The Union Budget 2017-18 which was brought forward by four weeks, was the most hoped-for event.

After demonetisation left many high and dry, expectations of a respite stemmed, as citizens looked forward to acche din.

Finance Minister, Mr Arun Jaitley highlighted how governance made a transformative move in the last two-and-half years, since Modi-led-NDA Government was elected to power. He said, “We have moved…

• from a discretionary administration to a policy and system based administration; 
• from favouritism  to transparency and objectivity in decision making; 
• from blanket and loose entitlements to targeted delivery; and 
• from informal economy to formal economy.”

 

Even the success in controlling inflation, endeavour to clock better economic growth (amid global uncertainties), waging a war against black money, commitment to fiscal consolidation, tectonic reforms (Goods & Service Tax Constitution Amendment Bill, Insolvency and Bankruptcy Code, amendment to  RBI Act for inflation targeting, enactment of the Aadhar Bill for disbursement of financial subsidies and other benefits); were tactfully highlighted. A pro-poor tone too, was adopted ahead of state elections.

But has the Union Budget 2017-18, lived-up to the expectations of the aam aadmi (or the common man) and brought a smile? Did Mr Jaitely manage to become the darling of the middle-class?

Let’s find out vide some of the budget proposals…

 

• Revision in income tax rate: The existing rate of income tax for individual assesses drawing an income between Rs 2.5 lakh to Rs 5.0 lakh has been reduced to 5% from the present rate of 10%. This tax reduction will bring about a savings of Rs 12,500.





 

• Reduction in tax rebate under Section 87A of the Income-tax Act, 1961: The existing provisions of Section 87A provide for a rebate up to Rs 5,000 from the income-tax payable to a resident individual if the total income does not exceed Rs 5.0 lakh. It is now proposed to amend Section 87A so as to reduce the maximum amount of rebate available under this Section from existing Rs 5,000 to Rs 2,500.  This rebate shall be available to only resident individuals whose total income does not exceed Rs 3.5 lakh.





 

• One page Income-Tax Return form: For individuals earning an income up to Rs 5 lakh (other than business income) a one page Income Tax Return form has been proposed. This would make tax filing for individuals easy.





 

• Fee for delayed filing of return: A fee of Rs 5,000 shall be payable, if the return is furnished after the due date but on or before the 31st day of December of the Assessment Year. A fee of Rs 10,000 shall be payable in any other case.

  However, in a case where the total income does not exceed Rs 5.0 lakh, it is proposed that the fee amount shall not exceed Rs 1,000. This is aimed at instilling a sense of discipline amongst tax payers.






 

• Increased surcharge: A surcharge of 10% on all individuals whose taxable income is between Rs 50 lakhs and Rs 1 crore.





 

• Change in the period of Long Term Capital Gain for immoveable property: Under the current provisions, to qualify for long-term asset, an immovable property is to be held for a period of 36 months or more. However, it is proposed to reduce the period of holding to 24 months (i.e. 2 years). This amendment will give respite to individuals who are looking to sell their properties and aid liquidity in the asset class.





 

• Restriction on set-off of loss from House property: According to the proposed changes you will now be able to set off a loss of Rs 2 lakh under the head Income from House Property against any other income for any Assessment Year. This new change will automatically increase the tax burden of the assesse in the particular Assessment Year.





 

• Change in base year for indexation benefit: The base year for calculating the indexation benefit has been revised from April 1, 1981 to April 1, 2001. It was highlighted that assesses were finding it difficult to compute the capital gains in respect of a capital asset, especially immovable property acquired before April 1, 1981 due to non-availability of relevant information, especially the fair market value.





 

• Fair Market Value to be full value of consideration: In case the consideration for transferring an unquoted share of a company is greater than the Fair Market Value (FMV), the FMV will be considered as full consideration for the purposes of computing Capital Gains. The addition of this new Section 50CA will check the practice of understating the full value of consideration. Moreover, Long Term Capital Gains on equity shares or equity oriented mutual funds will be exempt only if Securities Transaction Tax (STT) is paid while purchasing the shares.





 

• Expanded the scope of long term bonds under Section 54EC: The scope of Section 54EC of the Income-tax Act, 1961 has been widened to all bonds redeemable after 3 years which have been notified by the Central Government.
  
  The existing provision of section 54EC provides that capital gain to the extent of Rs 50 lakhs arising from the transfer of a long-term capital asset shall be exempt if the assesse invests the whole or any part of capital gains in certain specified bonds, within the specified time. Currently, investments in bonds issued by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (REC) are eligible for exemption under this Section.





