Budget's thrust on stimulating growth, relief to Middle Class, Affordable Housing, Curbing Black Money, promoting Digital Economy, transparency of Political Funding and simplification of Tax Administration
Government committed to eliminate Black Money component from the economy
MSME companies to pay income tax @ 25%
Custom duty on LNG reduced from 5% to 2.5%
Small and medium tax payers to pay less under presumptive income tax scheme
Measures announced to ensure transparency in Electoral funding
Income tax reduced from 10% to 5% for individual having income in the slab of Rs. 2.5 Lakh to Rs. 5 Lakh
Individuals in the slab of Rs. 50 Lakh to Rs. 1 Crore will have to pay surcharge of 10%
GST council's recommendations on major issues finalised
Presenting the General Budget 2017-18 in Parliament here, the Union Minister of Finance and Corporate Affairs Arun Jaitley said that the major thrust of his Budget proposals is on stimulating growth, relief to middle class, affordable housing, curbing black money, promoting digital economy, transparency of political funding and simplification of tax administration.
Presenting the overall economic scenario of the country, Jaitley said that we are largely a tax non-compliant society. Among the 3.7 crore individuals who filed the tax returns in 2015-16, only 24 lakh people show income above Rs. 10 lakh. Of the 76 lakh individual assesses who declared income above Rs. 5 lakh, 56 lakh are from salaried class. The number of people showing income more than Rs. 50 lakh in the entire country is only 1.72 lakh, while more than 1.25 crore cars have been sold in the last five years and over 2 crore people flew abroad in the year 2016.
Highlighting the priorities of the Government, the Finance Minister Jaitley in his Budget Speech said that one of the main priorities is to eliminate the black money component from the economy. He said that the Government is committed to make our taxation rates more reasonable, our tax administration more fair and expand the tax base in the country. Presenting a revealing picture after the demonetization, he said that during the period from 8th November to 30th December, 2016 deposits between Rs. 2 lakh and Rs. 80 lakh were made in about 1.09 crore accounts with an average deposit size of Rs. 5.03 lakh. Deposits of more than Rs. 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs. 3.31 crore. This data mining will help the Government immensely in expanding the tax net as well as increasing the revenues, which was one of the main objectives of demonetization.
For the second year in a row, the growth rate of tax revenue will be 17% as per the RE of 2016-17. Because of the serious efforts made by the Government, the rate of growth of advance tax in personal income tax in the first three quarters of the Current Financial Year is 34.8%. The tax collections both in Direct and Indirect taxes in the current financial year even after demonetization have shown a remarkable surge.
Mentioning the measures for promoting affordable housing in real estate sector, the Finance Minister said that the scheme for profit linked income tax exemption for promoters of affordable housing will be broad based. Instead of built-up area of 30 and 60 sq. mtrs., the carpet area of 30 and 60 sq. mtr. will be counted. Also the 30 sq. mtr. will apply only in case of municipal limits of four metropolitan cities while for the rest of the country limit of 60 sq. mtr. will apply. In order to be eligible, the scheme was to be completed in three years after commencement. Now, it will be extended to five years. The tax on notional rental income will be applicable after one year of the end of the year in which completion certificate is received so that builders get some breathing time for liquidating their inventory. Announcing changes in the capital gain taxation provisions in respect of land and building, Arun Jaitley said that the holding period for considering gain from immovable property is being reduced to two years from existing three years now. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. In respect of new capital for State of Andhra Pradesh, persons holding land on 2.6.2014 whose land is being pooled for creation of new capital city under the Government Scheme, will be exempted from capital gain tax.
