Major reliefs may elude middle class in Budget

Major reliefs may elude middle class in Budget

Service tax may be hiked to 16%; Income Tax sops unlikely

Major reliefs may elude middle class in Budget

In his third Budget on Monday, Finance Minister Arun Jaitley may refrain from making major announcements for the salaried class but some tax concessions to promote initiatives such as “Make in India”,  “Startup” and “Skill India” are expected, to give a push to overall economic growth.

Efforts will be made to bring about a stable tax regime and address retrospective tax laws to give boost to investment. One or two percentage point cut in corporate tax rates may be announced in order to fulfil last year’s Budget commitment and exemptions may be phased out in smaller doses. Service tax rates could be hiked to 16 per cent from the current 14.5 per cent as part of preparation to bring GST regime. But service tax relaxation is expected to be announced for startups. No major excise duty concessions are expected except for those needed to promote “Make in India”.

Amid a serious mention of “mega rich” eating into subsidies and tax benefits of the middle income group and poor, subsidies on cooking gas, power sector, rail travel, aviation turbine fuel and gold may be scaled down or rationalised to eliminate the rich.

The finance minister will also try to cheer the market by announcing that this year’s fiscal deficit targets will be met but this cheer may be short lived as he is also expected to spell out the challenges in meeting 2016-17 target due to a higher outgo on 7th Pay Commission payouts and the likely increase in public spending on infrastructure and social sector schemes.

The Centre has set a target for fiscal deficit of 3.9 per in the current year and 3.5 per cent in 2016-17. Though investors and the market watch out for this number very closely, there are murmurs that the Dalal Street may accept the slippage if the quality of spending is better as projected in the Budget.

Banking reforms may draw renewed attention in the wake of bad loans driving public sector banks to incur huge losses. As part of revival of investment cycle, capital expenditure may also be increased. Capital expenditure had increased by 25.5 per cent in last year’s Budget.

Housing and construction sectors, which are doing badly, will get the Budget support along with Smart Cities with home buyers getting some tax incentives but there is no indication on upping the income tax exemption limit, which may go up very marginally.
Currently the basic IT exemption limit is Rs 2.5 lakh.

Agriculture sector

With agriculture remaining in distress due to two consecutive droughts and falling crop prices, the spending boost to social sectors including MNREGA and rural employment programmes may be announced. Crop insurance programme may be expanded to cover more districts.

A direct benefit transfer approach to fertiliser subsidies and liking it to Jandhan-Aadhar-Mobile (JAM) platform may be announced.

The Economic Survey has drawn attention towards gross misuse of fertiliser especially urea subsidy by the rich farmers.