1. Budget 2017: Income Tax incentives likely to offset demonetisation pain

Budget 2017: Income Tax incentives likely to offset demonetisation pain

The Indian economy was growing at a rapid pace, with a GDP growth of around 7.6%, and with the introduction of GST was expected to grow at even a faster rate.

By: | New Delhi | Updated: January 19, 2017 11:22 AM
Tax reforms in 2016, local environment, global environment, Start-up India, Demonetisation, Real Estate Investment Trusts With inconvenience caused to the common man by demonetisation, many are expecting the government to increase tax exemption from R2.5 lakh to R4 lakh. (Source: Reuters)

The Indian economy was growing at a rapid pace, with a GDP growth of around 7.6%, and with the introduction of GST was expected to grow at even a faster rate. Just when everything was looking great for the economy it was struck by the demonetisation shock. Though the move was great for combating black money, it has caused significant liquidity issues in the economy. However, every cloud has a silver lining and the pain of demonetisation may be addressed by the finance minister in the Budget through a host of tax incentives to both individuals and corporates.

Tax payout

With inconvenience caused to the common man by demonetisation, many are expecting the government to increase tax exemption from R2.5 lakh to R4 lakh. There may also be a change in the point at which 30% tax rate kicks in, which may be increased from R10 lakh to R12 lakh. Currently, less than 3% of the population files income tax returns and a higher tax exemption slab and a reduced tax rate may encourage more people to file their tax returns.

Section 80C has a maximum limit of R1,50,000 and most of the investments come under this bracket. The FM may revisit and increase the limit up to R2,00,000. This would also encourage individuals to save more and contribute towards the economy.

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Incentives for digital payments

There has been serious efforts by the government to encourage people to move towards a cashless economy ever since the launch of the demonetisation exercise. Following this, in Budget 2017, the government may announce a string of measures to take India on the path of a cashless economy. Incentives may be given to merchants for promoting use of plastic money and income tax benefits could be offered to those making payments electronically.

Capital gains

In December-end the markets were in a tizzy after Prime Minister Narendra Moddi said that “those who profit from financial markets much make a fair contribution to nation building through taxes”. This statement lead to apprehensions that the government plans to announce long term capital gains on sale of shares. Clearly, the government wants to raise taxes on income generated by market.

Even though the finance minister denied plans to tax long-term capital gains, the government could take other routes to raise taxes from the market. Some of the routes which the government may explore could be raising the Securities Transaction Tax (STT) and extending tenure of long-term capital gains tax.

In fact, STT was first introduced in 2004 and is applied to all market participants irrespective of the volume. Currently the same is levied at 0.0125%. Currently, any sale of securities beyond one year is exempt from tax. The government may increase such tenure to three years. It could also raise short-term capital gains tax. Short-term capital gains of listed securities is taxed @15%. The same could be raised to 20% in the Budget.

It is also expected that the government may increase tax on goods such as cigarettes, alcohol, luxurious goods, etc. The only question how much shall be its impact on our cost of living. We also have a new player on the block—GST, and we should surely get more clarity on its rollout, which will have a direct impact on our cost of living.

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    Solanki Amit
    Jan 4, 2017 at 4:47 am
    “Tax officials made a specific suggestion that the government should consider taxing agricultural income, not fully but partially. It was said that people having a regular income alongside agricultural income above a certain threshold can be brought under the tax net,” a government official said. The suggestion was made in the course of the Prime Minister’s session at the event.The Central Board of Direct Taxes (CBDT) has been looking closely at agricultural income claims of over Rs 1 crore by essees in their tax returns in view of a PIL filed in the Patna High Court, which had raised concerns about agricultural income being used as the route for unaccounted money. Over 2,300 cases showing agriculture income of over Rs 1 crore have been detected by the Income Tax Department in the last nine essment years.
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    ASIT DESAI
    Jan 4, 2017 at 4:04 am
    With all legal high value notes in the coffers of various Banks , they must now have data on large deposits that could and would be subjected to easy ABC analysis.Ms Mayawati's party's Bank account in one branch had over Rs 100 crores and being from people who gave them < Rs 20,0000.00 each, this depositing must have taken some time, cash handling wise at the Bank's end.This begs one question , what was the sum deposited in high value notes in each Political Party's various Bank Accounts post demonetisation - this data must be readily available and surely needs substantial publicity, if only to show the level of love for such parties amongst the poce. It is difficult to believe that save for her party, none of the others had cash funds to deposit , and further difficult to believe that other Party"s funds were in lower denimonation funds !! How did the other Parties handle their funds ?Should this be worthy of journalistic investigation and analysis in the coming transparency and electronic transaction age ?
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    Venkataramani
    Jan 4, 2017 at 5:00 am
    I don't think they will increase it to 4 lakh. The govt has maintained that this is only a temporary pain (even though economists believe otherwise), so they won't make such a potentially permanent change in income tax slabs.
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  4. Y
    YOGESH ENGINEER
    Jan 4, 2017 at 3:07 am
    JUST ABOLISH INCOME TAX AND SIMPLY TAX LAWS AND COLLECT TAX AT SOURCE ALL WILL PAY OR LOOSE HOPES FOR CLEAN INDIA ....90 % INDIANS ARE CORRUPTED TO THE EXTREME.....AND MY GOD THE OPPOSITION WANT ONLY DIRTY MONEY AND MODIJI S SCALP......
    Reply

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