Demonetisation effect: Jaitley gives growth push in budget; tax disappointment for middle class

UNION BUDGET-2017-18

Demonetisation effect: Jaitley gives growth push in budget; tax disappointment for middle class

Rs 10 lakh cr agri credit; 48,000 cr for MNREGS; 10,000 cr for bank recapitalisation; 1.31 lakh cr capex for railway; 3.96 lakh cr for infra; Rs 2,000 cash limit for parties; no cash transaction above Rs 3 lakh; relief for income below Rs 5 lakh

New Delhi, February 1

The Budget for 2017-18 on Wednesday halved the tax to 5 per cent on incomes between Rs 2.5 lakh and Rs 5 lakh but proposed a new surcharge of 10 per cent on incomes between Rs 50 lakh and Rs 1 crore and raised duties on cigarettes and pan masala while stepping up allocations for infrastructure, rural, agriculture and social sectors. Breaking from the past, Finance Minister Arun Jaitley presented a historic Budget in which the railway budget has been merged and the date advanced by a month, retaining the 15 per cent surcharge on taxable income above Rs 1 crore. While the surcharge alone would net Rs 2,700 crore a year, his give away on direct tax proposals will result in a loss of Rs 15,500 crore. The change in the personal income tax rate for individual assessees between Rs 2.5 lakh and Rs 5 lakh income would reduce the tax liability of all persons below Rs 5 lakh to either to zero (with rebate) or 50 per cent of their existing liability. In order to have duplication of benefit, the existing benefit of rebate available to them is being reduced to Rs 2,500 available only to assessees up to income of Rs 3.5 lakh. While the taxation liability of people with income up to Rs 5 lakh is being reduced to half, all other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,500 per person. In the case of senior citizens above 60 years, there will be no tax up to Rs 3 lakh, while the exemption will be up to Rs 5 lakh in case of citizens above 80 years. Both the categories will attract income tax of 20 per cent on income between Rs 5 lakh and Rs 10 lakh and 30 per cent for income above Rs 10 lakh. Transaction in cash above Rs 3 lakh barred Against the backdrop of demonetisation intended to eliminate black money and introduce clean transactions, the Budget barred any transaction in cash above Rs 3 lakh. As a measure of transparency in political funding, he lowered to one-tenth the donation that political parties can accept in cash to Rs 2000 per donor. The Finance Minister expressed confidence that the pace of remonetisation has picked up and would soon reach comfortable levels with effects not expected to spillover into the next fiscal. In view of the fact that the proposed GST is expected to be rolled out soon, he left indirect taxes largely untouched expect for some changes in duties on tobacco products, solar panels and circuit for mobile phones. While excise duty on pan masala has been hiked to 9 per cent from 6 per cent currently and that on unmanufactured tobacco to 8.3 per cent from 4.2 per cent, the same on filter and non-filter cigarettes of all length was also hiked. Mobile phones will be costlier with the Budget proposing a 2 per cent special auxiliary duty on import of populated printed circuit boards (PCBs). The Finance Minister ruled out abolition of Minimum Alternate Tax (MAT) on companies but allowed them a carry forward facility for 15 years instead of 10 years to allow them MAT credit. Agriculture credit raised to record Rs 10 lakh crore In a bid to boost the rural and informal sectors hurt by the note ban, the Budget raised the target for agriculture credit during the coming year to a record Rs 10 lakh crore that will ensure flow of credit to under serviced areas. The Budget provides for Rs 9,000 crore under the Crop Insurance Scheme and proposed to set up a dedicated micro-irrigation fund under NABARD with an initial corpus of Rs 5,000 crore. The Budget provisions under rural employment guarantee scheme MGNREGA has been increased from Rs 38,500 crore in the current year to Rs 48,000 crore in 2017-18, while Rs 19,000 crore has been given under the rural roads programme. The total allocation for rural, agriculture and allied sectors has been pegged at Rs 187,223 crore, which is 24 per cent higher than the previous year. In a bid to boost infrastructure spending, the Minister proposed a total of Rs 1,31,000 crore towards capital and development expenditure of railways which includes Rs 55,000 crore provided by the government.

