Will Budget 2017 Increase Your Tax Burden?

The Union Budget 2017 is all set to be announced on February 1, a date that has now been adopted by the Narendra Modi government as compared to the last week of February followed by the governments before. All eyes are on Prime Minister Narendra Modi and Finance Minister Arun Jaitley on the budget proposals and the relief expected for the common man post the last three months ever since demonetisation of high value currencies were announced and implemented.

But will it be a please-all budget or will the Modi government tighten its finances by increasing avenues to raise taxable income. Finance Minister Arun Jaitley has constantly maintained his government's commitment to stick to the stiff fiscal deficit target of 3 per cent. Jaitley announced the targets for three years as 3.9 per cent for 2015-16, 3.5 per cent for 2016-17 and 3 per cent for 2017-18. This would mean limited elbow room for Jaitley to spare money to fund existing welfare programmes and announce new ones in a bid to ease the burden on the common man.

The International Monetary Fund (IMF) on January 16 downgraded India’s growth forecast for the year to 6.6 per cent, a full percentage point lower from its earlier estimate of 7.6%, on the back of the disruption caused by demonetisation.

Those who are betting on a populist budget are predicting that the government will tinker with the tax slabs, raising the tax exemption slabs for individuals from the present Rs 2.5 lakhs to Rs 3 lakhs per year. They are also hoping for an increase in the interest exemption on housing loans from Rs 2 lakh to Rs 3 lakh.

At the same time, those who are expecting a tight budget say that the government is likely to introduce a new tax on cash transactions above Rs 50,000. A high-level committee on digital payments headed by Andhra Pradesh chief minister Chandrababu Naidu has suggested such a tax to discourage cash transactions, a cap on the maximum allowable limit for large-size cash transactions and a complete abolition of charges on card payments to incentivise digital transactions, reports The Economic Times.

This is in line with the government's stated objective of converting India into a 'less cash' economy. The stock market is also worried with various reports pointing out to the government re-introducing Long Term Capital Gains Tax on sale of shares. Currently, shares held for more than a year attract zero tax. This is likely to increase to 3 years. Prime Minister Narendra Modi hinted at this possibility when he said at an event in Mumbai in the last week of December that “Those who profit from financial markets must make a fair contribution to nation-building through taxes."

Also it will be interesting to see if the government raises service tax rate from the current 15% to 18%, which is anyways expected to be the floor rate once the goods and services tax (GST) kicks in later this year.

On Friday, Govindraj Ethiraj spoke to Gopal Mundhra, Associate Partner - ELP on the tax measures the government is expected to take and whether the budget this time will be increase the burden on the common man. Listen in to what Mundhra had to say.