What to expect from the Union Budget of 2016-17

February 26, 2016

by Harish Thakkar.


On February 29th, The Finance Minister Mr. Arun Jaitley will be presenting the Union Budget for FY 2016-17. The previous two Budgets were lacklustre, high on promises and little on execution plans. This will be the third budget by Mr. Jaitley (including the interim budget of 2014) and possibly the last as speculation is rife that he may be taking over Defense and Finance being handed over to Piyush Goyal or Raghuraman Rajan given his term ends in Autumn.


Over the past year, the Government’s policies have focussed on Entreprenuership and skill development. The focus is on drivers that are important to growth of the nation, as taught in our finance courses in India. What is needed is action on the ground and this budget could well provide a road map for these deliverables. The Government is expected to come up with announcements and sops to encourage growth. Definitive policies and tax sops for the PMs favourite “Make in India” and “Start up India” initiatives could well be announced in this budget. For the Make in India initiative to succeed, the government will have to focus on skill development and creation of job. This budget could well give a boost to the Education sector to create the skill pool.


While the budget is likely to be citizen centric especially focussing on rural India, we could see some announcements insurance and easy financing schemes for Farmers. There are some questions that the FM needs to answer on the Personal Income Tax slabs or widening of the Tax payer net. In a country of over 120 crores, there are a little over 3.5 crore tax payers which is dismal 3% against global average of over 40%. The Tax Administration Reform Commission (TARC) in its detailed report has put the number of tax payers at around 6%. In a country of 120+ crores and assuming 5 members per family, there are 24 crore families. 50% of these draw minimal wages or earn less than that minimum taxable income slab, 25% have agriculture as the sole income source.


A large part of the rest is the non-TDS tax payer class which is largely cash businesses. The parliamentary standing committee observed in its report that the tax collection now needs to focus on untapped or lesser tapped brackets of income which mostly comprise the un-organised sector and the cash economy. For this purpose, the ministry should take steps to use its manpower to not just keep a vigil over non-TDS group but also by effective use of Technology and data. The TARC has also suggested to restructure the income tax slabs to encourage people not to suppress their income to pay lesser tax, it has also suggested presumptive taxation to bring those into the tax net who are evading taxes by dealing in cash, mostly small businessmen and professionals. The scope of the presumptive profit estimation scheme should be widened and reviewed based on appropriate analysis. Easier said than done but the FM should use this budget to bring about tax structure reforms to widen that tax payer net.

Finally, the most awaited announcement and popular debate on raising the exemption limits and restructuring the tax slabs. The FM may please the salaried class by raising the tax exemption from 2.5 Lacs to 3 lacs and in a bid to discourage the tax payer to suppress the income the 30% top rate slab could well be increased to 12 or 15 lacs. Though negligible, the salaried class does cheer whatever little it saves by paying less tax.


Whether the Budget will be yet another lack lustre “non-event” or a gutsy path breaking one, the drama unfolds on the 29th.


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