In the wake of the recent demise of ₹500 and ₹1000 notes, everyone wanted a good scoop on demonetisation from our Financial Minister in the budget. Arun Jaitley, in his fourth budget presentation painted demonetisation as “a bold and decisive measure” for “a GDP which will be bigger, cleaner and more real”.
Mr. Jaitley went on to state that the aftermath of demonetisation will help the Indian economy by creating a new norm, where tax evasion is reduced and the public sees the government as the custodian of their money. He also pointed out that there has been an escalation in the GDP growth and tax collection due to demonetisation.
The demonetisation fiasco has witnessed both accolades and denunciation. Three months into India’s demonetisation initiative has resulted in some fierce debates, long queues outside ATMs and banks, dipping of liquidity from various sectors and ushering of e-wallets. The Economic Survey says that demonetisation has hit India’s growth by 0.25-0.5% of GDP. With demonetisation severely affecting our economy, there have been speculations of whether the Union Budget 2017-’18 turns to be a relief or wrecks the economy further.
Some highlights of the Tax Budget are –
Tax liability for those with an annual income between INR 2.5 and 5 lakh was brought down to 5% instead of the existing 10% and Corporate tax rate reduced to 25% for small firms with turnover up to INR 50 crore. Basic customs duty on LNG to be reduced from 5% to 2.5%, cash transaction limit up to INR 3 lakhs, limiting the cash donation any party can receive from one source to INR 2000. Aadhaar pay was introduced for people who don’t have mobile phones, two new schemes were launched to promote BHIM app, including the cash back scheme for merchants. Due to demonetisation, advance tax on personal Income tax is increased by 34.8%.
A critical analysis of the same reflects that the budget 2017-18 is in complete harmonisation with the demonetisation drive and the objective of both is to change the colour of the money from black to white. This move will help in transfer of resources from tax evaders to government.
The International Monetary Fund (IMF) sees India growing fastest amongst major economies and that the effect of demonetisation is not expected to spill over to the next year. As per the Economic Survey 2017, once the cash supply is replenished, which is likely to be achieved by end March 2017, the economy should revert to normal. The Economic Survey has also pointed out that the benefits of demonetisation includes increased digitalization, greater tax compliance and a reduction in real estate prices, which could increase long-run tax revenue collections and GDP growth.
The accent of the budget was heavily focused on schemes and can be highlighted under 6 key points-
- Agriculture and rural sector
- Allocation under NREGA increased from ₹ 38,500 crore to ₹ 48,000 crore.
- ₹ 10 lakh crore as credit with 60 days interest waiver to farmers.
- Mini lab in Krishi Vigyan Kendras to be set up.
- Irrigation corpus increased to ₹ 40,000 crores from 20,000 crores.
- Dairy processing infrastructure fund with ₹ 2000 crores corpus to be created.
- ₹ 39,61,354 crores allocated.
- ₹ 1,31,000 crores allocated to Railways.
- Service charges waived off for booking tickets with IRCTC.
- 3500 km of railways lines to be commissioned.
- Rail safety fund with ₹ 100,000 crores corpus to be created over a period of five years.
- 500 stations to be made differently-abled friendly with lifts and escalators.
- ₹ 64,000 crores allocated for highways.
- Health Care
- Establishment of “AIIMS” in Jharkhand and Gujarat.
- Nationwide scheme to transfer ₹ 6000 each for pregnant women.
- Medical education- structural transformation of regulatory framework.
- Aadhar card linked smartcards to monitor health for senior citizens.
- Target to eliminate Tuberculosis by 2025.
- ₹ 500 crores allocated to Mahila Shakti Kendras.
- Tax Management
- Proposal to reduced customs duty from 5% to 2.5% on Liquefied Natural Gas.
- Transactions above Rs 3 lakh in cash not to be permitted.
- Tax rate for individuals with income between ₹ 2.5 lakhs-₹ 5 lakhs reduced from 10% to 5%.
- One-page income tax return on annual income of ₹ 5 lakh other than business income.
- Benefit of ₹ 12,500 to all other tax payers in subsequent categories.
- Financial sectors
- Holding period for long term capital gains reduced to 2 years.
- Proposal to reduce tax for MSMEs on turnover of up to ₹ 50 crore to 25%.
- FIPB to be abolished.
- Computer emergency response team to be created.
- Schemes of referral bonus for users and cash back for traders to promote BHIM App.
- Head post office to be the central office to render passport services.
- Start-ups abled to carry forward their losses for three years.
- Funding of political parties
- Maximum cash donations reduced from ₹ 20,000 to ₹ 2000.
- Donations by cheque or digital mode allowed.
- Changes to allow issue of electoral bonds which can be redeemed only by registered political parties.