Budget 2017: Relief for the middle class and small businesses

Post-demonetization, middle class has been facing many hassles due to cash crunch. They have been clamoring for tax benefits as a gesture of goodwill from government for the hardships they faced. FM ArunJaitely has heard them.

Finally, the highly-anticipated Budget 2017 has arrived. The budget went ahead, in spite of protests from Congress to postpone due to death of former Union Minister E Ahamed.

Post-demonetization, middle class has been facing many hassles due to cash crunch. They have been clamoring for tax benefits as a gesture of goodwill from government for the hardships they faced. FM ArunJaitely has heard them.

Tax rates slashed
Tax rate for 2.5 lakhs- 5lakhs have been slashed to 5 per cent from 10 per cent.
Rebate u/s 87A is reduced to 2,500 and is only available for income up to 3,50,000.

Tax slabs for Financial year 2017-18

This means along with rebate, income up to 3 lakhs will pay no tax.

Considering thereduction in tax rates and deduction under 80C (which still remains at 1.5 lakhs) income up to 4.5 lakhs will become exempted.

All other categories will also enjoy a reduction up to Rs. 12,500 tax due to the tax rate cut.
This will mean more money in the hands of the middle-class.

Higher income group

For people with income of 50 lakhs to 1 crore, a new 10 per cent surcharge will be applicable on tax. The earlier 15 per cent surcharge for income above 1 crore is still present.

No scrutiny for first time filers and easy form

People filing returns for the first time will not be subject to IT scrutiny unless there is a clear indication of cash deposits under demonization.

Also, people with income under 5lakhs (without any business income) will now file a much simplified one page return.

This will encourage people to file returns and get benefits of filing like easier access to home loans, bank accounts.

Lesser time to revise returns and scrutiny

The time period for revising a tax return is being reduced to 12 months thus bringing it at par with the time period for filing of return. This is done in order to allow the people to claim the refund fast.

Capital gains

Long term holding has been reduced to 2 years. And base year for indexation will now be 2001 and not 1982.  This will bring down the capital gain liability significantly.

This will encourage more people to invest and provide mobility of assets. The umbrellafinancial instruments under which the capital gains can be invested without payment of tax will also be increased. They will be notified later.

Senior Citizens

Aadhar based Smart Cards containing health details will be introduced for senior citizens. LIC will also implement a scheme for senior citizens to provide assured pension, with a guaranteed return of 8% per annum for 10 years.

Service charge on railway tickets removed

Service charge on e-tickets booked through IRCTC has been withdrawn to bring competitive rail prices to the masses.

Housing income

Bad news for first time home buyers. The additional 2 lakhs deduction on home loan interest (sec 80EE) givenin 2016 has now been withdrawn.

Also, earlier one could carry setoff any amount of house property loss. Now this has been limited to only 2 lakhs. For e.g., If you have a house property loss of 11 lakhs, you can setoff only 2 lakhs this year. The balance 9 lakhs will be carried forward for 8 assessment years.

Lower taxes for small businesses

FM has focused on SMEs stating that SMEs make up a large portion of the Indian economy and employ the maximum people. FM has introduced many changes which will benefit small businesses.

In order to make SMEs more competitive, he reduced the income tax rates. Small companies with annual turnover upto Rs. 50 crores will now pay only 25 per cent income tax. As honourable FM says, this will cover 96 per cent of the Indian companies and thus boost Indian business. It will also encourage many businesses to adopt company legal structure.

Longer carry forward of MAT

FM ArunJaitely stated "it is not practical to remove or reduce MAT at present".
MAT credit can now be carried forward for 15 years instead of the earlier 10 years. This will help businesses all over India to adjust the MAT credit to further reduce their tax liabilities in future.

Focus on digitization

As expected, Budget 2017 has focused greatly on digitization of India.

Aadhar Pay will be launched shortly targeting specifically those who do not have debit cards or mobile phones. Banks have targeted to introduce additional 10 lakh new PoS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhar based PoS by September 2017.

Increased digital transactions through Aadhar Pay and BHIM app etc. will bring a clear picture of transaction history of SMEs. This will enable them to get cheap loans. Government will refinance credit institutions which provide unsecured loans at reasonable interest rates, to borrowers based on their transaction history.

Stricter policy on cash transaction

Cash transactions have been restricted with only Rs. 10,000 cash expenses being allowed as deduction for businesses.

Cash donations to charitable organizations, political parties will be limited to Rs. 2000 per source.

Also, a scheme will be implemented to launch electoral bonds. where, a donor will could purchase bonds from banks against digital payments only. They shall be redeemable only in the account of a registered political within a prescribed time limit.

Cost of cigarettes, tobacco increases

To keep a check on Public Health, government has increased the excise duty levy on cigar, cigarettes and other tobacco substitutes. This levy has been increased from Rs. 3755 per thousand to Rs. 4006 per thousand.

For Paper Rolled Biris this levy has been increased to Rs. 78 per thousand from Rs. 21 per thousand presently.

FM has made reduction in Custom duty on certain inputs and raw materials to reduce costs for LNG, machines for renewable energy, parts for LED bulbs.

There has not been much changes in indirect taxes as GST will be implemented on 1st July 2017 (expected).

Budget 2017 sees huge amount of funds allocated to developing the rural and the poorer areas. It focuses mainly on digitization, small businesses along with providing relief to the middle class. It also brings bad news to tax evaders bringing in stricter measures.

(The author is Founder & CEO, ClearTax.Com)