There were several expectations from the Union Budget this year, especially because of the demonetisation drive. And the Budget seems to have lived up to some of them. Here are the highlights from the Union Budget this year. We will also tell you what wasn’t so glamorous about this budget and how experts feel about the Budget. Read on.
Star Attractions
The following incentives announced by the Government should make you happy.
- The lowest tax rate of 10% in case of Income Tax has been halved and now stands at 5%. The new tax slabs look like this:
| Income | Tax Rate |
| Up to Rs. 2.5 lakhs | Nil |
| Rs. 2.5 lakhs – Rs. 5 lakhs | 5.15% |
| Rs. 5 lakhs – Rs. 10 lakhs | 20.60% |
| Rs. 10 lakhs – Rs. 50 lakhs | 30.09% |
| Rs. 50 lakhs – Rs. 1 crore | 33.99% |
| > Rs. 1 crore | 35.54% |
- If your income is less than Rs. 5 lakhs, you need to fill just a one-page tax form.
- If your annual income is between Rs. 50 lakhs and Rs. 1 crore, you will need to pay a surcharge of 10%.
- Self-employed? You can get higher deductions for your contributions to the National Pension Scheme (NPS). The deduction can be raised to 20% from 10% earlier.
- The base used for computing indexation benefits in the case of Long Term Capital Gains (LTCG) has been changed. This will now be 1st April, 2001 and not 1st April, 1981. What’s more? Now, you need to hold your land or building for just two years to enjoy LTCG. Earlier, this was three years. Wait! Read on for some more good news. You can now reinvest your capital gains in notified, redeemable bonds other than those issued by NHAI and REC to get a capital gains exemption.
- Love the NPS? Your partial withdrawal from NPS will now be tax-exempt up to 25% of your contributions.
- Living in a rented house and paying more than Rs. 50,000 a month? You have the right to deduct 5% Tax Deducted at Source (TDS).
- If you love booking rail tickets online, here’s some good news. There will be no service tax on rail tickets booked online through the Indian Railway Catering and Tourism Corporation (IRCTC) website.
- Running a business with a turnover of less than Rs. 50 crores? Your tax rate has now been cut to 25% for the Financial Year (FY) 2015-16.
- Start-ups can avail a tax holiday for 3 years out of 7 years. Earlier, this was 3 out of 5 years.
- An Aadhaar enabled payment system will be launched soon. You just need your Aadhaar number and biometrics to make and receive payments. How cool is that? 14 banks have already been roped in for the Aadhaar payment service. More are expected to come on board soon.
- Have you tried out the Bharat Interface for Money (BHIM) app? Then, do it now. The Government is all set to introduce a referral bonus and cashback for BHIM users.
- Now, any political party in India cannot receive a cash donation of more than Rs. 2,000 from any source.
Unglamorous?
Here are some highlights from the Budget that you might not really like.
- Love using cash? Uh-oh! Cash transactions of over Rs. 3 lakhs will be banned from 1st April, 2017.
- If your income is less than Rs. 3.5 lakhs, the tax rebate has been halved from Rs. 5,000 to Rs.2,500 now.
- Contemplating buying a home? You may not like this. The tax deduction that you were claiming for a Home Loan under Section 24, has been reduced to Rs. 2 lakhs for rented homes. Earlier, it was unlimited. This means that whether you purchased the property for self-occupation or for letting out, you can claim only Rs. 2 lakhs as tax deduction on the interest paid. And it doesn’t matter whether it is your first or second home.
- Delaying filing your taxes? Don’t! You may have to shell out Rs. 10,000 if you file your returns late.
- Heavy smoker? Be ready to pay more for your cigarettes as excise duty on them has gone up. Ditto for pan masala, gutkha, and bidis.
Experts’ Speak
Here’s what the experts are saying
Adhil Shetty, CEO, BankBazaar.com
We appreciate the push for a Digital Revolution which is supported by the following – No cash transaction above Rs 3 lakhs, incentives for UPI / BHIM and Aadhar Pay, expansion of a documented tax base, and lower Income Tax up to Rs. 5 lakhs income. Also, political payment reform is fantastic to move all monies into white documented channels. The affordable housing scheme announced by our Prime Minister on 31st December allowing 3-4% interest subsidy for affordable housing will grow the Home Loan market.
Sasidhar Vavilala, Head-Campaign Management, BankBazaar.com
Attempts to make political funding transparent is a big bold move. In addition, a cash transaction cap on Rs. 3 lakhs is extremely good for getting big ticket transactions into the formal economy.
Chanda Kochhar, MD and CEO, ICICI Bank
The Union Budget has achieved the right balance between providing a growth impetus and maintaining fiscal prudence. It has comprehensively addressed all areas of socio-economic priority: farmers, poor & underprivileged sections of society, infrastructure development and strengthening of the financial sector. The Finance Minister has rightly prioritised investment in infrastructure and the rural economy, with a focus on inclusive growth and capacity building. The increase in capital spending and the proposals for investment in a range of areas from affordable housing to roads and railways would not only have a multiplier impact on other sectors of the economy but also enhance employment generation and make the growth inclusive. The thrust on digital transactions will increase the size of the formal economy and also make the payment systems more convenient and efficient. The tax measures are aimed at improving direct tax mobilisation by broadening the tax base and improving tax administration. The continuity in policy, with the over-arching objective of sustainable and inclusive growth underpinned by good governance, is very welcome.