 

• Rationalisation of deduction under Rajiv Gandhi Equity Savings Scheme (RGESS) (under Section 80CCG): Since limited number of individuals have availed this deduction and to rationalize multiplicity of deductions under Section 80C, the Finance Minister proposed to phase out this deduction by providing that no deduction under Section 80CCG shall be allowed from Assessment Year 2018-19.





 

• Restriction on set off of loss from house property: In lines with the international best practices, it is proposed to restrict the set-off of loss under the head "Income from house property" against any other head of income to Rs 2.0 lakh for any Assessment Year.  However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act.





 

• Tax-exemption to partial withdrawal from National Pension System (NPS): Partial withdrawals from NPS not exceeding 25% of the contribution made by an employee would be exempt from tax. This proposed provision is in addition to the current provision of exempting 40% of the amount payable to the subscriber on closure of the account or opting out of NPS.





 

• Rationalisation of deduction for self-employed individuals depositing for NPS: Under the current provisions of Section 80CCD, an employee subscribing for NPS is permitted a cumulative deduction of 20% of salary, where as in case of other individuals, the total deduction under Section 80CCD is limited to 10% of gross total income.
  
  In order to provide parity between an individual who is an employee and an individual who is self-employed, it is proposed to amend section 80CCD so as to increase the upper limit of 10% of gross total income to 20% in case of individual other than employee.





 

• Rationalisation of deduction under Rajiv Gandhi Equity Savings Scheme (RGESS) (under Section 80CCG): Since limited number of individuals have availed this deduction and to rationalize multiplicity of deductions under Section 80C, it is proposed to phase out this deduction. No deduction under Section 80CCG shall be allowed from Assessment Year 2018-19.





 

• Restriction on cash transactions: In order to achieve the mission of the Government to move towards a less-cash economy and curb black money, it is proposed to insert Section 269ST of the Act.
   

  No person shall receive an amount of Rs 3.0 lakh or more—

  • In aggregate from a person in a day;
  • In respect of a single transaction; or
  • In respect of transactions relating to one event or occasion from a person,
  
  Only an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account shall be permitted.
  
  Moreover, in order to bring transparency to the source of funding by political parties, no donations of Rs 2,000 or more can be made in cash. Political parties will be entitled to receive donations by cheque or digital mode or electoral bonds from their donors.

The Verdict:

There were a lot of expectations, that many of the allowances enjoyed by salaried individuals (which serve as exemptions or deductions under the Income-tax Act, 1961) would be realistically revised. For example: transport allowance, children’s education allowance, hostel allowance, house rent allowance, meal allowance, amongst a host of others.

Likewise, taking cognisance of inflation in healthcare, medical reimbursement could have been hiked.

Similarly, deduction for mediclaim insurance premium, under Section 80D of the Income-tax Act, 2016 could have been raised.

Also, interest deduction limit for home loan borrowers could have been raised.

But, Mr Jaitely unfortunately has not addressed any of these, where the exemptions / deductions for these are much behind the times if we consider inflation.

To address India’s dwindling savings rate, the Government could have revised Section 80C to induce savings. But the Government has not addressed that either.

For infrastructure growth and to encourage inflow, it was expected that Section 80CCF would be reintroduced, but that too didn’t show up in the budget speech.

The National Pension System (NPS) and Public Provident Fund (PPF) – both investment avenues used to for long-term financial goals such as retirement – were left in disparity as regards the tax treatment goes; because the former enjoys an E-E-T (Exempt-Exempt-Tax) status, while the latter E-E-E (Exempt-Exempt-Exempt).     

Reduction in the tax rate to 5% (from 10%) for individuals in the income bracket of Rs 2.5 lakh to Rs 5.0 lakh, and incisively decreasing the tax rebate (under Section 87A of the Income-tax Act, 1961) to Rs 2,500 (from Rs 5,000), the Government has provided some relief to those with an income upto Rs 3.0 lakh. And if we consider, the Section 80C deduction, the relief is for an income upto Rs 4.5 lakh. But the appeasement is at the cost of those in the high income bracket, especially salaried individuals.

Given the path to fiscal consolidation (a fiscal deficit target of 3.2% of GDP for the fiscal year 2017-18, and 3.0% in the following fiscal), it appears that Union Budget 2017-18 was a tight rope walk.

The agenda of the Government is: “Transform, Energise and Clean (TEC) India”…

• Transform the quality of governance and quality of life  of our people; 
• Energise various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential; and
• Clean the country from the evils of corruption, black money and non-transparent political funding.

 

So, Mr Jaitley may have failed to make you happy, but let’s not stop hoping for a better India, truly what can be called as ‘acche din’.

To keep your finances in pink in the long term, ensure you are saving and investing wisely in wealth creating investment avenues while you endeavour to achieve many financial goals in life. Be a smart and a wise investor in your journey to wealth creation; don’t depend only on union budgets. 

Happy Investing!

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