CHUGGING ON
THE TRACKS
OF HISTORY
* Creating history, the Finance Minister presented a merged railway and general Budget after advancing the dates by a month that provides a record outlay of Rs 3,96,135 crore for infrastructure schemes besides a capital expenditure of Rs 1.3 lakh crore on railways and Rs 64,000 crore on highways
* The Railways will focus on four major areas of passenger safety, capital and development work, cleanliness and finance and accounting reforms. A passenger safety fund is being created with a corpus of Rs 1 lakh crore over five years and a plan for modernisation and upgradation of identified corridors
* Railway lines of 3,500 km will be commissioned in next fiscal as against 2,800 km in the previous year. Steps will be taken to dedicated trains for tourism and pilgrimages
* In a bid to boost infrastructure spending, the Minister proposed a total of Rs 1,31,000 crore towards capital and development expenditure of railways which includes Rs 55,000 crore provided by the government.
>> See pg 9
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INCOME TAX RATE IMPACT
Individual Tax Payers
* Up to Rs 2,50,000: Nil
* Rs 2,50,001 to Rs 5,00,000: 5% Rs 7,725 (Savings)
Sr citizens (60 yrs but less than 80 yrs)
* Up to Rs 3,00,000: Nil
* Rs 3,00,001 to Rs 5,00,000: 5% Rs 2,575 (Savings)
* Rs 5,00,001 to Rs 10,00,000: 20% Rs 7,725 (Savings)
Sr citizens (80 years and above)
* Up to Rs 5,00,000: Nil
* Rs 5,00,001 to Rs 10,00,000: 20% Rs 7,725 (Savings)
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* Now, 5% tax for those earning between Rs 2.5 lakh and 5 lakh
* Political parties can accept only Rs 2,000 in cash per donor
* Cash transaction above Rs 3 lakh banned from April 1
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In a pre-poll Budget aimed at softening the demonetisation blow, Finance Minister Arun Jaitley on Wednesday halved the basic income tax rate to 5 per cent and lowered rate for small companies while boosting spending on rural employment, agriculture and infrastructure.
The Budget seeks to provide a record Rs 10 lakh crore in loans to farmers, boost funds for rural employment guarantee programme, bring one crore households out of poverty and promised to build one crore houses by 2019 for the homeless ahead of the crucial elections in five states including Uttar Pradesh and Punjab.
In view of the fact that the proposed GST is expected to be rolled out soon, he left indirect taxes largely untouched except for some changes in duties on tobacco products, solar panels and circuit for mobile phones.
While excise duty on pan masala has been hiked to 9 per cent from 6 per cent currently and that on unmanufactured tobacco to 8.3 per cent from 4.2 per cent, the same on filter and non-filter cigarettes of all length was also hiked.
Mobile phones will be costlier with the Budget proposing a 2 per cent special auxiliary duty on import of populated printed circuit boards (PCBs).
While the income tax rate for income between Rs 2.5 lakh and Rs 5 lakh has been lowered to 5 per cent, a 10 per cent surcharge has been slapped on income between Rs 50 lakh and Rs 1 crore. The 15 per cent surcharge on income above Rs 1 crore will continue.
While the surcharge alone would net Rs 2,700 crore a year, his give away on direct tax proposals will result in a loss of Rs 15,500 crore.
The change in the personal income tax rate for individual assessees would reduce the tax liability of all persons below Rs 5 lakh to either to zero (with rebate) or 50 per cent of their existing liability.
In order not to have duplication of benefit, the existing benefit of rebate available to them is being reduced to Rs 2,500 available only to assessees up to income of Rs 3.5 lakh.
While the taxation liability of people with income up to Rs 5 lakh is being reduced to half, all other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,500 per person.
In the case of senior citizens above 60 years, there will be no tax up to Rs 3 lakh, while the exemption will be up to Rs 5 lakh in case of citizens above 80 years. Both the categories will attract income tax of 20 per cent on income between Rs 5 lakh and Rs 10 lakh and 30 per cent for income above Rs 10 lakh.
Against the backdrop of demonetisation intended to eliminate black money and introduce clean transactions, the Budget barred any transaction in cash above Rs 3 lakh. As a measure of transparency in political funding, he lowered to one-tenth the donation that political parties can accept in cash to Rs 2,000 per donor.
Also bearer Electoral Bonds will be introduced which a donor can buy from a scheduled bank through cheque or e-mode, for making donations.
