Budget 2018: As jobs remain big headache, govt looks at tax tweaks for fix

One way the government could give job creation a boost is by tweaking taxation laws to provide companies an incentive for hiring

Job creation is one of Modi government's biggest challenges, with the Opposition using what it calls the government's poor performance in this regard as a stick to beat the prime minister's economic policies with. With Budget 2018 less than a month away, and with employment generation reportedly being a key theme this year, one way the government could give job creation a boost is by tweaking taxation laws to provide companies an incentive for hiring.

India already provides tax benefits to incentive's job creation by companies. However, according to a Times of India report, certain lacunae in the rules have kept many companies, particularly from the services sector, from reaping the benefits of such incentives. In view of this, according to the national daily, the government could tweak Section 80JJAA -- which sets out conditions under which a company can avail of deductions in respect of employment of new employees -- of the Income Tax (I-T) Act or introduce some new provision.

ALSO READ: How policymakers can transform rural India as a new driver for job creation

Under the Section, 30 per cent of the additional employee cost is available to the concerned company as a deduction for three years, including the year of hiring the new employee(s). Only companies having a turnover of Rs 10 million or more are eligible to claim benefits for any new employment created by them. The devil, however, is in the details. Among the Section's various conditions under which a new worker is not considered an additional employee, two in particular seem to have negatively impacted job creation, according to the national daily. Firstly, if a person is employed for less than 240 days in the first year of his employment with the concerned company, then he or she is not considered an additional or new employee. Only the textile sector enjoys a lower threshold of 150 days in this regard. Secondly, an employee whose total emoluments are more than Rs 25,000 per month is also not considered an additional employee -- the salary of such an employee is excluded when computing additional employee cost, against which the benefit is available.

What are the possible remedies?

Experts have pointed out the difficulties such conditions pose. Speaking to the national daily, EY India partner & national tax leader Sudhir Kapadia explains that employees hired from August onwards are subject of "significant uncertainty" for the company as they cannot complete the stipulated 240 days in the first year of their employment.

Budget 2018 will be Modi govt's biggest challenge in 4 years. Here's why

The BJP government is more popular in urban areas than it is in the countryside

Budget 2018 : Unlike most countries, the budget is usually an eventful affair in India and is a heated topic of national conversation around the time of its release. The underlying national interest behind it is mostly because the budget holds something for everyone -- ranging from a small farmer to a big industrialist. However, from this year onwards, much of its sheen will be off by a bit.

The tinkering of indirect taxes, which was an aspect of the budget that affected everyone in all corners of the country, is not within the Centre's domain anymore. Since the implementation of the Goods and Services Tax (GST), all indirect taxes -- except for customs duty -- have to be decided upon by the GST Council instead of being annually altered based on short-term political interests. Therefore, the first budget after the GST reform will be a challenging one for the government.

The fact that this will be the last full budget before the 2019 elections and that the government has already spent all of its budgeted expenditure for this financial year will further complicate matters. The oncoming elections affect the budget in multiple ways.

First, if the Gujarat election results are to be taken as indicative of the national sentiment, the BJP government is more popular in urban areas than it is in the countryside. The recently released CSO growth estimates show why. The farm and allied sector grew at 2.1 per cent in the current financial year as compared to 4.9 per cent in the preceding year. So, the ailing agricultural sector will receive much-needed redressal in the upcoming budget. In fact, the Finance Minister has already confirmed this. Reviving growth in the sector can also be a viable mechanism for job creation -- another economic aspect that the government will be looking to address the budget.

Second, with the elections around the corner, firming up economic growth will be foremost on the government's agenda. Investments have declined from 34.3 per cent of the GDP in 2011-12 to 27 per cent in 2016-17. They still do not seem to have picked up. First advanced estimates show that this has further fallen to 26.4 per cent in 2017-18. Estimates of the Centre for Monitoring Indian Economy (CMIE) show that new investment proposals are likely to amount to around Rs 8 trillion ($126 billion) in 2017-18, which would be merely 60 per cent of the new proposals made in 2016-17. This would also be the lowest since 2004-05. (more)

Budget 2018: What Pranab, Chidambaram & Jaitley did & didn't do in the past

Here are the key highlights of the Union Budgets from 1997 to 2017

Union Finance Minister Arun Jaitley is all set to present Budget 2018 on February 1. While Budget expectations and Budget wishlist have started coming from all quarters and sectors, what the finance minister will announce in his Budget speech is known only to a select few members of the Budget-making team of the finance ministry.

There is a view that Jaitley would deliver a populist Budget this time, given that it is the last full Budget of the Narendra Modi-led central government in its present term. However, this has been a fiscally difficult year for the government, and prudent economics would not allow him to give freebies.

There have been reports that Jaitley might even consider increasing the personal income tax exemption limit to benefit the middle class salaried people, who have been impacted lately by rising retail inflaion.

Business Standard takes a look at the past Budgets and the key highlights that took the centre stage and became a talking point.

Budget 1997-98

The Finance Minister P Chidambaram, announced lower Income Tax rates of 10, 20 and 30 per cent as against the then 15, 30 and 40 per cent. The rate was 10 per cent in the first slab of Rs 40,000 to Rs 60,000, 20 per cent in the slab of Rs 60,000 to Rs 150,000 and 30 per cent for all incomes above Rs 150,000. Presenting the Second Budget of the United Front Government in the Lok Sabha today, the Finance Minister announced his intention to widen the tax net by amending the Income Tax Act. Under the new proposal residents of large metropolitan cities who satisfy certain economic criteria should voluntarily file the tax return as they would normally fall within the taxable slabs. P Chidambaram also introduced a new tax scheme for retailers having a total turnover of less than Rs 40 lakhs. The income will be estimated at 5 per cent of the total turnover. A Voluntary Disclosure Scheme to harness 'black money' for productive purposes was also announced. (more)