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Union Budget 2016-17: What youth can expect from it

Mail Today Bureau     February 29, 2016

Finance Minister Arun Jaitley is expected to announce a package to fire up Young India with a tax-holiday for startups and the setting up of a Rs 10,000 crore fund to finance these new-age entrepreneurs as part of his budget proposals for 2016-17 to be presented in Parliament on Monday.

In one of the biggest business reforms for Young India, Prime Minister Narendra Modi had recently indicated that the government would give a three-year tax holiday to the country's fast growing start-up sector which has already thrown up several young first generation billionaires generating jobs and creating wealth.

Apart from not paying any tax on their profits for the first three years, start-ups are also likely to exempted from capital gains tax. They will also be allowed to operate in an environment that is free of the troublesome inspector raj that tends to vitiate the business environment.

A new cess to fund initiatives such as Start-up India or Digital India and other programmes similar to the Swachh Bharat cess levied last year has also been under discussion at North Block.

The finance minister is also likely to go in for an increase in service tax from 14.5 per cent to 16 per cent as part of the exercise to mobilise more resources for increasing government investment in the infrastructure and farm sectors to rev up the growth rate.

A senior finance ministry official said that this would bring the service tax close to the GST rate toward which the government is moving.

On the income tax front, the Budget may continue with the status quo on tax slabs while he may make some changes in exemptions.

The finance minister is also likely to go ahead with his goal of a gradual reduction of corporate tax from 30 per cent to 25 per cent over four years. It is expected that he may begin the exercise in the Budget on Monday but this is expected to be accompanied by withdrawal of tax exemptions to keep the exercise revenue neutral.


The finance minister will have to carry out a tight rope walk in making resources available for big ticket infrastructure projects along with the huge payout of Rs 1.02 lakh crore for government staff on account of the 7th Pay Commission's recommendations.

It remains to be seen whether he can stick to the earlier fiscal deficit target of 3.5 per cent of GDP for 2016-17 or will be forced to ease it so that investment does not suffer.

The need for government investment to rev up the economy has become all the more important as corporate investments have slowed and banks are under pressure due to the huge burden of bad loans. While capital expenditure in 2015-16 increased by 25.5 per cent over last fiscal, as a percentage of GDP it is still stuck at 1.7 per cent and needs to go up to 2 per cent.

He will have to steer spending towards sectors like infrastructure and raise public spending in view of private investment not picking up at desired pace.

Increasing economic hardship in rural areas due to two consecutive droughts have put considerable pressure on the Finance Minister to spend more on social schemes which will see enhanced allocations in the Budget.

(In association with Mail Today Bureau)

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