IN the two days since the commencement of the Budget Session of Parliament on January 31, 2017, three important events followed in quick succession-President’s address to the joint sitting of two Houses of Parliament; placing of Economic Survey in Parliament; and, presentation of the Annual Budget for the year 2017-18. Important aspects from these events are, briefly, as follows.
President’s address
The 75-minute address is the government’s narrative on what has been done and what it plans to do in future. The areas relating to work done, inter-alia, pertained to welfare of poor, demonetisation described as bold decision to combat black money, corruption, terror financing and counterfeit currency, surgical strike to reply to repeated incursions on country’s sovereign integrity, fighting Maoists and militants in the North-East and a number of other matters. One striking feature of the address has been the repeated prefixes of ‘My Government’ to almost every sentence in the address on the lines of past practices. This has made the address drab, cumbersome, long-winding and lacking in flow. Such prefixes, appearing almost in every sentence, were not necessary because it is implied that the President was speaking for his government and emphasis for this before every sentence was not necessary.
Economic Survey
Presentation of Economic Survey is not a constitutional necessity but a customary practice since the year 1950-51. Up to 1964, it was clubbed with the Union Budget and thereafter, it has being presented as a separate document. It is a precursor of Union Budget, giving an idea of what could be expected in the Budget. It is long paper, dealing with diverse matters.
Demonetisation has been dealt with in a big way in the survey. Some significant observations are:
– Economy’s growth rate in the current FY could be around 6.50 per cent to 6.75 per cent after accounting for adverse impact of about 0.25 to 0.50 percentage points due to demonetisation. The impact is, however, likely to be temporary and economy should rebound to grow by 6.75 per cent to 7.50 per cent in 2017-18.
– Demonetisation was a powerful stick, but it now needs carrots as compliments, such as lowering income tax and stamp duties and accelerating the reduction in corporate taxes (this has been done to some extent by the Finance Bill, 2017).
– Agricultural sowing and passenger car sales bear little imprint of demonetisation. The survey also cautions against excessive push for digitalisation.
Union Budget 2017-18
It deals with varied subjects concerning various sectors of economy. In later discussion, only proposals, concerning direct taxes, are discussed.
[a] In para 140 of the budget speech, a disappointing picture of compliance to income tax law has been stated in the background of over 125 crore population of the country (See Table).
The position is to be contrasted with the fact that in the last 5 years, 1.25 crore cars have been sold and number of Indians, who flew abroad either for business or tourism, was 2 crore in 2015.
THE above position shows weak implementation of the IT law and the Finance Bill, 2017, does not contain any effective measures which could improve this position in the near future. Merely saying that ‘the burden of tax evasion falls on those who honestly comply with the tax laws,” is not a solution to the problem.
[b] Tax rate in the first slab of Rs. 2.5-5 lakh has been reduced from 10 per cent to 5 per cent, giving a tax benefit of Rs. 12,500 across the board, even for persons falling in the slab of Rs. 10-20 lakh and above. However, two aberrations have resulted by such relief-senior citizens (80 years and above) do not get any benefit from such reduction; and, there is a wide gap in tax rates between two slabs of Rs. 2.5-5 lakh and Rs. 5-10 lakh, being 5 per cent and 20 per cent, respectively.
[c] A surcharge of 10 per cent of tax payable on categories of individuals, whose annual taxable income is between Rs. 50 lakh and Rs. 1 crore has been proposed.
[d] An appeal has been made by the FM to all citizens of the country to contribute to nation building by a small payment of 5 per cent tax if their income is falling in the lowest slab of Rs. 2.5-5 lakh.
[e] Changes, as under, are proposed in the taxation of capital gains:
– Holding period for considering gain from immovable property to be long term capital gain is reduced from 3 years to 2 years. This is justified on the ground of incentivising investment in immovable properties.
– The base year for indexation for tax on capital gains is proposed to be shifted from April 1, 1981, to April 1, 2001, for all classes of assets, including immovable property.
– The basket of financial instruments in which capital gains can be invested for getting exemption from tax has been widened.
– Special provision for computation of capital gain where joint development programme is proposed to the effect that capital gains shall be chargeable in the year in which the certificate of completion of whole or part of the project is issued by the competent authority.
There was a need to extend the period of holding of 1 year to 2 years in cases of shares and securities also for being treated as long term capital gain. Regretfully, this has not been done.
According to the the Economic Survey, demonetisation was a powerful stick, but it now needs carrots as compliments, such as lowering income tax and stamp duties
[f] A simple one-page return form has been prescribed for persons having income up to Rs. 5 lakh from sources other than business or profession.
[g] In order to ensure timely filing of returns of income, it is proposed to levy a fee in case of delay in filing the return.
[h] Period for claiming deduction u/s 80IA by eligible start-ups for 3 consecutive years has been increased to 7 years from 5 years at present.
[i] For encouraging cashless transactions, the following proposals have been mooted:
– To amend Section 80G to provide that no donations shall be allowed u/s 80G in respect of any sum exceeding Rs. 2,000 unless such sum is paid by any mode other
than cash.
– Depreciation u/s 32 for any capital expenditure on acquisition of assets shall not be allowed if the assets have been acquired by cash payments.
– Existing threshold limit for cash payments for business deals has been reduced from Rs. 20,000 to Rs. 10,000.
– No person shall receive any payment in cash of Rs. 3 lakh or more. A new section 269ST is proposed to be introduced in the Act to provide for this.
The Finance Minister has to ponder about the size of the IT Act with so many additions each year, most of which get approved by Parliament even without discussion because of paucity of time
[j] The Finance Bill provides for transparency in electoral funding. The measures proposed are:
– No donation of Rs. 2,000 or more shall be received by a political party otherwise than by an account payee cheque/draft, or through electronic clearing system, or electoral bond through a bank account.
– The political party has to file a return of income before the due date u/s 139 of the Act.
Summing up
IN the foregoing discussion, an account has been given in regard to major proposals contained in the Finance Bill, 2017. One aspect of worry is complication of the IT Act, 1961, by incorporation of changes contained in 150 clauses of the Finance Bill, 2017. Last year’s Finance Bill contained 208 clauses relating to Income Tax law. Earlier years’ Finance Acts also contained nearly 100 to 150 clauses. The FM has to ponder about the size of the IT Act with so many additions each year, most of which get approved by Parliament even without discussion because of paucity of time.
I also wish to express disappointment about the injustice initiated by P Chidambaram by denying employment-related expenses to salaried employees by way of standard deduction without there being any conceivable grounds for doing so and the present government continuing it. It needs to be considered whether savings in tax by such denial to salaried taxpayers, who constitute a big chunk of taxpayers, paying their taxes honestly would be commensurate with frustration of such large number of taxpayers.
The writer is former Chairman, CBDT
