Union Budget 2017

Union Budget 2017: Overview

India’s Union Budget is a unique event and it is often a highly polarizing debate with pundits from various schools of thought expressing multiple opinions. For weeks before and after the budget speech, media discussions featuring various experts talk about expectations and effects of the Finance Minister’s speech. Then quite suddenly, the entire media circus ceases until next year. The 2016 budget was no different – there were various expectations that did not come to fruition and there were somewhat unexpected developments. Some of the announcements even led experts to term the Union Budget 2016 as a populist, conservative and designed specifically to appease the masses. Before we take a look at some of our expectations from Union Budget 2017, let’s view what Budget 2016 announcements made headlines.

Expectations from Budget 2017

The Union Budget for 2017-18 will be presented in Parliament in the first quarter of 2017 on 1st Feb. Expectations from different industries and the public have already started coming in. We at Paisabazaar.com present you the top expectations from Budget 2017-18:
 

Modification in Income Tax Slabs and Rates: Budget 2017 Expectations


This is on top of every citizen’s list of expectations. With the demonetisation announcement in November leading to massive inconvenience for the common man, many are expecting the government to increase the tax exemption slab from Rs 2.5 lakhs to Rs 3 lakhs. There may also be a reduction in the tax rates, which currently stands at:
 

  • 10 % for incomes above Rs. 2.5 lakhs
  • 20 % for incomes above Rs 5 lakh
  • 30 % for incomes above Rs 10 lakh

 Also, a higher tax exemption slab and a reduction in tax rates may encourage more people to file taxes. Currently, only around 3% of India’s population file their taxes.
 

Budget 2017-18 Income Tax Slab Rate Expectations
 

Taxable Income

Tax Rate

Less than Rs. 4 lakhs 

Nil

Rs. 4 lakhs to less than Rs. 8 lakhs

10% on taxable income exceeding Rs. 4 lakhs (Max. Rs. 40,000)

Rs. 8 lakhs to less than Rs. 12 lakhs  

Rs. 40,000 + 20 % on taxable income over Rs. 8 lakhs (Max. Rs. 1.2 lakhs)

Rs. 12 lakhs and above

Rs. 1.2 lakhs + 25% on taxable income over Rs. 12 lakhs

 

Lower Tax Rates

The possibility of change in current direct tax norms such as Income Tax has gained further strength following the late December announcement by the Finance Minister that the focus should be on lower tax rates. The argument is that lower tax rates such as those prevalent in many economies actually have the potential to bring in greater revenues as they have a much broader tax base. India’s traditional mindset that higher tax rates lead to greater tax income needs to be changed according to the statement issued by the Finance Minister, Shri Arun Jaitley. By decreasing the tax rate, goods and services produced in India are expected to be more competitive in the global market enabling Indian companies to generate more revenues overseas.


More Incentives for Digital Payments:

The government has already announced incentives for those making payments through digital mediums like debit/credit cards, mobile wallets etc. Service tax on payments for transactions upto Rs. 2000through debit/credit cards have been removed, 0.75% discount has been announced for digital payments at petrol stations. With a vision to move towards a cashless economy, the government may announce further measures to encourage digital payments.


Streamline Existing Tax Saving Vehicles:


Usually, new tax-saving schemes are launched every few years but changes required to the existing schemes are often ignored. This means that most of the older options such as fixed deposits, pension plans, insurance policies, etc. are not in sync with the times.


This has an adverse effect on the elderly population, who invested in these schemes many years ago, largely due to lack of better options, and now do not have the resources to take advantage of the new tax saving options. Though the regulatory and fundamental changes required will take time to be implemented, the union budget of 2017 can be starting point to ensure the elderly get the same returns.


For instance, bank fixed deposits can provide returns of 7.5-8% to people over 65 years of age.


More taxes on capital gains from stock investments:
 

There is widespread speculation that the Government, in Budget 2017-18, may introduce new rules for taxing capital gains from stock investments. Currently, there is no tax implication for gains made from stocks that have been held for a year. This minimum holding period, according to reports, may be raised to 2 or 3 years. There is also no limit on the tax-free gains, which might be capped at a high amount. Currently, there is a 15% tax on stocks sold within a year; this may be increased to 20%.
 

