The Union Budget 2016 has been a transformational budget for the country.
The substantial hike in the expenditure on social, farm, rural and infrastructure sectors in the current context where nominal growth is slowing and global headwinds are strong, and that too while meeting the 3.5% target for fiscal deficit in 2016-17, is exemplary and commendable.
The FM has done a great balancing act in meeting the aspirations of the weaker sections of the society and building a strong infrastructure platform to catapult the economy on a sustainable high growth path in two-three years.
Markets were rife with rumours that tax exemption on Long Term Capital Gains in equities shall be revoked and Service Tax rate shall be hiked.
The fact that none of these happened is one of the biggest positives. The amnesty scheme for people to declare undisclosed income by paying 45% tax accompanied with immunity from scrutiny and prosecution is another big positive.
Historically amnesty schemes have brought in tax revenues to the tune of 0.2% to 0.8% of GDP.
Probably the biggest positive has been the reduction in the net borrowing program from Rs 4.8 lakh crore in FY16 to Rs 4.25 lakh crore in FY17. This has provided big relief to bond markets and the impact was also seen on banking stocks and equity markets as a whole.
As the saying goes, there cannot be any gain without pain. Somebody has to foot the bill of higher spend on rural economy and infrastructure.
The 10% tax on dividend for individuals getting dividend exceeding R10 lakh per annum and the hike from 12% to 15%, in surcharge for people with taxable income greater than R 1 crore, reflect this pain.
The move to make 40% of the lump sum withdrawals from National Pension System (NPS) tax free was much needed.
Any withdrawal from NPS, upon death, remains fully exempt from tax. While my own pocket hurts the provision to tax withdrawals of more than 40% of the corpus from EPF and PPF is welcome as it now gives an even platform to NPS and puts the prerogative on citizens to plan their own social security. These were totally exempt from tax till now.
Investors will have a lot to look at in the coming year in the form of Rs 46,000 crore of tax-free bonds, lower premiums on single premium annuity life insurance policies and on general insurance policies, consequent to reduction in or exemption from service tax.