Why Interim Budget?
There is no word like “interim budget” and a “full budget” in Constitution of India. Rather, there is no such word as ‘Budget’ in the Constitution of India. It has used the word “Annual Financial Statement” in Article 112. Under Article 112(1), in respect of every financial year the President shall cause to be laid before both the Houses of Parliament, a statement of the estimated receipts and expenditure of the Government of India. The annual financial statement as referred in article 112 is commonly referred to as “Budget”. Procedure and Conduct of Business in Lok Sabha in Rule 213 provides that a budget can be presented in two or even in more parts. For each such presentation, it need to be dealt with in accordance with the rules as if it’s a full budget.
In short, interim budget is treated as full budget while conducitng the business in Loksabha.
Budget is an approval by the Government for its spending. Its compulsory for any Government to get the approval for its spending. Without the approval, Government cannot withdraw the money from the consolidated funds of India.
Budget is an annual exercise whereby the Parliament grants approval for the expenditure of the Government. When the election is there somewhere in the first half of any year then it’s bound to have two Government i.e., incoming Government & Outgoing Government. There may be an occasion when the Incoming Government may not be same as outgoing Government.
Budget is a prerogative of the Government presently in power. If the tenure of the any Government is completing after March (i.e., the time till which approval is already granted by the parliament in the previous budget) then it is their duty to get the approval of the parliament for its spending from 1stApril onwards till the next Government takes over the charge. Further, new Government cannot be burdened by the budgetary allocation of previous Government.
Next Government (which may be the same one or new one) then can decide its priorities and can present a final budget as per their agenda. With interim budget, Parliament passes a vote-on-account which gives power to the Government to meet the expenses from 1st April of next fiscal.
The general convention is present the interim budget on the basis of estimates and revised estimates of the current years. The normal practice is to give enough scope and rooms to decide its future course of spending and at the same time to grant the power to the Ministry to continue its expense and administration till the present Government is empowered to be in power i.e., till next election.
A common question arises, whether any major changes and amendment in the tax policies can be carried out in interim budget? Whether the new Government have power to further amend or modify it? Whether it has been done so in the past?
Majority view according while reading Constitution of India is that there is no such limitations on the powers of the Government. Such limitations come into force only after the election dates are announced and the model code of conduct comes into force.
PRECEDENT AS TO INTERIM BUDGET
So far, 12 interim budgets have been presented by the outgoing governments and all have done some minor amendment and changes & at the same time have refrained from making any major amendment or announcements.
- During UPA regime when Pranab da has presented the interim budget in 2008-09, there was huge fiscal deficit which was revised to 6% from 2.50% by offering tax cuts aggregating to Rs 40,000 cr.
- P. Chidambaram in his interim Budget on February 17, 2014 has proposed some changes in indirect tax to stimulate growth in capital goods and consumer non-durables with a lowering of excise duty on many goods with the rider that the rates could be reviewed again at the time of the regular Budget. Also, there were reduction in the excise duty up to June 30, 2014 for small cars, motorcycles, scooters and SUVs besides large and mid-segment cars, and tax relief for mobile handsets.
- When Yeshwant Sinha was the FM while presenting interim Budget, he has announced the first policy on disinvestment whereby 20% of equity dilution of selected state-owned company was proposed in favour of mutual funds to raise Rs 2,500 Cr.
- During the final year of Vajpayee led NDA Governmetn, Jaswant Singh had announced merging of dearness allowance with basic pay, revival packages for the tea and sugar industries and also changes in the stamp duty structure. Also, the peak rate of customs duty on non-farm goods was also reduced to 20% from 25%.
On the tax front, there are some expectations of the taxpayers. Let us have a look at it:
- Whether relief in GST is possible?:
With the presence of all powerful GST council, the chances of making any major changes in the structure or rates through interim budget may not be there.
- Increase in the Basic Exemption Limit:
One of the biggest expectations on card is the increase in the threshold of basic exemption limit. The rumour suggests that it will be enhanced from Rs. 2.50 Lakh to Rs. 5 Lakh. However, this is too challenging considering the fact that major chunk of the population is still not in the tax net. Increase in the basic exemption limit carry the risk of drastically reducing the number of individual taxpayer in the Country. Direct increase in the basic exemption limit will benefit all classes of Individual Taxpayers, even to High Net worth Individuals (HNI). Alternate option at the disposal of FM could be to increase the deduction limit available u/s 87A which presently offers deduction up to Rs. 2,500/- if income does not exceed Rs. 5 Lakh. It can be increased to say Rs. 12,500/- if income doesn’t exceed Rs. 5 Lakh thereby making tax liability as zero if income doesn’t exceed Rs. 5 Lakh.
- Benefit to Salaried Taxpayers:
Last year, salaried taxpayers were offered the benefit of standard deduction of Rs. 40,000/- which was coupled with the withdrawal of deduction of Rs. 15,000/- towards medical reimbursement & Rs. 19,200/- towards conveyance allowance. The net benefit was of Rs. 5,800/- only which was almost insignificant in monetary terms considering the fact that salaried class of taxpayers are considered as the most honest class of taxpayers. It is expected that the benefit of Rs. 15,000/- & Rs, 19,200/- may be restored.
- Lower tax rate:
Individual have a higher tax rate of 30% as against corporate tax rate of 25% for companies with a turnover not exceeding Rs 250 Cr. There are the chances that the highest personal income tax rate for individual taxpayer may be reduced from existing 30% to 25%. Further various associations are strongly demanding to stretch the benefit of 25% corporate tax rate to the large companies with turnover exceeding Rs. 250 Cr. However, it is unlikely that such benefit would be extended to such large companies.
- Increase in the limit of deduction u/s 80C:
The limit of Rs. 1.50 Lakh deduction u/s 80C has remained undisturbed since long. Every year, there is strong demand for its enhancement to Rs. 2 Lakh or even more. There is a strong expectation that the limit may be enhanced this year. If the government announces such a move, it will be beneficial for millions of people in the country.
- Some minor benefit on the health care sector, housing sector, education sector is also expected by the taxpayers.
With just few hours away, the final countdown has begun. Being election year, expectations of new announcements are high. Let us wait and watch.