No Tax Payments on Pension Income:


Another populist announcement, which many are demanding from some time now, is the pension income for senior citizens be made completely tax free.


This will not only help the elderly but will also reduce operational work for income tax authorities.


Like every other year not all expectations were met in the Budget speech of 2016 and these unmet expectations form the basis of our expectations from the Union Budget 2017. For starters, many experts were of the opinion that the tax exemption slab for individual tax payers would be raised from the current Rs. 2.5 lakhs level to a new level of Rs. 3 lakhs per annum. That of course did not happen, so this may be something to look forward to this year. 


Another announcement in the Union Budget that led to protests across the country was the introduction of a new tax regime on schemes such as EPF. Currently, EPF is completely tax exempt but the 2016 budget showed an intention to make 60% of the corpus taxable at the time of withdrawal (NPS withdrawals are already similarly taxable). Thankfully this decision about EPF was retracted soon after due to protests across the country. However, there is still a possibility that such an attempt would be made again in the Union Budget 2017 or in another one in the near future.


There is saying “There are only 2 certainties in life – death and taxes” and if historic records are anything to go by, you don’t need a crystal ball to predict that the taxes of alcohol, tobacco, luxury goods and precious metals/gems will increase. The only question is by how much. Then there is the new player in the tax space to contend with as well – GST. The certainty about GST is that it will be introduced during the 2017-2018 fiscal. The uncertainty is whether it will be introduced in its current form which has polarised opinion or in a more watered down and less polarised format with amendments. Only time will tell and in 6 odd months we will have a definitive answer to these and other questions regarding Union Budget 2017. 

Latest Updates on Union Budget 2017

Jan 16, 2017 - Government to add a new “Fat tax” on junk foods

Government is considering raising the taxes on junk food and sugary drinks in the upcoming 2017-18 budget. The move has been taken to curb the growing diseases like heart diseases, obesity and diabetes. The Government is contemplating to add an additional “fat tax” on such junk food and sugary beverages which have high contents of sugar and saturated fats.
 

The decision has been taken by a team of 11 members including secretaries on health, sanitation and urban development in a meeting held by Prime Minister Narendra Modi. They had suggested that the revenue collected from such taxes can be used to increase the Government’s health schemes.
 

Jan 12, 2017 - In the run up to the budget some sources have suggested that Union Budget 2017 would make digital payments cheaper than they were before. This move might be a result of demonetisation as many smaller business owners prefer not to use digital methods due to charges such as MDR that is levied on their earnings. At present, the payment methods which are expected to become cheaper include credit card, debir card as well as Internet banking. By offering discounts on such transactions, the government feels that it will provide incentive those who prefer to use cash as a result of e-payment charges and ATM transaction charges that are applicable when using digital transaction methods such as those mentioned above. This news comes on the back of State Bank of India’s decision to completely waive MDR charges till 31st December 2017 for small merchants accepting debit card payments through its machine.
 

Jan 11, 2017 - Organisations are hopeful that Budget 2017 will feature an announcement from Shri Arun Jaitley does away with the ICDS, which was first introduced in the 2016-2017 fiscal. The introduction of ICDS has led to a situation, where corporate tax payers have to maintain multiple books namely, ICDS for IT purposes and a separate book of accounts as per the Companies Act. Having multiple books tends to create an additional compliance burden, interpretation issues as well as confusion. According to experts, ICDS is not aligned with the fundamental requirements of accounting such as materiality, prudence as well as accounting of foreseeable losses. As a result of these issues, some experts believe that Union Budget 2017 will do away with ICDS.         
 

9 Jan, 2017- As part of the run up to the Union Budget 2017, Finance Minister Shri Arun Jaitley has invited comments and suggestion from Indian Twitter users regarding the Budget 2017-2018’s focus on employment generation. Moreover, the Twitterati can now vote till the 13th of Jan on schemes of their choice through the official handle of the Finance Ministry.  The initial Twitter voting trends which have been made public knowledge in the run of the 1st of February shows that most voters rank MSME highest in terms of 2017 budget employment generation priority followed by affordable housing initiatives. Other sectors of note that have been voted on by the participants include the agriculture sector and the automotive sector.
 

