Union Budget 2017-18: What Makes It So Special?
Every year as Budget nears, speculation surrounding the budget also abound. Will the taxes be raised or lowered? Will any new government saving scheme be announced? While last year’s budget focused a lot on healthcare, education and social sector, Budget 2017 is being seen as one that will bring personal finance to the center stage. Here’s what you can expect from the Budget 2017:
- 1 Modification in Income Tax Slabs and Rates
- 2 Streamlining of Existing Tax-Saving Vehicles
- 3 No Tax Payments on Pension Income
- 4 Make Annuity Income Tax-Free for Retirees
- 5 Make Equity Investments Simpler
- 6 Reduce Tax Burden on Retail Equity Traders
- 7 Exempting Term and Health Insurance from Service Tax or GST
- 8 Higher Deduction for First-Time Home Buyers
- 9 Allow Companies to Adopt Towns and Villages
Modification in Income Tax Slabs and Rates
It is well-known that only around 1% of the Indian population pays any income tax. If the government were to modify the tax slabs into four or five and provide a more ameliorative income tax rate, especially for the lower slabs, then it will be a welcome gesture for the people.
For instance, as of now, anyone earning Rs. 2.5-5 lakh pays an income tax rate of approximately 13% (including cess). It would be a great relief to the people if the exemption limits were raised and/or tax rates are lowered to reduce tax incidence. Since the same amount of money goes further for people in the lower income category than for people earning more, increasing exemption limits or reducing tax rates will definitely come as big a relief.
In addition, a lower tax rate is likely to result in more people willing to pay tax, and the country’s direct tax inflow will increase in the future.
Streamlining of Existing Tax-Saving Vehicles
Almost every year new tax-saving schemes are launched. These schemes, while welcome, increase confusion in people’s mind as to where to invest. A better way to approach this would be to reform existing schemes. With so many traditional investment schemes, such as NSCs and KVPs, losing their shine, it will be good to revisit them to boost investment.
No Tax Payments on Pension Income
The pension income for senior citizens over 65 years should be made completely tax free. This will not only help the elderly but will also reduce operational work for income tax authorities.
Make Annuity Income Tax-Free for Retirees
Around 11% of India’s population are covered under pension products, which leaves tremendous scope for more people to opt for them. To encourage more investment, the Union budget 2017-18 can increase the amount allowed as a deduction under section 80CCD(1B) from the current Rs. 50,000. The limit can be increased to commensurate it with section 80C. The withdrawal benefits and tax treatment should also be similar for all pension products.
Make Equity Investments Simpler
At present, the process for opening an equity account with a broker is not very user-friendly. Moreover, even small aspects such as changing addresses or other details are quite cumbersome. There are too many complexities involved in each process. Making the account opening, maintenance, and trading processes simpler will go a long way in facilitating securities investments.
Reduce Tax Burden on Retail Equity Traders
All profits made through equity delivery trades are defined as business income and are taxable. As such, retail traders have to fill the highly complicated ITR 4 forms rather than the ITR 2 forms used for declaration of capital gains. Also, section 44AD of the Income Tax Act requires the books to be audited if the profit in the financial year is less than 8% of total turnover or if total turnover exceeds Rs. 2 crore. Such complexities increase tax calculation problems and lead to non-compliance by most small traders. Reducing such complexities by streamlining the tax filing process is likely to increase the tax compliance and more participation from the retail trading community.
Exempting Term and Health Insurance from Service Tax or GST
Both term and health insurance are pure-play insurance products rather than investment vehicles. They are people-friendly and help ease the economic burden for the insured and their families. These products should be encouraged by excluding them from the purview of 15% service tax or the upcoming GST that is expected to be around 18-24%. Reducing the tax burden will mean more takers and an overall reduction in the risk profile of the insured individuals.
Higher Deduction for First-Time Home Buyers
The previous budget had an additional deduction of Rs. 50,000 on interest paid on a loan less than Rs. 35 lakh and a house with a value below Rs. 50 lakh. Capping the value of the home at Rs. 50 lakh makes the residents of metro cities ineligible for this benefit. The deduction should be increased considerably for all home loans for first-time buyers. It is also a great measure to encourage new buyers to buy houses.
Allow Companies to Adopt Towns and Villages
The government’s initiatives on Swacch Bharat will work better if they start allowing corporations and businesses to adopt towns and villages across the country and give them tax incentives for the work done. This will require certain guidelines and a framework but once these are in place, the businesses that take initiatives to further socio-economic goals should be encouraged by tax holidays and other means for their good work.
This article is contributed by Paisabazaar.com