Delineating measures for stimulating growth, Jaitley said that a concessional withholding rate of 5% being charged on interest earned by foreign entities in external commercial borrowings or in bonds in Government securities is proposed to be extended to 30.6.2020. For the purpose of carry forward of losses in respect of start ups, the condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoters continues. Also, the profit linked deduction available to the start ups for three years out of five years is being changed to three years out of seven years. Arun Jaitley said that it is not practical to remove or reduce Minimum Alternate Tax (MAT). However, in order to allow companies to use MAT credit in future years, carry forward of MAT upto a period of 15 years instead of 10 years at present will be allowed. Announcing tax benefits to medium and small enterprises to make them more viable and to encourage them to migrate to company format, the income tax for smaller companies with annual turnover upto Rs. 50 crore will be reduced to 25% . As per data of Assessment Year 2015-16, there are 6.94 lakh companies filing returns of which 6.67 lakh companies fall in this category. This will make MSME sector more competitive as compared to large companies. The revenue forgone estimate for this measure is expected to be Rs. 7200 crore per annum.
To give a boost to Banking Sector, allowable provision for non performing asset is being increased to 8.5% from 7.5%. This will reduce the tax liability of Banks. In respect of NPA accounts, interest receivable on actual receipts instead of accrual basis will be taxed. This will remove hardship of having to pay tax even when interest income is not realized. Jaitley further announced reduction in basic custom duty on LNG from 5% to 2.5% in view of wide range of use of LNG as fuel as well as feed stock for petro-chemical sector.
In order to incentivize domestic value addition and to promote Make In India, Jaitley announced changes in Customs & Central Excise duties on several items related to the Renewable Energy Sector. This includes all items of machinery required for - fuel based power generating system to be set-up in the country for demonstration purposes; systems operating on biogas/ biomethane/ byproduct Hydrogen; LED lights or fixtures etc.
Proposals for reduction in Customs duty on inputs and raw materials to reduce costs have been submitted for certain items like Liquefied Natural Gas (LNG), Nickel, Vegetable Tanning Extracts and certain Capital Goods.
Proposal to hike Excise duties and to levy additional duties under Sec 85 of the Finance Act, 2005 on several tobacco and tobacco related products have also been made in the Budget.
Mentioning measures to promote digital economy/cashless transactions, Arun Jaitley said that BCD, Excise/CV duty and SAD on miniaturized POS card reader for m-POS, micro ATM standards version 1.5.1, Finger Print Readers/Scanners and Iris Scanners will be exempted. Also, parts and components for manufacture of such devices so as to encourage domestic manufacturing of these devices will be exempted. No transaction above Rs. 3 lakh will be permitted in cash. The cash expenditure allowable as deduction, both for revenue as well as capital expenditure will be limited to Rs. 10,000. Similarly, the limit of cash donation which can be received by charitable trust is being reduced to Rs. 2000 from Rs. 10,000. As regards, scheme of presumptive income tax for small and medium tax payers whose turnover is upto Rs. 2 crore, 6% of their turnover instead of 8% at present will be counted as presumptive income.
Expressing concern over funds being received by political parties through anonymous donations shown in cash, Jaitley said that the measures taken in the past to check such donations has only marginally improved the situation. A transparent method of funding political parties which is vital to the system of free and fair elections needs to be evolved.
Jaitley proposed the following schemes to cleanse the system of funding of political parties:
a) The maximum amount of cash donation that a political party can receive will be Rs. 2000/- from one person,
b) Political party will be entitled to receive donations by cheque or digital mode from their donors.
c) Reserve Bank of India Act will be amended to enable the issuance of electoral bonds in accordance with a scheme to be framed by the Government in this regard. Under this Scheme, a donor could purchase bonds from authorized Banks against cheque and digital payments only. They shall be redeemable only in the designated account of a registered political party. These bonds will be redeemable within the prescribed time limit from issuance of bond.
d) Every political party would have to file its return within the time prescribed in accordance with the provisions of Income Tax Act.
Mentioning ease of doing business measures, Arun Jaitley said that in order to reduce the compliance burden due to domestic transfer pricing provision, the scope of domestic transfer pricing will be restricted if one of the entity involved in related party transaction enjoys specified profit linked deduction. The threshold limit for audit of business entities opting for presumptive income scheme is being increased from Rs. 1 crore to Rs. 2 crore. Similarly, threshold maintenance of books for individuals and HUF is being increased from turnover of Rs. 10 lakh to Rs. 25 lakhs or income from Rs. 1.2 lakh to Rs. 2.5 lakh.