Railways: Passenger safety fund

The Railways will focus on four major areas of passenger safety, capital and development work, cleanliness and finance and accounting reforms. A passenger safety fund is being created with a corpus of Rs 1 lakh crore over five years and a plan for modernisation and upgradation of identified corridors. Railway lines of 3,500 km will be commissioned in next fiscal as against 2,800 km in the previous year. Steps will be taken to dedicated trains for tourism and pilgrimages. In the road sector, allocation for highways has been stepped up to Rs 64,900 crore against Rs 57,976 crore in Budget Estimates of 2016-17. For the transportation sector as a whole, including rail, road and shipping, the Budget provides for Rs 2,41,387 crore in FY18. “This magnitude of investment will spur a huge amount of economic activity across the country and create more job opportunities,” Jaitley said. Foreign Investment Promotion Board to be abolished As a financial sector reform, the Budget also proposed to abolish Foreign Investment Promotion Board (FIPB). Other measures to perk up the financial sector include further integration of commodities and securities derivatives market and full online process of registration of financial market intermediaries like mutual funds, brokers, portfolio managers to improve ease of doing business. The total expenditure in the Budget has been placed at Rs 21.47 lakh crore. Defence expenditure, excluding pensions, has been pegged Rs 274,114 crore for FY18, including Rs 86,488 crore for capital. With the abolition of plan, non-plan expenditure, the focus will be now on capital and revenue expenditure, Jaitley said. “I have stepped up the allocation of capital expenditure by 25.4 per cent over the previous year. This will have multiplier effect and will lead to higher growth. “The total resources being transferred to the states and the Union Territories with legislatures is Rs 4.11 lakh crore against Rs 3.60 lakh crore in Budget Estimate of 2016-17,” he said. Outlining the fiscal deficit roadmap of 3 per cent recommended by the FRBM committee, the Minister has pegged it for 2017-18 at 3.2 per cent of GDP and said he will remain committed to achieving 3 per cent in the following year. “With this gradual approach, I have ensured adherence to fiscal consolidation, without compromising the requirements of public investment,” he said. The net market borrowing of the government has been limited at Rs 3.48 lakh crore after buyback, much lower than Rs 4.25 lakh crore in the current fiscal. “More importantly, the revenue deficit of 2.3 per cent in BE 2016-17 stands reduced to 2.1 per cent in the revised estimates. The revenue deficit for next year is pegged at 1.9 per cent, against 2 per cent mandated by the FRBM Act,” he said. As measures for stimulating growth, the Budget extended the concessional withholding rate of 5 per cent on interest earned by foreign entities in ECBs or in bonds and government securities by 3 years to June 2020. This benefit is also extended to rupee denominated masala bonds. Jaitley reduced the peak rate of income tax for small companies with turnover of up to Rs 50 crore to 25 per cent, benefiting 6.67 lakh firms out of 6.94 lakh which file returns. The concession would lead to a revenue loss of Rs 7,200 crore per annum. “My direct tax proposals for exemption, etc. would result in revenue loss of Rs 22,700 crore but after counting for revenue gain of Rs 2,700 crore for additional resource mobalisation proposal, the net revenue loss in direct tax would come to Rs 20,000 crore. There is no significant loss or gain in my direct tax proposal,” he said. — PTI

Salient features of the Union Budget presented by FM Arun Jaitley in Parliament:

PERSONAL TAX
*Zero tax for income below Rs 3 lakh                        *Tax on income from Rs 2.5 lakh to Rs 5 lakh cut from 10% to 5% *Surcharge on income more than Rs 15 lakh *Capital gains tax period reduced from 3 years to 2 *One-page IT form for income up to Rs 5 lakh  FISCAL DEFICIT

Projects 2017/18 fiscal deficit at 3.2 percent of GDP
Government remains committed to 2018/19 fiscal deficit at 3 per cent of GDP
The 2017/18 budget seeks to pursue prudent fiscal management to preserve financial stability

GROWTH

Jaitley says India seen as an engine of global growth

EXPENDITURE

Estimates 2017/18 total expenditure at 21.47 trillion rupees

Capital spending raised by 25.4 per cent on year in 2017/18

BORROWING

2017/18 net market borrowing estimated at 3.48 trillion rupees

 

