Personal income tax reduction tops budget wish list

Mumbai: The budget wish list this year is far more significant considering the state of the economy and the key stakeholders—the common man, farmers, market participants and corporates—high hopes.

Any disappointment on market expectations is likely to trigger profit taking in the equity market, which has been trading at higher levels.

After the corporate tax cut, expectations of a reduction in personal income tax to ease the tax burden on the salaried class are very high this year, as this would create liquidity for industries that are cash-starved, like real estate and investment in infrastructure projects. It will also help in boosting consumption.

Raising the investment limit in the insurance sector from 49 per cent to 74 per cent also figures in wish lists, as this has the potential to bring in billions of dollars as investment, which can help in an economic turn around.

There is consensus among analysts about likely fiscal slippage and widening of fiscal deficit.

The budget target of fiscal deficit of 3.4 per cent of GDP is likely to widen, mainly on likely lower personal income taxes, reduction in corporate taxes along with shortfall in duties and poor performance on the disinvestment front.

“Many foreign portfolio investors felt the credibility of fiscal deficit numbers is key. Considering the significant revenue shortfall on sub-par growth, many investors felt they would welcome fiscal slippage in FY20 as long there is a commitment to return to a consolidation path in FY21 on realistic revenue and expenditure assumptions. Many equity investors seem to be hoping that government will dilute long-term capital gains tax (LTCG) on profits from the sale of equities. For debt investors, narrative around index inclusion/ FPI limits appeared to be key,” said a report by UBS Securities India based on interaction with foreign investors based in Hong Kong and Singapore.

“The government would most likely cut income tax rates and introduce new tax slabs to boost consumption in the market,” said Deven Choksey, managing director, K. R. Choksey Shares & Securities.

“Long term capital gains tax, dividend distribution tax (DDT), cut in personal income tax will be the key announcements investors are looking forward to in the budget,” said Rahul Mishra, assistant vice-president (derivatives), Emkay Global Financial Services.

The markets are likely to be volatile in the next few sessions due to the Budget announcement on Saturday, said Deepak Jasani, head of retail research, HDFC Securities.