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7 things to expect from Budget 2017-18
The New Year seems to have barely begun, and we are already nearing the crucial Budget day. Come February 1st, all eyes will be glued to the television set to hear Finance Minister Arun Jaitley. After all, it affects everything from your spending to income to tax payments.
So gear up. Here are the seven announcements you can expect from the Budget.
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Fiscal stimulus
The demonetisation of 500 and 1,000 rupee notes in November is expected to bring down the economy’s growth rate by around 1%. This is because demand, consumer spending, and factory productivity took a big hit. To make up for this, the government is likely to inject fiscal stimulus to buoy the economy. This can be any policy that leaves more money in the hands of the people.
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Tax breaks:
One kind of fiscal stimulus can be cuts in tax rates or increase in tax exemptions. Many media reports suggest a rise in the income tax exemption limit to Rs 3-5 lakh from the current Rs 2.5 lakh. Alternatively, the government could also increase the tax deduction limit available under Section 80C to Rs 2 lakh from Rs 1.5 lakh. Similarly, the tax deduction available on home loans can also be increased to Rs 3 lakh from Rs 2 lakh currently. Those were for individuals. Corporates could also see a cut in income tax rates as indicated in the previous budget.
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Increase in expenditure:
The economy also needs more investments to grow further. The government already indicated that it plans to spend more on building infrastructure. However, what’s important is the exact plan of expenditure.
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Higher revenue:
The worry about a higher expenditure is that it could widen the fiscal deficit—the amount by which the government spends more than it earns. It has to then borrow from the market to fund this expenditure. Too much borrowing is bad for the economy. However, analysts expect the government to report higher revenues thanks to the demonetisation exercise. This could help fund the extra expenditure. The actual numbers, however, would be important.
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Taxes on capital markets:
“Those who profit from financial markets must make a fair contribution to nation-building through taxes,” the Prime Minister said in a speech in December. This hints towards taxation of capital gains from the stock market. It could be either in the form of a higher tax rate. Alternatively, the government could increase the time you need to hold stocks to classify for long-term capital gains. It currently attracts zero tax.
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Higher railway fares:
There is not going to be a separate Railway budget this year. It’s part of the Union Budget announcement. The Finance Minister indicated that there may not be any sops for the Railways. Media reports suggest the government could even consider hiking railway fares.
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More disinvestments:
One important source of revenue for the government is by selling shares in Public Sector Undertakings (PSU). So the budget could announce a high divestment target. In fact, this could be the mode of raising funds for PSU banks, which need to be capitalised.
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Rs 35,300 crore
If the government announces the tax sops like an increase in tax exemption and deduction limits, its tax revenue could fall by Rs 35,000 crore, as per media reports. However, this could be balanced by an increase in revenue from other sources like indirect tax and cancelled note liabilities of RBI, the reports said.
