would mean a tax of 10% on Rs 2,000. This could reduce the tax liability for long-term investors in the Equity market.
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EPF contribution for women:
In the Budget speech, the Finance Minister spoke about cutting women’s contribution towards their Employee’s Provident Fund (EPF) to 8% from 10-12% earlier. This may sound negative. However, what the FM means to say is the company’s contribution towards a woman’s EPF would be lower. Traditionally, both the employer and employee contribute 12% of the pay each towards EPF. A lower contribution by the woman employee would mean a higher take-home pay.
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Funding the Fiscal deficit:
Of all the announcements, the market participants closely eye the Budget’s take on fiscal deficit. This year, the FM set a revised fiscal deficit target of 3.5% of the Gross Domestic Product (GDP) for FY18 and 3.3% for the next fiscal year ending March 2019. This may have disappointed many in the market. However, a closer look at the numbers reveals that the government may borrow less than expected. Instead, it could rely on other sources like deposits in State Provident Funds and Securities Against Small Savings as well as a dividend from the Reserve Bank of India (RBI) to fund its deficit.
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Rs 1,000 crore
One of the highlights of the Budget was the announcement of a medical insurance cover of Rs 5 lakh each for about 10 crore families every year. To fund this, the government would need an estimated anywhere between Rs 8000 crore and Rs 1.25 lakh crore, as per media estimates. However, the Budget 2018 document reveals an additional allocation of Rs 1,000 crore for Rashtriya Swasthya Bima Yojna.
