The countdown to Budget 2017 has begun. Days following demonetisation have indicated that the government is tempted to dole out at least some tax relief to address its waning popularity.
With the likely implementation of GST and recent upheavals to businesses, everyone is eager to find out whether 2017 augurs well for them. What then should the government do to balance common man's expectations and its growth agenda?
Lower individual tax rates - If income disclosure schemes and demonetisation have succeeded in widening the tax net and have brought in more taxpayers, they can bring steady tax revenue to the government. The government can use this to lower tax rates. Increasing the minimum exemption limit or the tax slab can hamper tax collections, however an increase in tax base can offset it. Deductions under section 80C and minimum exemptions limits have been left untouched since 2014-15. And with some of the important states due for elections, the government may be tempted to make this offer.
Lowering TDS rates on interest income- Every yearthe tax department issues refund worth crores of rupees. Seeking a refund is extra work for both the taxpayer and for the income tax department. TDS rates must be brought down from 10% to 5%. This is because the effective tax paid is much lower. Take for an example, a person with an income of Rs 7,00,000, who takes full advantage of section 80C and reduces his taxable income to Rs 5,50,000. On this income a minimum exemption of Rs 2,50,000 is allowed, remaining income of Rs 2,50,000 shall be taxed @ 10%, tax works out to Rs 25,000 and on balance income of Rs 50,000 tax shall be @20% which is Rs 10,000. Therefore, effectively a tax of Rs 35,000 (without cess) has been paid on income of Rs 7,00,000 which is at the rate of 5%. If this person earned interest income too, TDS would have been deducted @ 10% and he'll most likely have to seek a refund. Bringing down TDS rates shall be beneficial to reduce refund workload for the department too.
Exempt interest income for senior citizens- Thegovernmentrecentlyannounced that senior citizens will receive a fixed interest rate of 8% on deposits for a period of 10 years of up to Rs 7.5lakhs. While the rate of return is attractive, this income continues to be taxable. Many senior citizens rely heavily on income from fixed deposits and therefore this income should be made tax free for them.
Allow e-verification of returns to those filing from outside India -Indianswho travel abroad for work or other commitments find verification of their returns a challenging process. Returns cannot be e-verified from outside India. Sending a physical copy of ITR-V via regular post is impractical as it may get lost or not reach on time. The government must consider providing easier means to taxpayers, who are physically outside India, to successfully verify their tax returns.
Thrust to the fintech space - The FinTech space has heated up post demonetisation. India is likely to witness accelerated adoption of digital payments due to demonetisation, and the use of India Stack for Identity (aadhar) and payments (UPI) will happen. There is immense scope for digital payments & commerce. Technologies like cloud computing, machine learning, and big data services will play a huge role in shaping up the tech landscape in 2017. The government can play a crucial role in this journey by encouraging and assisting companies which are focussed on innovation in this space.
Undoubtedly the government has a tough task ahead in planning its 2017 Budget. A budget which we hope will be historic, not only for its timing of 1st February, but also in being progressive and practical in a true sense.