The Union Budget 2017 presented by Finance Minister Arun Jaitley can be summed up as quite disappointing particularly to the long suffering Middle Class who had been expecting a significant reduction in their tax outgo.
At the end of the exercise the Finance Minister opted to go in for cosmetic relief, giving a 5 % relief to the lowest tax slab between 2.5 lacs and 5.0 lacs in income.
The slab rate for income in that bracket has been reduced from 10 % to 5 %. The net benefit for taxpayers is therefore Rs. 12,500, which is a figure unlikely to even meet the annual inflationary spiral. The relief will therefore amount to very little and will hardly make a significant impact to those middle class households who are desperately in need of relief.
The Middle class has been particularly disappointed in the stubborn refusal of the Finance Ministry to consider a radical overhaul of the limits in Section 80C. Section 80C of the Income Tax Act provides a deduction of upto Rs. 1.50 lac per year on a variety of investments including Life Insurance Premia, Tuition fees paid for children, Repayment of housing loans, investments in ULIP schemes etc.
It goes without saying that a vast majority of middle class families living in a city like Bengaluru will be spending close to or higher than Rs. 1.50 lac a month for their children’s tuition fee payment leave alone the other investment avenues listed. There was a compelling case to be made for doubling the investment amount limit under Section 80 C at the very least, thereby providing a relief of upto Rs. 45000 a year for these families.
The Finance Minister has opted for tax relief to Corporates in a strange manner wherein he has opted to link the tax relief to gross turnover. Therefore a Company will pay tax at 25 % instead of 30 % if they have a gross sale of less than Rs. 50 Crores. This provision is likely to encourage companies to split their turnover among several sister companies thereby falllng under the Rs. 50 Cr limit. Further there is no clarity as to how the “gross’ turnover will be estimated particularly in view of the upcoming GST act.
There are a few other jokers in the pack camouflaged in the fine print. The budget proposes to change the base year of indexation for capital gains from 1981 to 2001. This change, while innocuous seeming, will result in higher tax liabilities falling on those selling older assets particularly in real estate.
The cash avoidance provisions while welcome contain too many loopholes which will allow easy evasion. The emphasis on continuity and fiscal discipline is welcome but tax payers really expected a lot more and will have to wait a year longer for more significant relief