9 Jan, 2017- The 2017 Budget might feature a fiscal deficit target of around 3.5% of the country’s GDP according to some sources. This is because, the extra deficit can provide the government with additional  capital to finance key development projects such as those related to housing, infrastructure and other social schemes launched by the government. As per the existing roadmap, the Budget 2017 would target a fiscal deficit not exceeding 3% of India’s total Gross Domestic Product. The higher than projected 3.5% target may in fact be met driven by higher direct and indirect tax obtained by the government subsequent to the 2016 Budget. As is already apparent from the New Year’s Eve address of Prime Minister Modi, new measures to help the poor as well as renewed focus on education, health and job creation will be the cornerstone of the Union Budget 2017.
 

5 Jan, 2017- As part of the new budget announcement, some exporters are demanding exemption from tax payments under the new GST regime. The main concern in this regard is the fact that these tax refunds take a long time to process and block their working capital. Additionally, the exporters also suggest that this move would provide much needed impetus in view of the current economic slowdown. These issues were raised in the recent meeting with Shri Arun Jaitley and as a first measure, it has been proposed that the GST procedure will be streamlined so that the refunds are provided within 2 weeks. In case it is delayed beyond the 2 week period, interest will be paid on the refundable amount.
 

4 Jan, 2017- Arun Jaitley held a meeting with all the state finance ministers in the run up the 2017 budget. He reiterated that though the going has been tough since implementation of reforms such as demonetisation, the Indian economy is still expected to grow further. He added that India’s macro and micro economic factors were strong, therefore the current slowdown would give way to growth in the future and the Union Budget 2017 will be the guiding force. After the Finance Minister’s pre-budget speech, various suggestions were made by the state Finance Ministers chief among which was relaxing the FRBM limit. By relaxing this limit for States, they would be able to increase their borrowing capacity by 0.5% to 1% over current limits.
 

3 Jan, 2017- It has finally been confirmed from government sources that the Union Budget of 2017-2018 will be presented on the 1st of February and as part of a break from tradition, there will be no separate Railway Budget this year. The first section of the Budget 2017 will now be presented on the 31st of January 2017 and it is expected to feature the Economic Survey. This first phase would form the basis of the announcements of the 2017 Budget, which will be made the following day i.e. 1st February. The amalgamation of the Rail Budget 2017 with the Union Budget 2017 is expected to help the government push through a larger number of populist reforms.


2 Jan, 2017 – The finance minister has already been meeting with leaders in various fields such as agriculture, industry etc. Additionally, the all important GST council meeting is also being held from the 3rd of January onwards. Subsequently, on the 4th of January, Shri Arun Jaitley is expected to meet with state representatives who are expected to lobby for higher tax exemptions and deduction limit as part of dealing the woes of demonetisation. States are also expected to lobby for increased support from the central government to deal with the problems of demonetisation as well as to alleviate the expected loss of revenue subsequent to implementation of GST. Some of the less developed states may also seek special category status as well as additional centrally sponsored schemes to alleviate their lot.


Focus on Agriculture in 2017 Budget

Dec 28th 2016 - As per recent news reports, Budget 2017 will focus on improving the farmer’s lot and a slew of measures to boost agriculture is expected to be announced. To determine the key areas in agriculture that need to be revamped, it has been reported that the Prime Minister has sought suggestions regarding the establishment of premier institutes focused on agriculture based on the present-day IIM and IIT models. There have also been discussions regarding methods that can be adopted by the government so that the income of farmers could be increased two fold by the year 2022. Other notable agriculture-related discussions in the run-up to the 2017 Budget included ways to bring agriculture in the purview of digital payments revolution and also the move towards high-value agricultural products.

