Finance Minister Arun Jaitley is set to present his fourth Budget on Wednesday, amid growing expectations that he will unveil measures to raise people’s spending power, boost farm income, revive investment activity and expand welfare schemes to soothe the demonetisation pain, ahead of state Assembly polls.
The pre-Budget Economic Survey, tabled in Parliament on Tuesday, said that India will at grow at 6.75-7.5 percent in 2017-18, hinting that the turnaround in the broader economy, still reeling under the effects of cash crunch, will take longer than expected.
He may have some good news for the salaried and the middle class.
The government is learnt to be examining an overhaul of India’s income tax regime. On the cards: a restructuring of tax slabs and increasing the income tax exemption limit from the existing Rs 250,000 to more than Rs 400,000 —a move that would leave more money in the hands of people.
He may also bring back the concept of “Standard Deduction,” a base amount that is not subject to tax in addition to the basic exemption limit, providing relief to every tax payer. The Easwar-panel on income tax simplification, in a recent report, had recommended the re-introduction of standard deduction, 12 years after it was removed in 2005-06.
The move is part of the broader strategy to reward honest taxpayers who have endured the pain of demonetisation.
Jaitley is also widely expected to raise tax breaks offered under the popular “Section 80 (C)” limit by Rs 50,000 to Rs 2 lakh a year—a move aimed at weaning people away from stocking up cash and parking surplus funds in banks and mutual funds.
That said, the Finance Minister may hike the service tax from 15 percent to close the gap with 18 GST rate. This will make most services — from eating out to telephone bills costlier. A higher service tax now will, however, prevent a greater price shock after GST kicks in from July 1, 2017.
It will also help the Centre partially offset the revenue loss from forgoing exclusive rights over service tax that accounts for 14 percent of total central revenues currently.
While the government is unlikely to introduce long-term capital gains tax, the “long-term” rule may change to 3 years. Definition of long-term could be widened to align the investment lock-in threshold with many matured economy markets.
Also, the corporate income tax rate could be cut by 1.25-1.5 percentage points from 30 percent currently, with Jaitley likely to announce the overhaul of India’s corporate tax structure by slashing the statutory rate and removing layers of exemptions, incentives and deductions that had made the system complex and prone to misuse.
The Finance Minister, however, may reintroduce a proposal to tax cash withdrawals from banks above a threshold, on the lines of banking cash transaction tax (BCTT) that was implemented during 2005-2009.
Apart from keeping a trail on people’s attempt to hoard cash through repeated high-value cash withdrawals, a BCTT-type of a levy will also make it less rewarding for people to transact in cash.
Jaitley may also introduce a super-rich tax slab of 35 percent on all individuals with a taxable income of Rs 1 crore per annum.
On the savings front, Jaitley might agree to the long-standing demand of making National Pension System (NPS) also an exempt-exempt-exempt (EEE) scheme, bringing about a level-playing field with employees’ provident fund (EPF) and public provident fund (PPF).
He will likely give a big push in Budget 2017 to “Mission Antyodaya”—an ambitious programme aimed at lifting 10 million families out of poverty through a raft of schemes including the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), pitching the programme as NDA’s response
to UPA’s Bharat Nirman initiative.
Jaitley is widely expected to widen income tax holiday for startups to five years from three years.
Easier exit norms for founders, simpler rules for government supplies among measures being examined; industry ministry pushing for service tax exemption for start-ups and more funds for Atal Innovation Mission are also expected.
As part of the government’s efforts to usher India into a “less-cash” economy, a Jaitley may announce a special fund to aid spread of digital payment infrastructure.
Jaitley may also propose a package of tax incentives for the labour-intensive leather, gems and jewellery sectors as part of the government’s signature “Make in India” initiative to boost manufacturing, create jobs and sustain the revival in exports.
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