Budget 2017 is just around the corner and is riding on a lot of expectations. Last year was eventful to say the least, with Britain exiting the European Union, Donald Trump winning the US elections and our Prime Minister announcing the demonetisation of high-value currency.
I believe that in the coming Budget, the government can focus on lowering tax rates. Revenue collected in the last few months from both direct and indirect tax has been phenomenal, seeing double digit growth.
Using the black money that has been collected, the government should give benefits to the common citizen by reducing the burden of taxes.
Post demonetisation and income declaration schemes, the government has collected around ₹65,000 crore. Using the black money that has been collected, the government should give benefits to the common citizen by reducing the burden of taxes.
The last increase in the income tax exemption limit was made from FY 2014-15, which needs to be revisited considering the increased cost of living. For a person below the age of 60 years:
- Basic exemption limit be increased from ₹2.5 lakh to ₹3 lakh.
- Income from ₹3-10 lakh @10% tax rate (currently the slab is ₹2.5-5 lakh).
- Income from ₹10-20 lakhs @20% tax rate (currently the slab is ₹5-10 lakh).
- For income beyond ₹20 lakh, the tax rate should be 30%.
For person between the ages of 60-80 years, the basic exemption limit is expected to increase from ₹3 lakh to ₹4 lakh.
Toss up between corporate tax rate and personal income tax
In 2016, the global economy took a hit with Brexit and the US presidential elections in favour of Donald Trump. The US President has already promised that they would be cutting corporate tax rates up to 15%. The British PM, too, has promised lower corporate tax rates to boost investments.
The government may consider bringing the corporate tax rate down to be competitive internationally. In last year's budget, the government showed its intention to give benefits to companies with a turnover of less than ₹5 crore, where tax rate was brought down to 29% and for all new manufacturing companies incorporated from 1 April 2016 to 25% (provided they do not claim any exemptions). Besides, companies are required to maintain lot of documentation, file applications, various forms to claim tax incentives and for compliance. These regulatory requirements may be eased up.
Increase in home loan tax benefits
In the last budget the government introduced an additional deduction of ₹50,000 to first-time home owners. This was done via section 80EE and was allowed to those buying a house of less than₹50 lakh with loan of less than ₹35lakh. However, only those who took the loan in FY 2016-17 were eligible. It is hoped this will be extended to FY 2017-18 as well.
The government must also consider doing away with the time limit for completion of construction of five years for claiming interest on home loan deduction, especially for first-time home owners. Home owners can claim a deduction of ₹2 lakh when they meet this condition. However, due to delays by builders in projects, home buyers suffer.
The government can also allow tax exemptions and no MAT for companies which are investing in building affordable housing. This can be an attractive impetus to the realty sector which has been hit by demonetisation.