Union Budget 2017 is going to witness two historical changes. First is the change in the date of presenting the budget from 28th February to 1st February and the second being the merger of railway budget with the union budget. Both these changes are indicating the government's intent to expedite the implementation of the financial decisions by the start of the financial year.
This year's budget may revolve around two major economic decisions taken by the government in 2016, introduction of Goods and Services Tax and the demonetisation move announced on November 8. Since people at large are uncertain on the impact of both, the budget is expected to have some positive sops for both individuals and corporates.
Few changes and expectations from the Budget 2017 are:
a) Various incentives for widening the tax base
Currently only 3.5% of the 800 million Indian adults file taxes as opposed to developed nations where the ratio is 75%+. Further 1.2% only actually pay taxes in India, vs. 1.9% in China, 6% in Brazil, 33% in Russia and
55% in USA (maturity of country's tax economy is also one of the major factors above).
The budget may introduce few incentives which would encourage the non tax filing population to take steps for filing income tax returns and pay taxes.
b) Expected incentives for individuals
1. The exemption limit for individuals was revised in FY 2014-15. Keeping in view the cost of living trend in the economy and to compensate the population from the inconvenience faced due to demonetization, the tax slab rates may be revised as follows:
Upto 3 lacs - NIL 3 - 5 lacs - 10% 5-10 lacs - 20% Above 10 lacs - 30%
The education cess may also be revisited keeping in view that it was introduced more than a decade ago with the sole purpose of providing basic education to all.
2. Long term and short term capital gain upto 5 lacs to be rationalized and taxed based on the slab rate rather than the special rate assigned for the capital gain tax.
3. Increase in the exemption limit under Section 80C from INR 1,50,000 to INR 2,00,000
4. Increase the limit of deduction of interest on housing loan borrowed for self-occupied house may be increased to INR 300,000 in metro cities in view of the high costs of residential houses in metro cities. The condition of completion of construction within 5 years from the year of borrowing may also be done away with.
5. Tax exemption on preventive health check-up should be raised from the current INR 5,000 to a maximum of INR 20,000 under section 80-D of the Act.
6. The current tax exemption limit of INR 15,000 per annum towards reimbursement of medical expenditure by the employer is inadequate in comparison with the medical expenses incurred by the taxpayer and needs to be increased to at least INR 50,000 per annum.
c) Expected incentives for corporates
1. Reduction in the Tax Rate for companies
The previous budget introduced a reduction in the corporate tax rate from 30% to 25% over the next four years along with corresponding phasing out exemptions and deductions. As a result of this amendment, many exemptions and deductions were phased out but corporate tax rate was reduced to 29% only in case of domestic companies where the total turnover or gross receipts during the previous year 2014-15 does not exceed 5 crores. In order to standardize the same, the following is expected:
- Reduction in the corporate tax rate to 25 % inclusive of surcharge and education cess
- Such reduction should not be restricted to certain domestic companies and should be extended to all tax payers
2. Minimum Alternate Tax
The current MAT rate comes to approximately 20% for companies having book profit. Also the credit for MAT paid is time bound and can only be carried forward for further 10 years. This has been a major point of debate for corporate assesses. It is expected that these two ambiguities are take care off and the following may be proposed:
- Reduction of the current MAT rate
- Increase the period of utilization of MAT credit
3. Abolition of Dividend Distribution Tax
The previous budget proposed 10% taxation of dividend proceeds received by the Shareholders (Individual and HUF) if it exceeds 10 lakhs. This led to double taxation of dividend both in the hands of company and Individual shareholders. Thus, Dividend Distribution Tax may be completely abolished and dividends may be taxed only in the hands of the recipients.
4. Deferment of Income Computation and Disclosure Standards (ICDS)
The government may further defer the applicability of ICDS (which is supposed to be mandatory from 1st April 2017) as there are still a lot of ambiguities in determining its impact and usage.
5. Deferment of Place of Effective Management (POEM)
In relation to provisions of POEM, there are a lot of ambiguities in the interpretation of guiding principles for determining POEM. Since POEM has a long term impact on companies, we may see a deferment in the applicability of POEM for a reasonable period of time to allow taxpayers and tax authorities to understand its guidelines.
If wishes were horses, beggars would ride. Though the above expectations may or may not form part of the Finance Bill 2017, but everyone would be eager to hear what the finance minister has to deliberate for the welfare of the common man, who is yet not out of the demonetization suddenness.