Highlights from Union Budget 2016

1. Affordable Houses Gets Cheaper


This is where the magic truly happened and most experts would agree that these were good initial steps towards making affordable housing a reality in India. Let’s start with the benefits for those who take home loans for small houses in the 2016-2017 fiscal. If this is your first home loan and the home loan amount sanctioned does not exceed Rs. 35 lakhs, you get an additional tax rebate of Rs. 50,000 on the loan interest component. Additionally, the budget speech went on to provide an exemption on service tax for construction of houses not exceeding 60 m2, introduced excise duty exemption to Ready Mix concrete and abolished the Dividend Distribution Tax for distribution of SPV income to INVITs and REITs. Apart from these goodies, the icing on the cake was total tax exemption for profits resulting from construction of residential projects that feature flats not exceeding 30 m2 in metro cities and 60 m2 at other locations. All in all, cheaper affordable housing for the masses seems closer to reality after this.

 

2. Celebrations for Tax Payers


The average Indian tax payer is concerned about one thing above all else – how can I pay less tax or get additional tax exemption (without resorting to illegal stuff of course)? As if in answer to this question, the government changed a few provisions (for the better) and it specifically impacts individuals with annual income that does not exceed Rs. 5 lakhs. It all centres on section 87A which determines the tax rebate ceiling and this maximum amount was increased from the previous level of Rs. 2000 to Rs. 5000. Thus, during the assessment year 2017-18, many of us can look forward to a decreased tax burden, provided you earn less than or equal to Rs. 5 lakhs annually.
 

3. Increased Exemption Benefits on Rent Paid


If you are a 20 or 30 something working individual, the probability that you shell out a substantial amount as rent is pretty high and though the proportion of rent payers decreases with age, let’s face it, not everyone can afford their own house as of yet. For such individuals, the tax exemption in lieu of rent paid under Section 80 GG is godsend. Even better, in Budget 2016, the previous maximum exemption limit of Rs. 24000 under section 80GG was revised to Rs. 60,000. I am cheering this announcement wholeheartedly.

 

4. Tax Benefits for Startups and Small Businesses


Call it the Gujarat Model or Modinomics, small businesses and start ups did get something to cheer about in the Union Budget 2016. Small businesses with turnover less than Rs.5 crores (as of fiscal March 2015), would pay reduced tax at 29% excluding applicable surcharges and cess during the 2016-17 fiscal.


New ventures/start ups that initiate operations between April 2016 and March 2019 got a sweet deal with complete (100%) tax exemption for 3 years on any profits during the first 5 years of their operations. But there’s a catch – such enterprises would still be subject to Minimum Alternate Tax or MAT as it is commonly called. In case you weren’t aware already, MAT can be up to 20% of total profits, so a bit of a mixed bag there for startups.      


As if there weren’t Enough Taxes


When you have seen a few Union Budgets you probably understand that this event can never be all sugar and spice and everything nice. This holds true this time around as well and it came in the form of additional taxes. The one that truly bugged me was the Krishi Kalyan Cess of 0.5% that was added to all services that are taxed – ranging from your cell phone bill to your club membership. Another one that is something of a pinch for car owners is called the Infrastructure Cess. Call it whatever you will, it’s a fine that car owners will now have to pay for owning a car. Depending upon how big a car you purchase and what fuel you burn it will range between 1% and 4%. HNIs too were not spared – now they have to deal with 10% additional tax burden if total dividends earned by an individual exceed Rs. 10 lakhs during the year.


5. Budget 2016-17 Income Tax Slab
 

Taxable Income

Tax Rate

Less than Rs. 2.5 lakhs

Nil

Rs. 2.5 lakhs to less than Rs. 5 lakhs

10% on taxable income above Rs. 2.5 lakhs (Max. Rs. 25,000)

Rs. 5 lakhs to less than Rs. 10 lakhs

Rs. 25,000 + 20% on taxable income over Rs. 5 lakhs (Max. Rs. 1.25 lakhs)

Rs. 10 lakhs and above

Rs. 1.25 lakhs + 30% on taxable income over Rs. 10 lakhs 

 

Disclaimer: These are opinions of the writer and are not be considered investment advice or be used as basis for investment decisions.