Union Budget 2017-18 will be one of the most highly anticipated and keenly awaited budgets in recent times. It will be a historic one as for the first time that the Railway Budget is being merged with the General Union Budget. The Union Budget will be presented on February 1, 2017, a month earlier than usual. This year’s budget may include certain popular announcements, largely to appease the inconvenience caused by demonetisation, along with measures to revive domestic consumption and investment, which have taken a hit since November.
Some announcements expected in Budget 2017-18 are:
Increasing basic tax-exemption limits: This has been one of the most popular public demands, especially from the urban salaried class – To raise the basic tax exemption limit of Rs 2.5 lakhs. With consumer spends dipping since due to demonetisation, an increase in the basic tax exemption slab is likely to provide a boost to our slowing economy.
Another popular demand has been to decrease tax rates. Many believe lower tax rates, effective in many economies, actually have the potential to bring in greater revenues as they have a much broader tax base.
Currently, the tax rates are -
- 10 % for incomes above Rs. 2.5 lakhs
- 20 % for incomes above Rs 5 lakh
- 30 % for incomes above Rs 10 lakh
Further incentivizing digital payments: In order to move towards a less-cash economy, the government has already announced several incentives to boost payments through digital mediums. Service tax on payments for transactions up to Rs 2000 through debit/credit cards have been removed, 0.75% discount has been announced for digital payments at petrol stations. Many expect more incentives to be announced in Budget 2017-18 to boost digital payments, including extension of benefits to mobile-wallet users as well.
The government has been planning to move away from being a heavily cash-driven economy to tackle black money and corruption and do away with the various inherent inefficiencies and additional costs, cash transactions come with.
Incentivise financial services to go paperless: Paper-heavy transactions are not only time-consuming and inconvenient for both the customers and the financial institutions, but also more costly. With the government’s ‘Digital India’ campaign in full swing, one of the key needs today is for increased digitization of processes by financial institutions to provide customers with easier and more convenient processes. The government, in Budget 2017, should encourage financial services to build paperless processes for all products, be it loans, credit cards, insurance, mutual funds, etc. Steps like waiver of service taxes, stamp duties or other government levies for paperless processes will incentivise both financial institutions and consumers to opt for digital processes.
Increase retail investor participation in mutual funds: Currently, tax deduction of up to Rs 1.5 lakh is available on ELSS investments under Section 80C. However, ELSS shares this slot with amount paid towards housing loan principal and various other investments like PPF, life insurance premiums, pension plans and Employee Provident Fund. Increasing the upper limit of Section 80C or introducing a separate subsection (just like the Section 80CCD(1B) available for NPS investments) will encourage more long term investments into equity mutual funds. This will increase retail investor participation in capital markets and thereby, raise our AUM/GDP ratio from around 7%, one of the lowest in the world.
Encourage long-term retirement savings: The government can incentivize investment in pension products like NPS, which have not been widely popular because of the taxes involved. Currently, the scheme partially falls under Exempt Exempt Tax (EET) as only 40% of its maturity amount is tax free. This puts NPS at a sharp disadvantage over PPF and EPF, whose maturity proceeds are tax-free. The government, in Union Budget 2017-18, may have a re-look at NPS.
Changing taxes on capital gains from stock investments:The Government has hinted at introducing new rules for taxing capital gains from stock investments. Under the present laws, gains made from stocks held for a year do not involve any tax implications. The no-tax slab now may be raised to include only stocks held for a minimum of two or three years instead of the current one year. Currently, there is a 15% tax on gains made from stocks held for less than a year; this may be increased to 20%. Also,there is currently no limit on the tax-free gains, which might be capped at a high amount.
Continue with the Section 80EE deduction: The government maylook to continue to encourage ‘Housing for all’.Last year, the government provided an additional deduction of Rs 50000 to first time home buyers. It had an upper limit of Rs 50 lakh on the value of the property and Rs 35 lakh on the loan amount. The reason was to incentivise low-cost home buyers and affordable housing projects. This may be extended to the next financial year as well.