Budget this year is expected to be presented on 1st February instead of 28th February, and this will be a deviation from decades old tradition of presenting the budget on the last day of February. In our country annual budget is given more importance than it is due and a lot of hype is created around it. In many developed countries, the annual budget is a non-event and a normal working day and often the day passes without much discussion, whereas in India both electronic as well as print media are responsible for making this day extra special.
This year the expectations from Budget are higher than normal and much of that can be attributed to the bold and historic decision of demonetization on the evening of 8th November, 2016. General citizens of the country, particularly middle-class income tax payers have gone through the ordeal of changing their old currency notes into new ones by patiently standing in queues outside the bank branches and ATMs, hoping that they will be suitably rewarded with significant relaxation in income tax slabs and rates.
The expectation of taxpayers has been swelled up by media reports that are hinting towards the likely shrinkage or evaporation of government's fiscal deficit because of the windfall gains of demonetisation. People are hoping that the Finance Minister will be able to wave his magic wand and give substantial relaxations in income tax liabilities to millions of taxpayers. So much so that a self-styled body of chartered accountants, suitably named as ''Artha Kranti,'' has claimed that the original idea of demonetization was presented by them to PM several months ago and along with this suggestion, they had also strongly recommended abolishing the Income Tax completely. As per media reports and estimates of experts, demonetization has not yielded the desired results and hence the hopes of getting cuts in taxation rates (both direct and indirect) are getting dashed.
The minimum exemption limit is expected to be increased from Rs 2.5 lakh to Rs. 3 lakh or even Rs. 3.5 lacs. There may be no change in the 30 per cent tax bracket, which starts from an annual taxable income level of Rs. 10 lacs. Even PM hinted in his speech on the evening of 31st Dec that the total number of Tax Payers in the 30 per cent tax bracket is only 25 lakh and the actual number may be much higher.
Another expectation is for an increase in deduction limit u/s 80C from Rs. 1.5 lakh to Rs. 2 lakh. In order to boost equity market, this additional deduction may be attributed to investment in ELSS schemes only.
Similarly, in order to grow the Pension Sector, deduction limit u/s 80CCD(2) towards contribution to NPS may get enhanced from Rs. 50,000 to Rs. 1 lakh.
If the above suggestions are implemented, it will result in annual relief of minimum Rs. 5000 to maximum Rs. 35,000 depending upon one's income level & the slab.
Since implementation of the much awaited GST from 1st April 2017 is doubtful, it is expected that the Service Tax rate may be increased from 15 per cent to 16 per cent or even slightly higher, adding to the discomfort of citizens who were otherwise anticipating relief and extra money in their pockets.
On the whole, some reliefs may be announced but they will be much lower than what the middle-class income tax payers are hoping for.
(The writer is Group CEO & Director, Bajaj Capital)