The government is likely to overshoot the budget deficit target previously set for the current fiscal year, three officials have warned, as a slowing economy creates a big shortfall in tax collections and prompts new stimulus plans.
New Finance Minister Nirmala Sitharaman presents her first budget on July 5, for the fiscal year ending March 2020.
The Finance Act, 2018 introduced Standard Deduction from salary income to the extent of Rs 40,000. However, in lieu of that, the exemption for transport allowance of Rs 19,200 per annum and medical expenses reimbursement of Rs 15,000 per annum were withdrawn. Thus, the incremental deduction was just Rs 5,800 per annum.
This wasn’t justifiable considering the fact that the average tax paid by the salaried class was almost three times more than what a business taxpayer pays.
As the interim budget presented on February 1 announced several popular decisions, this is being seen as a time for consolidation and to present a five-year policy road map that would boost sagging economic growth and address unemployment, two main concerns for the government, said the officials cited above who asked not to be named.
While the coming budget may incentivise job-oriented private investment and focus on skill-development initiatives, the government is likely to persuade banks, particularly public sector ones, to slash interest rates in order to boost consumption, the officials said.
It is likely that the Reserve Bank of India could further lower lending rates to provide more room to commercial banks for cheaper loans, they said. The central bank cut the repo rate to 5.75% on June 6, its third cut this calendar year.