Budget 2017-18: Arun Jaitley may look to soften note ban woes by tax relief

New Delhi: As Finance Minister Arun Jaitley presents his third full-fledged Budget on Wednesday, he will be faced with the tough challenge of reviving growth especially in the wake of the note ban and the declining growth rate.

Perhaps, his most challenging Budget, Jaitley is expected to look towards tax and other sops to soften the blow of note ban and revive growth.

With the government demonetising notes that made 86 percent of the currency invalidate, Jaitley will present the Budget for 2017-18 while largely sticking to fiscal consolidation roadmap.

Topping the list of sweeteners could be the hike in Income Tax exemption limit to Rs 3 lakh from current Rs 2.5 lakh as the Minister will look at putting more money in hands of people to not just create a feel good atmosphere but also check the disruptive impact of demonetisation on demand, supply chains and cratered credit growth.

Alternatively, he may raise the deduction limit for interest paid on home loans to Rs 2.5 lakh from Rs 2 lakh currently. A higher medical rebate may also be on the cards.

Besides tax break, there could even be a universal basic income in the Budget, industry officials and tax experts said.

But cutting 30 percent corporate tax rate to lift sagging investments may not be easy given that government's official estimate of 7.1 percent GDP growth for the current financial year does not take into account the chaos wrought by demonetisation.

While revenue collection targets for the current fiscal may exceed, there are doubts if Jaitley may project any substantial jump in tax receipts in 2017-18.

Also, the rising oil prices are a cause of worry for him, leaving him with very little fiscal room to manoeuvre social and infrastructure schemes.

Incentives or schemes for farmers and rural India, women and social sectors like health and education may be cornerstone of his budget given that five important states including Punjab and Uttar Pradesh will be voting within days of his Budget presentation.

Besides agriculture, the Finance Minister may also announce schemes for boosting domestic manufacturing and promoting start ups.

Tax experts and economists said Jaitley may hike the service tax (currently at 15 percent) to align with the GST regime.

It will be keenly watched if he makes any changes to the tax regime on investments in equities. At present, gains from transactions in shares held for less than 12 months are considered short-term capital gains and are subject to 15 percent tax.

Gains on holdings above 12 months qualify for long term capital gains benefits and are exempted from tax.

Tax experts said ending tax breaks on equity gains may turn sentiments sour towards the capital market. There is a thought that the 1-year limit for long term could be changed to two years but the tax rate is likely to be kept at zero.

He will have to juggle numbers to remain largely within the fiscal consolidation roadmap. The current year's fiscal deficit target of 3.5 percent of GDP is mostly likely to be met on back of surge in tax receipts from 7th Pay Commission grant to employees and tax amnesty schemes.

It remains to be seen if he will narrow the deficit, the widest in Asia, in 2017-18 to 3 percent planned previously.

He may continue to piggyback on public spending, especially on infrastructure, as he looks to reverse the investment collapse.

A roadmap on Goods and Services Tax (GST), that will not just turn India into one market with one tax rate but also improve tax compliance and check evasion, may figure in Jaitley's Budget speech.

With PTI Inputs