The Finance Minister expressed confidence that the pace of remonetisation has picked up and would soon reach comfortable levels with effects not expected to spillover into the next fiscal.
Devoting considerable attention to demonetisation and its aftereffects, Jaitley said the surplus liquidity in the banking system created by the note ban decision will lower borrowing cost and increase access to credit.
“This will boost economic activity with multiplier effect,” he said in his nearly two hour long Budget speech.
Quoting from preliminary data, the Minister said during the 50-day window provided to deposit the junked notes, deposits between Rs 2 lakh and Rs 80 lakh were made in about 1.09 crore accounts with an average deposit size of Rs 5.03 lakh.
Deposits of more than 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crores. “This data mining will help us immensely in expanding the tax net as well as increasing the revenues, which was one of the objectives of demonetisation,” he said.
The Finance Minister ruled out abolition of Minimum Alternate Tax (MAT) on companies but allowed larger period of 15 years instead of 10 years for setting of MAT payments.
He lowered the corporate tax on companies with turnover of less than Rs 50 crore to 25 per cent from 30 per cent, a move that will benefit 6.67 lakh firms out of 6.94 lakh companies that file returns.
This would lead to a revenue loss of Rs 7,200 crore per annum to the government.
Budget put the fiscal deficit at 3.2 per cent of GDP in 2017-18, smaller than the current year's 3.5 per cent but wider than the previous target of 3 per cent. It will shrink to 3 per cent in the year through March 2019 instead of 2018.
The Budget accorded low-cost housing infrastructure status, gave tax relief for overseas investors in some bonds and scrapped Foreign Investment Promotion Board (FIPB) to make it easier for doing business in India.
Besides, Rs 10,000 crore will be injected into state- owned banks as capital in the coming fiscal as compared to Rs 25,000 crore budgeted for the current year.
The Budget proposal to reduce tax rate to 5 per cent from 10 per cent for people with income in the slab of Rs 2.5 lakh to Rs 5 lakh will reduce their tax liability to half while all other tax payers above this slab will also be benefited in terms of lesser tax of Rs 12,500 per individual. This would result in a revenue loss of Rs 15,500 crore to the government.
The levy of surcharge of 10 per cent on individuals with income between Rs 50 lakhs to Rs 1 crore would lead to a revenue gain of Rs 2,700 crore.
In order to ensure timely filing of returns and expeditious issue of refund, a fee will be levied for delay in filing of return.
The tax exemption for affordable housing has been proposed, to be applied on area of 30 and 60 square meter of carpet area and not built-up area with 30 sq mt limit, for the four metropolitan city limits and 60 sq mt for the rest of the country.
Also, tax on notional rental income for builders would be calculated only after 1 year from the end of the year in which the completion certificate is received.
Making changes in capital gains taxation for immovable properties, Budget reduced holding period for computation of long term capital gain from three years to two years and shifted the base year for counting the cost of property from April 1, 1981 to April 1, 2001.
Also, the basket of financial instrument in which capital gain can be invested without payment of tax to be expanded.
For joint development agreement, the liability to pay capital gain tax will arise in the year in which a project is completed.
For Andhra Pradesh capital, land belonging to owners as on June 2, 2014 would be exempted from capital gain if it is offered under land-pooling mechanism.
To stimulate growth, concessional withholding rate of 5 per cent for interest received by foreign entities on loans given in India would be continued for another 3 years beyond June 30, 2017.
Start-ups would get two relaxations under the scheme of Income Tax holiday given last year. These include relaxation in the condition of continuous holding of 51 per cent voting rights as long as the original investment of promoter is not diluted.
Also, exemption will be available for three years out of any 7 years from the date of establishment instead of 3 out of 5 years.
The Budget also increased the period of carry forward of MAT/AMT credit from 10 years to 15 years.
Deduction for provision for NPA of banks is to be increased from to 8.5 per cent instead of 7.5 per cent of profit. In case of NPAs of non-scheduled cooperative banks, interest would be recognised as income only when received.
To promote Digital Economy, the Budget provides for taking income as 6 per cent of turnover received by digital or banking means for calculation of presumptive income tax.
Cash expenditure allowable has been reduced to Rs 10,000 from the existing Rs 20,000.
Cash transaction of above Rs 3 lakh will not to be permitted and penalty of equal amount paid would be levied in case of breach.
To bring transparency in electoral funding, cash donation to political parties from one person has been limited to Rs 2,000. Also, Electoral Bond will be introduced for facilitating donation to political parties from explained sources.
