In this year’s Union Budget, the finance minister has shown little generosity for home makers, mainly because of the country’s weak fiscal situation. Increase in basic excise duty and service tax is expected to negate the moderate rise in disposable income arising from marginal tax benefits. So, the overall impact of the Budget is expected to be neutral to negative.
The basic excise duty and service tax has been increased 200 basis points to 12 per cent each. However, this should not be surprising, given the sticky and high inflation (which has become a new normal) and lack of sources for raising money. Almost all companies that were reeling from the pressure of higher raw material costs will now be forced to pass on this increased tax burden.
As the economy is slowing, the FM seems to want Indian households to spend less on high-priced items. The Budget has dampened housewives’ dreams of buying jewellery and luxury cars. The government has imposed excise duty on unbranded jewellery, which forms 90 per cent of the jewellery market, to protect small artisans and goldsmiths. Customs duty on standard and non-standard gold has been doubled to four per cent and 10 per cent, respectively. However, branded silver jewellery has been exempted from excise duty. Besides, excise duty on large cars has been raised from 22 per cent to 24 per cent.
But, housewives can be happy with the goodies offered on small items. Though basic excise duty on branded readymade garments has been raised, abatement of 55 per cent from the retail sale price (RSP) has also been enhanced to 70 per cent. According to the FM, the incidence of duty as a percentage of the RSP would come down from 4.5 per cent to 3.6 per cent. Further, more phones can now be bought, as excise duty on mobile phone parts has been cut steeply from 10 per cent to two per cent.
Allowing real estate players to borrow from abroad for low-cost home projects and avail of external commercial loans for affordable housing would also benefit Indian households indirectly. Further, the interest rate subvention on low-cost homes has been extended by one more year. This will incentivise real estate players to build more affordable houses, which will help some savings in EMIs (equal monthly instalments).
While the Union Budget has put an extra burden on household budgets, it has attempted to save some tax and increase disposable income, albeit marginally. There has been a marginal rise in I-T exemption limit — from Rs 1.8 lakh to Rs 2 lakh. For individuals falling into the 20 per cent tax bracket, the upper limit has been raised from Rs 8 lakh to Rs 10 lakh.