Budget 2017: Lower tax rates, definitive GST plan and other expectations post demonetisation

Considering this rough run-up, there are high expectations of the government announcing various “feel-good” factors in the Budget 2017.

 The Union Budget 2017 is unique and historic in many ways starting with advancement in the date of presentation of the Budget to February 1 consolidation of the Railway Budget to the backdrop of demonetisation effects and proposed GST implementation.

In the run up to this budget, the Indian economy that just seemed to have stabilised on a growth trajectory registering GDP growth of around 7.6 per cent was subjected to a sudden slow down with the bewildering demonetisation announcement. The decision though commendable from the combating black money perspective, has caused significant liquidity issues and is expected to have lasting impact on a number of sectors including Real Estate, automobiles, FMCG.

While the government has been projecting its strong commitment to restore the economy on its growth track, its political rivals are vehemently highlighting the long-lasting ill effects of demonetisation. The political turmoil has also led to slow down in the implementation of GST, the largest reform in the indirect tax space.

Considering this rough run up, there are high expectations of the government announcing various “feel-good” factors in the Budget 2017. Following are some of the key expectations from Budget 2017:

Revamped structure and lower tax rates

The general public at large is hoping for a change in the Income Tax slabs. As a result of the anticipated decline in customer spending, this year’s budget is expected to increase the current taxable income tax slabs. Some media outlets have reported that the Government is planning to revise the current minimum annual taxable income slab of 2.5 lakh to Rs. 4 lakhs per annum

Further, there is an anticipation to lower the tax rates, based on indications from the Finance Minister, Shri Arun Jaitley that 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.

The Corporates also are expecting a reduction in the headline tax rate in line with the Budget 2015’s commitment of the government to reach a headline rate of 25 per cent in 4 years.

Definitive GST implementation plan

GST has been a major talking point and a bone of contention between the central and state governments over the last few months. With the air on sharing of control between the Centre and States being cleared, the government is expected to get the bill legislated and outline some definitive steps for implementation in June – September 2017.

Incentives for to discourage cash transactions and promote cashless transactions

The government has already announced incentives for those making payments through digital mediums like debit/credit cards, mobile wallets etc. and with a vision to move towards a cashless economy, the government may announce further measures to encourage digital payments. On the other hand, the government is also expected to announce measures to discourage cash transactions based on the recommendations of the committee of Chief Ministers such as abolish cash transactions above Rs 50,000, tax cash transactions above a certain threshold, apply a maximum limit for withdrawal of cash etc.

Affordable Housing Measures

Last year’s budget included some key announcements that promoted low cost housing and offered cheaper home loans to individuals for such housing. While the government has announced 4 per cent interest rate subvention for home loans up to Rs 9 lakh and 3 per cent interest relief for loans up to Rs 12 lakh, there might be further relaxations in the tax holiday provisions for developers involved in the construction of such affordable housing.

Exempt long term capital gains on immovable property and tax listed securities:

There is speculation that the Government may on one hand exempt long term capital gains tax on immovable property given the limited contribution of such income to the tax kitty as per past reports, while on the other hand the government may introduce new rules for taxing capital gains from listed securities. Currently, there is no tax implication for gains made from listed securities that have been held for a year. This minimum holding period 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 per cent tax on listed securities sold within a year; this may be increased to 20 per cent.

No Tax on Sr Citizen Pension Income

Another populist announcement, which many are demanding 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.

(Manoj N Kumar is Partner, Direct Tax, BMR and Associates LLP. Views expressed by him are personal.)

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