Also, political parties will have to file their returns in time limit prescribed in the Income Tax Act.
For Ease of Doing Business, the Budget provided that the domestic transfer pricing would be applied only if one of the two companies enjoys specified profit-linked deduction.
The audit limit for business entities opting for presumptive scheme is to be increased from Rs 1 crore to Rs 2 crore.
Individuals and HUFs will not be required to keep books of accounts if their turnover is up to Rs 25 lakhs or income is up to Rs 2.5 lakhs.
Investment in Category 1 and 2 foreign portfolio investors registered with SEBI is to be exempted from provisions of indirect transfer.
TDS of 5 per cent would not be deducted for individual insurance agents if they certify their income to be below taxable limit. Professionals in presumptive scheme to pay advance tax only in one instalment in March instead of four.
The time limit for revising a tax return has been reduced to 12 months. Also time limit for completion of scrutiny will be brought down to 12 months from Assessment Year 2019-20 onwards.
In a bid to boost the rural and informal sectors hurt by the note ban, the Budget raised the target for agriculture credit during the coming year to a record Rs 10 lakh crore that will ensure flow of credit to under serviced areas.
The Budget provides for Rs 9,000 crore under the Crop Insurance Scheme and has proposed to set up a dedicated micro-irrigation fund under NABARD with an initial corpus of Rs 5,000 crore.
The provisions under rural employment guarantee scheme MGNREGA have been increased from Rs 38,500 crore in the current fiscal to Rs 48,000 crore in 2017-18, while Rs 19,000 crore has been given under the rural roads programme.
The total allocation for rural, agriculture and allied sectors has been pegged at Rs 187,223 crore, which is 24 per cent higher than the previous year.
In the road sector, allocation for highways has been stepped up to Rs 64,900 crore against Rs 57,976 crore in Budget Estimates of 2016-17.
For the transportation sector as a whole, including rail, road and shipping, the Budget provides for Rs 2,41,387 crore in FY18. “This magnitude of investment will spur a huge amount of economic activity across the country and create more job opportunities,” Jaitley said.
Other measures to perk up the financial sector include further integration of commodities and securities derivatives market and full online process of registration of financial market intermediaries like mutual funds, brokers, portfolio managers to improve ease of doing business.
The total expenditure in the Budget has been placed at Rs 21.47 lakh crore.
Defence expenditure, excluding pensions, has been pegged Rs 274,114 crore for FY18 including Rs 86,488 crore for capital.
With the abolition of plan, non-plan expenditure, the focus will be now on capital and revenue expenditure, Jaitley said.
“I have stepped up the allocation of capital expenditure by 25.4 per cent over the previous year. This will have multiplier effect and will lead to higher growth.
“The total resources being transfered to the states and the Union Territories with legislatures is Rs 4.11 lakh crore against Rs 3.60 lakh crore in Budget Estimate of 2016-17,” he said.
Outlining the fiscal deficit roadmap of 3 per cent recommended by the FRBM committee, the Minister has pegged it for 2017-18 at 3.2 per cent of GDP and said he will remain committed to achieving 3 per cent in the following year.
“With this gradual approach, I have ensured adherence to fiscal consolidation, without compromising the requirements of public investment,” he said.
The net market borrowing of the government has been limited at Rs 3.48 lakh crore after buyback, much lower than Rs 4.25 lakh crore in the current fiscal.
“More importantly, the revenue deficit of 2.3 per cent in BE 2016-17 stands reduced to 2.1 per cent in the revised estimates. The revenue deficit for next year is pegged at 1.9 per cent, against 2 per cent mandated by the FRBM Act,” he said.
As measures for stimulating growth, the Budget extended the concessional withholding rate of 5 per cent on interest earned by foreign entities in ECBs or in bonds and government securities by 3 years to June 2020. This benefit is also extended to rupee denominated masala bonds.
Jaitley reduced the peak rate of income tax for small companies with turnover of up to Rs 50 crore to 25 per cent, benefiting as many as 6.67 lakh firms out of 6.94 lakh which file returns. The concession would lead to a revenue loss of Rs 7,200 crore per annum.
“My direct tax proposals for exemption, etc. would result in revenue loss of Rs 22,700 crore but after counting for revenue gain of Rs 2,700 crore for additional resource mobilisation proposal, the net revenue loss in direct tax would come to Rs 20,000 crore. There is no significant loss or gain in my direct tax proposal,” he said.
