Budget 2019: Key Highlights From Nirmala Sitharaman’s Budget Speech

Here are the key takeaways from the Budget 2019...

Finance Minister Nirmala Sitharaman on Friday presented Union Budget 2019 in the Parliament. This marks her first ever budget presentation and the first by the second edition of the Narendra Modi -led government. It is also the first budget presented by a woman full-time finance minister.

Here are the key takeaways from her budget speech.

1. Incremental Budget That Prioritises Fiscal Discipline Over Stimulus

  • Fiscal deficit at 3.3 percent of the GDP for FY20.
  • The fiscal deficit target is 0.1 percent lower compared to the interim budget’s 3.4 percent of GDP.
  • The government had missed its initial fiscal deficit target of 3.3 percent for FY19 but met the revised target of 3.4 percent.

2. FY20 Tax Revenue Targets Ambitious

The gross tax revenue collection target for FY20 has been revised downwards to Rs 24,61,194 crore versus the Rs 25,52,131 crore estimated in the interim budget presented in February.

That’s still an expected 18 percent increase in revenue versus the 8.4 percent increase witnessed in FY19 as per provisional data released by the government.

Budget 2019: Fiscal Deficit Math Relies On Ambitious Revenue, Dividend Targets

3. India To Borrow In Foreign Currency

  • India’s sovereign external debt to GDP is among the lowest globally at less than 5 percent.
  • The government would start raising a part of its gross borrowing programme in external markets in external currencies.
  • This will also have beneficial impact on demand situation for the government securities in domestic market.
Budget 2019: Why Former RBI Governor Rangarajan Thinks Sovereign Foreign Currency Borrowing Is A Bad Idea

4. PSU Bank Recapitalisation Of Rs 70,000 Crore, NBFC Lifeline

The Indian government will pump in another Rs 70,000 crore into the country’s public sector banks as it attempts to push up the pace of lending to the Indian economy.

The budget also announced a measure to support India’s strained non-banking financial companies by providing a partial guarantee to pooled assets.

  • The government will provide short-term partial credit guarantee to high-rated pooled assets of NBFCs.
  • This guarantee would be provided for a total amount of Rs 1 lakh crore.
  • The guarantee would be provided via PSU banks up to 10 percent of first loss.

5. TDS At 2 Percent On Large Cash Withdrawals, Higher Surcharge On Crorepatis

  • A 2 percent tax will be deducted at source on cash withdrawals in excess of Rs 1 crore from a bank account.
  • The surcharge on personal income tax will jump for those in higher income brackets — to 25 percent on taxable income of Rs 2-5 crore and 37 percent on taxable income of Rs 5 crore and above.
I, therefore, propose to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above so that effective tax rates for these two categories will increase by around 3 percent and 7 percent, respectively.   
Finance Minister Nirmala Sitharaman
Budget 2019: TDS Mandatory For Payments Exceeding Rs 50 Lakh To Contractors, Professionals

6. Petrol, Diesel To Attract More Tax, Higher Customs Duty On Gold.

The finance minister said softening crude oil prices gave her room to review excise duty and cess on petrol and diesel.

The budget will increase special additional excise duty and road and infrastructure cess each by Re 1 a litre on petrol and diesel.

The budget also proposed to increase customs duty on gold and other precious metals from 10 percent to 12.5 percent.

Budget 2019: Petrol, Diesel Costlier After Excise Duty, Cess Hikes

7. Additional Tax Deduction For Home Loans

In what will help boost the housing industry as well as provide relief to homebuyers, the budget has announced an additional deduction of up to Rs 1,50,000 for interest paid on loans borrowed up to March 31, 2020 for purchase of an affordable house valued up to Rs 45 lakh.

This is in addition to the current deduction on interest paid on housing loans to the extent of Rs 2 lakh for a self-occupied property.

Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to 3.5 lakh. This will translate into a benefit of around 7 lakh to the middle class home-buyers over their loan period of 15 years. 
Finance Minister Nirmala Sitharaman
Budget 2019: Get Additional Rs 1.5 Lakh Tax Deduction On Your First Home Worth Rs 45 Lakh

8. Tax On Buybacks, More Companies To Be Taxed At 25%

  • A lower 25 percent corporate tax rate has been extended to all companies with a turnover up to Rs 400 crore per annum.
  • In previous budgets former Finance Minister Arun Jaitley had first introduced this lower corporate tax rate of 25 percent for companies with an annual turnover of up to Rs 50 crore. That threshold was expanded to Rs 250 crore and has now been further raised.
  • Those companies with an annual turnover above this threshold will continue to pay a 30 percent corporate tax rate before surcharge and cess.

Meanwhile, the budget has also imposed a tax on the buyback of shares, ostensibly to bring the practice on par with dividend payments.

“In order to discourage the practice of avoiding dividend distribution tax through buyback of shares by listed companies, it is proposed to provide that listed companies shall also be liable to pay additional tax at 20 percent in case of buyback of share, as is the case currently for unlisted companies.” – Budget Speech

9. Moderate Increase In Disinvestment Target

Strategic divestment will continue to remain priority said the finance minister. She put forth a disinvestment target of Rs 1.05 lakh crore for FY20, higher than the Rs 90,000 crore that was estimated in the interim budget. The FY19 divestment target was Rs 80,000 crore and the government succeeded in meeting it. The finance minister also laid out a revised view on minimum government ownership that may help boost the divestment process.

  • The government is considering, in case where the public sector undertaking is still to be retained in government control, to go below 51 percent to an appropriate level on case-to-case basis.
  • It has also decided to modify the policy of retaining 51 percent government stake to retaining 51 percent including the holdings of the state-run institutions like LIC.

10. Minor Tweaks To Boost FDI

The budget announced tweaks to India’s foreign direct investment policy to attract more flows.

  • To examine suggestions of further opening up of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.
  • 100 percent FDI will be permitted for insurance intermediaries.
  • Local sourcing norms will be eased for FDI in the single-brand retail sector.

The government also proposed to enhance the statutory limit for FPI investment in a company from 24 percent to the sectoral foreign investment limit. Companies will have the option to limit it to a lower threshold.

Interestingly, to enhance investments by non-resident Indians the budget has proposed “to merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route”.

11. Increase Minimum Public Shareholding Threshold

The finance minister said the government will propose to SEBI to increase the minimum public shareholding threshold in listed companies from the current 25 percent to 35 percent.

If this is implemented, it will require several promoters to reduce their ownership stakes by selling shares to public investors, including institutions.

Measures for the debt market include the setting up of a credit guarantee corporation in 2019-20 to help infrastructure financing via the debt markets.

Budget 2019: What A 35% Public Float Would Mean For India Inc.

12. Rural Infra Push With Modest Spends

The budget focused considerable attention on infrastructure building but offered specifics only in critical areas of rural infrastructure.

  • 1.95 crore rural homes in FY20-22.
  • Rs 80,250 crore to upgrade 1.25 lakh kilometres of rural roads over five years

As for urban and national infrastructure, the budget makes big promises regarding development of railways, power reform and water transport but no specifics were available in the speech.

  • Public-private partnership to build railway infrastructure.
  • Structural and tariff reforms in power.
  • Blueprint soon on gas grids, water grids, national highways and regional airports.