INFLATION

Consumer price index inflation is expected to remain within the central bank’s mandated range of 2 to 6 per cent

DEMONETISATION

Demonetisation “a bold and decisive measure”, will make GDP bigger and lead to higher tax revenues, says finance minister

Hit to economy from government decision to outlaw high-denomination notes will be “transient”, effects of demonetisation not expected to spill over to next year

Pace of remonetisation has picked up and will soon reach comfortable levels

Surplus money in the banking system will lower borrowing costs, increase credit flow

TAXATION

Proposes to cut income tax rate in 2017/18 for small companies

Extends relaxation on withholding tax on foreign investor’s interest income from debt until June 30, 2020

Proposes change in capital gains tax in real estate, land

AGRICULTURE

With a better monsoon agriculture is expected to grow at 4.1 per cent in 2016/17

Agricultural credit target fixed at Rs 10 lakh crore for 2017/18

Long-term irrigation fund allocated 400 billion rupees

Allocates 80 billion rupees for milk processing over 3 years

Farm insurance to cover 40 per cent of net sown area, up from 30 per cent last year

Modern law on contract farming will be drafted and circulated to states

INFRASTRUCTURE

Allocates 3.96 trillion rupees for infrastructure in 2017/18

Allocates 2.41 trillion rupees for transport sector in 2017/18

Proposes 640 billion rupees investments in national and state highways in 2017/18

FOREIGN INVESTMENT

Decides to abolish foreign investment promotion board

BANKING

The government to provide already planned 100 billion rupees capital infusion to state-run banks in 2017/18

DEFENCE

2017/18 defence expenditure excluding pensions estimated at 2.74 trillion rupees

DIVESTMENT

Proposes revised mechanism for time bound listing of public sector companies

RURAL SPENDING

Allocation for rural, agriculture and allied areas to increase by 24 per cent to 1.87 trillion rupees

Allocates 480 billion rupees to rural jobs scheme in 2017/18, versus a revised estimate of 470 billion rupees in the current fiscal year

Allocates 190 billion rupees for rural road scheme in 2017/18

On course to complete 100 per cent electrification by May 1, 2018, allocating 48 billion rupees for rural electrification scheme

RAILWAYS

Proposes to invest 1.31 trillion rupees in railways in 2017/18; budget 2017/18 allocates 550 bln rupees for railways

Dedicated railway safety fund of 1 trillion rupees over next five years

3,500 km of railway lines to be commissioned in 2017-18 as against 2,800 km in 2016-17

Transformative measures have to be taken to make Indian railways competitive

Railways to withdraw service charges on online booking of tickets

LABOUR

Legislative reforms to be undertaken to simplify, rationalise existing labour laws

INDUSTRY-SPECIFIC MEASURES

To introduce legislation changes for confiscating assets of economic offenders

To set up two more strategic oil storage in 2 states; proposes to create integrated oil company

Announces new trade infrastructure export scheme

Taking steps to make India a global hub for electronics manufacturing; received over 2,50,000 proposals last year with an investment value of 1.26 trillion rupees

To integrate stock and derivative markets for commodities trading

To double lending target under Mudra Yojana (Micro Units Development and Refinance Agency) to 2.44 trillion rupees

India to spend more in rural areas, infrastructure and poverty alleviation

The government will continue process of economic reforms for the benefit of the poor

To allocate 40 billion rupees for market-relevant training for youth

Total allocation for women and children welfare set at 1.84 trillion rupees

Airports Authority of India to monetize land around certain tier 2 airports, use funds to upgrade airports

HOUSING   

National housing bank to provide 200 billion rupees for housing loans

Affordable housing to be given infrastructure status

FINANCE MINISTER’S COMMENTS

“India stands out as a bright spot in the world economic landscape.”

“My approach in preparing the budget is to spend more on rural areas, infrastructure and poverty alleviation with fiscal prudence.”

“Signs of retreat from globalisation have potential to affect exports from many emerging economies, including India.” Reuters

Devoted to villagers, farmers and poor: PM

This Budget is yet again devoted to the well-being of the villagers, farmers and the poor, says Prime Minister Narendra Modi.

The Budget reflects commitment to eliminate corruption and black money, says Modi. Agencies

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