Vignesh Shahane, Wholetime Director & CEO, IDBI Federal Life Insurance
While there were expectations on more reforms around the life insurance sector, some of the other announcements are definitely a step in the right direction. Doing away with 5% TDS on insurance agents’ commissions is a great step forward in attracting and retaining right talent in the sector.
The 2017 Budget was announced against the backdrop of key themes like demonetisation and digitisation. The government has continued its war against black money by banning cash transactions beyond Rs. 3 lacs. Finance minister has tried to support rural, agri and allied sector which generates maximum employment, by giving 24% higher allocation. Reducing tax from 30% to 25% for companies having turnover of less than Rs.50 crore is also a step in the same direction. Government has continued to focus on infrastructure sector growth.
Ajay Bodke, CEO & Chief Portfolio Manager: PMS, Prabhudas Lilladher
In the midst of grave global & domestic challenges, the Finance Minister has done a commendable job. He has adroitly balanced fiscal pressures and stuck to the fiscal deficit target of 3.5% of GDP for FY 17, slightly increased the deficit target from 3% to 3.2% of GDP for FY 17 and controlled net market borrowing target for FY 18 to Rs. 3.48 trillion.
Markets have rejoiced as the fears of extending long-term capital gains tax tenure from 1 year to 2 years has not materialised. We expect interest rate sensitive sectors like banking & financial services (BFSI), auto & auto ancillaries, cement, construction and consumer goods to outperform in view of the boost that the Budget has provided.
The medium-term trajectory of the market would depend on the revival of earnings cycle that continues to remain tepid over the last few years, impact of remonetization and GST (post implementation which is widely expected from 1st July 2017) on India’s economic growth as well as challenging global headwinds in view of fierce protectionism, barriers to free trade, rising interest rates in the US and hardening of global commodity prices especially crude.
M Ravichandran, President – Insurance, Tata AIG General Insurance
The Union Budget 2017 announced earlier today focussed largely on three themes – agriculture, digital revolution and emphasis on eliminating corruption and black money, while also giving a huge impetus to small and medium businesses. With a view to boost the agricultural sector, the government has increased the coverage under the Pradhan Mantri Fasal Bima Yojana from 30% to 40% in 2017-18 and 50% in 2018-19 which will help farmers get insured. Farmers will also benefit further with the government spending Rs. 13,240 Cr in FY 18 on crop insurance.
Also, with the government emphasising further on digital India and cyber security, this will help strengthen a transparent financial ecosystem. The disposable income for individuals earning between Rs. 2.5 – 5 lakh will increase due to the reduction in tax to 5% from the current 10%. This will, in turn, encourage the lower and middle-income strata of people to invest in instruments such as insurance, mutual funds, fixed deposits etc.
Anuj Puri, Chairman & Country Head, JLL India
The Budget that was being touted as a make-or-break one for the future of India and the Government made some big announcements on the infrastructure front and also on beneficial changes to the affordable housing segment.
The Budget missed out on giving any additional Income Tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums. Nor did it raise house rent deduction limits. However, it did provide some direct tax relaxation to the lowest income earners and gave some clarity on the designated beneficiaries under the Pradhan Mantri Awas Yojana. A new Credit Linked Subsidy Scheme (CLSS) for the middle-income group with a provision of INR 1,000 crore in 2017-18 was announced. Also, extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased to 20 years from the existing 15 years.
Moreover, one crore houses are to be built by 2019 in rural India for the homeless and those living in ‘kaccha’ houses. Allocation to PMAY has been increased from Rs. 15,000 crore to Rs. 23,000 crore in the rural areas – and affordable housing will now finally be given infrastructure status. This is very significant because it will provide the vital budget housing segment with cheaper sources of finance including, but not restricted to, ECBs (external commercial borrowings). Also, refinancing of housing loans by NHBs (National Housing Bank) can give a leg up to the sector.
Under the latest provisions, developers to get one year’s time to pay tax on notional rental income on completed unsold residential inventory. The time limit for capital gains to be considered as a long-term gain has been reduced to 2 years from the earlier 3 years. More supply will enter the housing market now.
Navneet Munot, CIO, SBI MF
The Union Budget 2017-18 quelled all market speculation and encouragingly stuck to a broader fiscal consolidation roadmap with fiscal deficit at 3.2% of GDP. This is a more responsible step to take in light of 7.9% net household financial savings and increased pressure on state finances next fiscal year. The RBI is likely to perceive the budget as a positive event. Prudent budget combined with contained inflation increases scope of monetary easing at the margin.
On the taxation front, three strong positives came in the form of reduction of corporate tax to 25% for small business, no service tax hike and no increase in holding period for availing long-term capital gain tax in shares. On the contrary, the budget reduced the holding period of long-term capital gains tax on immovable property to 2 years compared to 3 years practised presently. The budget responsibly refrained from any significant changes in indirect taxes as it prepares for GST implementation in the middle of the year. With digitalisation and simplification of tax administration, the government is expecting a significant jump in personal tax collection. With the event now behind us, the focus will shift back to the execution, corporate earnings and global cues.
Additional Reading: 5 Predictions For The Financial Market In 2017
Be sure to keep these pointers in mind when you are planning your taxes and investing your money in the upcoming financial year. And do draw up your own budget for the next financial year so that you have plenty of money in your hands.