Union Budget 2017 is a balancing act by Arun Jaitley without straying from path of fiscal consolidation: Ganesh Raj

Updated: February 4, 2017 2:20:47 AM

Budget 2017-18 has stayed on the path of fiscal consolidation by pegging the fiscal deficit for FY18 at 3.2% of GDP and remains committed to achieving 3% in the following year as recommended by the FRBM review committee, despite the committee providing an ‘escape clause’ for deviations up to 0.5% of GDP.

This is expected to send a positive signal to investors and keep India as an attractive investment destination.This is expected to send a positive signal to investors and keep India as an attractive investment destination.

Budget 2017-18 has stayed on the path of fiscal consolidation by pegging the fiscal deficit for FY18 at 3.2% of GDP and remains committed to achieving 3% in the following year as recommended by the fiscal responsibility and budget management (FRBM) review committee, despite the committee providing an ‘escape clause’ for deviations up to 0.5% of GDP.

This is expected to send a positive signal to investors and keep India as an attractive investment destination. Further, the revenue deficit for FY18 is pegged at 1.9%, against the 2% mandated by the FRBM Act. The government aims to improve upon the fiscal deficit though greater focus on quality of expenditure and higher tax collections from the cash deposits in the banks due to demonetisation.

On the direct taxes front, the government has taken several measures to promote the housing sector, stimulate economic growth, promote the digital economy, bring transparency in electoral funding, facilitate ease of doing business and provide relief to individual taxpayers in order to set-off the adverse impact of demonetisation.

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The direct tax proposals in the housing and real estate sector aim to promote affordable housing, provide relief to builders by giving them breathing time to liquidate their inventory, and significantly reduce the period of holding for long term capital gain tax with respect to land and building.

The innovative land pooling concept being used for building the new capital of the state of Andhra Pradesh has also been exempted from capital gains tax.

In order to provide a boost to medium and small enterprises (MSMEs), the government has proposed to reduce the income tax for smaller companies with turnover up to R50 crore to 25%. This policy initiative will provide a competitive advantage to 6.67 lakh entities which fall under this category.

The allowable provision for NPAs in the banking sector has also been increased from 7.5% to 8.5% in order to reduce the tax liability of banks. This would provide some relief to the banking sector, where balance sheets have been stressed for some time now. Since the announcement of demonetisation, the government has strived to promote a less cash economy in order to curb the black economy. The Budget has taken this a step forward by introducing a differential presumptive income tax base calculation for small and medium taxpayers with turnover under R2 crores. At present 8% of their turnover is counted as presumptive income. The budget proposes to make this 6% in respect of turnover which is received by non-cash means.

The proposal to increase the threshold limit for audit of business entities who opt for presumptive income scheme from R1 crore to R2 crores will also provide relief to many small and medium enterprises resulting in ease of doing business for this segment of taxpayers.

In order to encourage more taxpayers to come into the tax net, and provide relief to honest taxpayers, the government has reduced the tax rate on individual assesses between income of R2.5 to R5 lakhs from 10% to 5%. To offset some of the revenue loss on this account, a surcharge of 10% has been proposed on individuals with taxable income between R50 lakh and R1 crore.

Overall, the Budget has successfully manoeuvred a delicate balancing act by providing stimulus for growth without straying from the path of fiscal consolidation.

Ganesh Raj
National leader, policy advisory group, EY India

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