Jaitley further announced to exempt Foreign Portfolio Investor (FPI) Category I & II from indirect transfer provision. Indirect transfer provision will not be applicable in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India. He further announced that a TDS of 5% being deducted from Commission payable to individual insurance agents will be exempted subject to their filing a self declaration that their income is below taxable limit. Professionals with receipt upto Rs. 50 lakh per annum will be given benefit in terms of paying advance tax in one instalment instead of four under presumptive taxation scheme. The time period for revising a tax return is being reduced to 12 months from completion of financial year to allow the people to claim the refund expeditiously. Also, the time for completion of scrutiny assessment is being compressed further from 21 months to 18 months for assessment year 2018-19 and further to 12 months for assessment year 2019-20 and thereafter.
Giving details of proposals on personal income tax, the Finance Minister said that the existing rate of taxation for individual assesses between income of Rs. 2.5 lakh to Rs. 5 lakh will be reduced to 5% from the present rate of 10%. This would reduce the tax liability of all persons below Rs. 5 lakh income either to zero (with rebate) or 50% of their existing liability. In order not to have duplication of benefit, the existing benefit of rebate available to the same group of beneficiaries is being reduced to Rs. 2500 available only to assesses upto income of Rs. 3.5 lakh. The combined effect of both these measures will mean that there would be zero tax liability for people getting income upto Rs. 3 lakh per annum. And the tax liability will only be Rs. 2500 for people with income between Rs. 3 and 3.5 lakh. If the limit of Rs. 1.5 lakh under Section 80C for investment is used fully the tax would be zero for people with income of Rs. 4.5 lakh. While the taxation liability of people with income upto Rs. 5 lakhs is being reduced to half, all the other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs. 12500 per person. The total amount of tax forgone on account of this measure is Rs. 15500 crore, Jaitley said.
A surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between Rs. 50 lakh and one crore, will be levied. The existing surcharge of 15% of tax on people earning more than 1 crore will continue. This is likely to give additional revenue of Rs. 2700 crore. A simple one page form to be filed as Income Tax Return will be made for the category of Individual having taxable income upto Rs. 5 lakh other than business income. Also, a person of this category to file Income Tax Return for the first time would not be subjected to any scrutiny in the first year unless there is specific information available with the Department regarding his high value transactions. Shr Jaitley appealed to all citizens of India to contribute to Nation Building by making a small payment of 5% tax if their income is falling in the lowest slab of Rs. 2.5 lakh to Rs. 5 lakh. The Finance Minister further announced that in line with exemption available to the Prime Minister's Relief Fund and certain other funds, the income of the Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund shall be exempted from tax.
Mentioning Goods and Service Tax as a path-breaking reform, Arun Jaitley said that preparatory work for GST is Government's top priority. The GST Council has finalized its recommendations on almost all the issues based on consensus. The preparation of IT system for GST is also on schedule. The extensive reach out efforts to trade and industry for GST will start from 1st April, 2017 to make them aware of the new taxation system. Without compromising the spirit of cooperative federalism, Government shall continue to strive to achieve the goal of implementation of GST. Jaitley expressed hope that GST will bring more taxes both to Central and State Governments because of widening of tax net.
Making a mention of Prime Minister's approach of RAPID (Revenue, Accountability, Probity, Information and Digitization), Arun Jaitley said that Government is trying to bring in maximum use of information technology to remove human contact with assesses as well as to plug tax avoidance. He assured everyone that honest, tax compliant persons would be treated with dignity and courtesy. The Direct Tax proposals for exemptions would result in revenue loss of Rs. 22700 crore while revenue gain through additional resource mobilization proposals would be at Rs. 2700 crore i.e. the net revenue loss in Direct Tax would come to Rs. 20000 crore.
Concluding his Budget Speech, Arun Jaitley outlined the Government's overarching agenda: “Transform, Energise and Clean India'. Government's emphasis will be on implementing all these proposals for the benefit of the farmers, the poor and the under privileged sections of the society, the Finance Minister added.