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Budget 2017: Scheme offering 8% assured interest to senior citizen a must

Demonetisation is behind and Digital is ahead; Budget is an event to reward the honest tax payer.

Kamal Poddar
Choice Group

Government’s decision to demonetize high denomination currency notes pushed us one more step closer to the dual objective of creation of cashless economy and curbing black money. It made many upbeat about our nation’s future. As Union Budget follows this gigantic exercise, the average honest tax payer expects things to change for better. The expectations are high; not only in terms of increase in disposable income but also in terms of better opportunities to participate in the larger mission of nation building.

Lower taxes is the first thing that comes to one's mind. And it is not just a demand without any logical explaination. The rationalization of taxes needs to be seen in the back drop of rhetoric by US President Donald Trump to cut tax rates back in US that could lead to shift in global investment climate. In US, the prevailing highest tax rate is 39.6% and Trump plans to consolidate the prevailing seven tax brackets into three – 12%, 25% and 33%. Hence, it goes without saying that the developing countries and emerging markets will have to fine tune their tax levies to ensure that the investing environment does not take a back seat.

Coming back to the budget in India and going by the finance minister’s discourse of less cash economy, it would not be far-fetched to expect provisions that would discourage cash withdrawals and payments. Needless to say, the budget may revise current limit of cash expenses and insert new provisions for income, expenditure and donations, etc undertaken in cash.

On the other hand, Finance Minister is likely to revise the basic exemption limit for individual tax payers (below the age of 60) to Rs 4 lakh from the prevailing Rs 2.5 lakh and revise subsequent slabs further. Deduction under section 80C may be extended to Rs 2 lakh from the existing Rs 1.5 lakh in a bid to boost savings.

As promised, the finance minister may also start cutting down corporate tax rate from 30% by 1%-2%, to reach at 25% in next few years. But the key thing to watch in the budget would be the rationalization of the Minimum Alternative Tax. With the phasing out of incentives and rationalization of corporate tax rates, the lumbering impact of MAT should also be steadily slashed from the prevailing level of 18.5% to a rate corresponding to the reduction of tax rates and phasing out of tax exemptions and incentives. The MAT credit is recommended to be allowed as carried forward and set-off without any time frame.

From an investment and stock market perspective, there is widespread speculation that the budget may introduce new rules for taxing long term capital gains from stock investments. Currently, there is no tax implication for gains made from stocks that have been held for a year, but this minimum holding period, may be raised to two or three 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 which may be raised to 20%.

Overall, post demonetisation and cascading interest rates on deposits signaling a low-interest regime, that has an impact on retired and senior citizens, the budget may shield them by enacting a provision to provide them with assured rate of 7.5-8% per annum for those over 65 years age.

The Indian Tax Laws are shifting to a more advanced tax system, putting more burden on taxpayers for various compliance including getting credit for tax paid in the form TDS etc.

Having said that, the provisions of GAAR may be deferred for a couple of years, as there are ample anti-avoidance provisions, already exists in the Act.

Among the indirect proposals that could emerge from the budget would include raising service tax to 16-18% at par with GST from the prevailing 15% as also raising basic exemption limit for levying service tax to Rs 20 lakh from the current level of Rs 10 lakh per annum.

Value-added tax/CST for manufacturing too would be raised to 15-18% from current 13.5% in sync with GST provisions.

Other sops expected would include reduction of service tax rate on real estate to enable affordable house as also fresh exemptions for new start-ups to promote make in India along with increase in exemption of service tax application on online transactions or cashless transactions.
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First Published on Jan 18, 2017 08:14 pm
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