The union budget for 2016-17 fiscal is going to be presented on 29 February by the Union Finance Minister, Arun Jaitley. This is a time when financial markets around the world are not in the best health. The situation has been further exacerbated by the state of equities and forex markets. Prices of crude oil have seen a sharp decline and there has been an economic slowdown around the world as well. This is why it will be interesting to see what the budget contains and how it deals with expectations. The various sectors of national economy will be keenly observing the proceedings in order to find out if there is any greater exemption in case of savings.
Expectations in the domain of personal taxation
Common people in India are expecting that there would be changes in the rates of personal taxes. In the 2015-16 budget, the Union Finance Minister had effected no changes in this regard. However, given the way price rates have been increasing in the present fiscal, it is expected that Jaitley might provide some relief to the financially-overburdened general population. It is being expected that the minimum tax bracket will go up to INR 3 lakh from INR 2.5 lakh as is the case now.
Expectations of home buyers
The rate of inflation shows no sign of receding and it is in keeping with such trends that home buyers are expecting that government would increase the limits of tax deduction on interests charged on home loans. At present the upper limit is INR 2 lakh – the expectation is that it will increase to at least INR 3 lakh. Along with that, home buyers have also been asking for a different arrangement for principal loan amount, which is pegged at INR 1.5 lakh. This loan amount is already included in Section 80C.
Expectations in the domain of TDS limit
This is a very important area for the smaller income taxpayers. The general expectation is that the threshold limit for taxes deducted at source will see an increase. A high-level panel, which is dealing with simplifying laws related to income tax, has already suggested of late that the threshold limits be rationalized and increased, thus adding fuel to the fire. The panel has also advocated in favour of reducing the TDS rates.
Structural reforms expected
At a basic level it is expected that the budget will deal with key areas such as enhancing growth and reducing inflation. In the same vein, it is also crucial that the finance ministry brings about some structural reforms that can set the ball rolling from an economic perspective. It is important that the national economy becomes more malleable, provides greater benefits to existing and potential investors, and creates more opportunities for growth in the long-term. As the RBI has stated recently it is also important to control spending as that will enable the necessary support to be provided to growth initiatives and also make sure that inflation can be kept below 5% by the time 2017 ends.
Path of fiscal consolidation
When one looks at it dispassionately the Finance Minister has an unenviable task. As per experts, he has to be prudent and disciplined on one hand and on the other hand be more reasonable with subsidies without hampering development expenditure. It is expected that at the end of 2015-16 fiscal, the central government shall have a deficit of INR 5.55 lakh crore, which is 3.9% of the GDP. However, it is being expected that the finance minister will be able to bring reforms in areas such as taxes and laws, rationalize subsidies, and not take any populist steps in general.
Expectations surrounding National Pension Scheme
People also expect that the National Pension Scheme will become better by doing away with the taxes on receipt of the money and the gains thereof. Withdrawal needs to be made tax free. This will help it become as attractive as other investments schemes related to pensions.
Expectations of startups
These days there has been general increase in the amount of entrepreneurship in India. Every single day a startup is born in India with an aim to cater to the large market. What has further helped matters is that the Indian Government has shown of late that it is willing to create an environment where these organizations can do well. During January 2016, it awarded a slew of benefits for startups including no taxes on profits for the first three years. Startups, however, are of the opinion that they start making profits after three years and so expect that the tax break be extended to at least five years when the union budget is announced for 2016-17.
The government has in 2016 also announced a startup fund of INR 10,000 crore. As per this fund’s laws, if startups invest their capital gains in the same they will not need to pay any capital gains tax. Experts are however of the opinion that the startup ecosystem needs to be allowed to grow and the government could actually widen the net in order for that to happen. It can allow startups to invest their capital gains in other growth opportunities and thus avail various tax benefits. It is also expected that the angel tax will be done away with so that people are able to invest in startups that are in dire need of financial injection.
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