It is positive to see the country move to balance its overall finances. The nature of changes suggested include lot of small wide-spread improvements for individuals and a range of corporate tax changes which will have a different impact, sector-wise.

The biggest payroll impact will be the increase in the National Minimum Wage form 1 Jan 2018, and it will be interesting to see if schemes such as the share option scheme and zero Benefit in Kind for electric vehicles will incentivize employers. Overall there is nothing that will have a significant effect on the current challenge of attracting and retaining key talent.

Just as govt presents a budget to showcase usage of finance through the year, every company also goes through a budgeting exercise, so as to meet the organization’s objectives. Most organizations have some sort of process for developing a budget. Two common methods are:

• Incremental budgeting using the current budget, a new budget is developed by making adjustments upwards or downwards to each item based on expectations.
• Zero-based budgeting every item included in the budget must be justified before being included; therefore, the process begins with a clean slate.

Here are some HR/talent related implications of the Finance budget 2018.

Three things that we think went well:

1. Emphasis on skill development initiatives: The enhanced budget of INR 4,000 crores for the Skill India initiative to touch 3.5 crore youth is a testament to a clear focus on ensuring job creation and creating a specialized and skilled workforce.

2. Rewards for honest, low-income taxpayers: Employees with less than INR 5 lakhs per annum income could effectively pay either zero tax or 50% of their existing tax burden. This move will increase disposable incomes for the low-income category.

Given that nearly 70% of the taxpayers in the country have incomes less than INR 5 lakhs per annum, this represents a significant gain for these honest taxpayers.

3. Flexibility with the NPS: Employees investing in the National Pension System (NPS) through their company will now be allowed to withdraw up to 25% of their contribution without having to pay tax. By including this withdrawal flexibility exempt from tax, the government is trying to bring closer NPS to the EPF. Since NPS is a voluntary scheme, introducing features such as this will make it more attractive to the employees and induce them to enroll in the scheme.

While the change in NPS for this budget is not substantial; what is significant is that in the last three to four years, the government has brought in many changes to the scheme’ thereby increasing the subscriber base YOY by 100% plus.

Three things that could have been done differently:

1. Surcharge on income tax for incomes between INR 50 lacs and INR 1 crore: People with an annual taxable income between INR 50 lacs and INR 1 crore will now have to pay a surcharge of 10%.

While many will see it as “they earn enough money and should pay more taxes”, this is a move that will disappoint those who fall in this category, given that increasing the tax base doesn’t seem to be receiving much focus. The surcharge represents a significant increase in the annual tax burden. Additionally, effective pay rises for this category for this year will be muted.

2. Not enough for the IT-ITeS sector: While the focus on digital payments was as per the expectations in the budget, the expectations of the IT sector remain largely unmet. Given the environment in the US and the proposed changes to the H1B regime, the IT sector would have wanted more. The technology sector’s request for support and incentives for R&D have also been ignored.

We expect people related spends on salary, benefits, and other employee initiatives to, therefore, be muted in the near future

3. Not enough done on corporate tax: The corporate tax rate has been cut from 30% to 25% i.e., for small companies but not for the large ones. A big part of the demand for a tax rate cut was to try and level the playing field for Indian and Asian companies to increase competitiveness and it’s the big companies that compete externally. The lack of a rate cut for the larger companies will also mean that they will have less leeway for spends on employee-related programmes.

All in all, Demonetization and the proposed introduction of GST are landmark moves that should have a long-lasting impact on the economy. In this context, a budget that builds on consistency in policymaking, that the government has been displaying, is a step in the right direction.