Budget ups public spending, halves basic tax rate

In a pre-poll Budget aimed at softening the demonetisation blow, Finance Minister Arun Jaitley today halved the basic income tax rate to 5 per cent and lowered rate for small companies while boosting spending on rural employment, agriculture and infrastructure.

Creating history, the Minister presented a merged railway and general Budget after advancing the dates by a month that provides a record outlay of Rs 3,96,135 crore for infrastructure schemes besides a capital expenditure of Rs 1.3 lakh crore on railways and Rs 64,000 crore on highways.

The Budget seeks to provide a record Rs 10 lakh crore in loans to farmers, boost funds for rural employment guarantee programme, bring one crore households out of poverty and promised to build one crore houses by 2019 for the homeless ahead of the crucial elections in five states including Uttar Pradesh and Punjab.

In view of the fact that the proposed GST is expected to be rolled out soon, he left indirect taxes largely untouched except for some changes in duties on tobacco products, solar panels and circuit for mobile phones.

While excise duty on pan masala has been hiked to 9 per cent from 6 per cent currently and that on unmanufactured tobacco to 8.3 per cent from 4.2 per cent, the same on filter and non-filter cigarettes of all length was also hiked.

Mobile phones will be costlier with the Budget proposing a 2 per cent special auxiliary duty on import of populated printed circuit boards (PCBs).

While the income tax rate for income between Rs 2.5 lakh and Rs 5 lakh has been lowered to 5 per cent, a 10 per cent surcharge has been slapped on income between Rs 50 lakh and Rs 1 crore. The 15 per cent surcharge on income above Rs 1 crore will continue.

While the surcharge alone would net Rs 2,700 crore a year, his give away on direct tax proposals will result in a loss of Rs 15,500 crore. The change in the personal income tax rate for individual assessees would reduce the tax liability of all persons below Rs 5 lakh to either to zero (with rebate) or 50 per cent of their existing liability.

In order not to have duplication of benefit, the existing benefit of rebate available to them is being reduced to Rs 2,500 available only to assessees up to income of Rs 3.5 lakh.

While the taxation liability of people with income up to Rs 5 lakh is being reduced to half, all other categories of tax payers in the subsequent slabs will also get a uniform benefit of Rs 12,500 per person.

In the case of senior citizens above 60 years, there will be no tax up to Rs 3 lakh, while the exemption will be up to Rs 5 lakh in case of citizens above 80 years. Both the categories will attract income tax of 20 per cent on income between Rs 5 lakh and Rs 10 lakh and 30 per cent for income above Rs 10 lakh.

Against the backdrop of demonetisation intended to eliminate black money and introduce clean transactions, the Budget barred any transaction in cash above Rs 3 lakh. As a measure of transparency in political funding, he lowered to one-tenth the donation that political parties can accept in cash to Rs 2,000 per donor.

Also bearer Electoral Bonds will be introduced which a donor can buy from a scheduled bank through cheque or e-mode, for making donations. The Finance Minister expressed confidence that the pace of remonetisation has picked up and would soon reach comfortable levels with effects not expected to spillover into the next fiscal.

Devoting considerable attention to demonetisation and its aftereffects, Jaitley said the surplus liquidity in the banking system created by the note ban decision will lower borrowing cost and increase access to credit.

"This will boost economic activity with multiplier effect," he said in his nearly two hour long Budget speech. Quoting from preliminary data, the Minister said during the 50-day window provided to deposit the junked notes, deposits between Rs 2 lakh and Rs 80 lakh were made in about 1.09 crore accounts with an average deposit size of Rs 5.03 lakh.

Deposits of more than 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crores. "This data mining will help us immensely in expanding the tax net as well as increasing the revenues, which was one of the objectives of demonetisation," he said.

The Finance Minister ruled out abolition of Minimum Alternate Tax (MAT) on companies but allowed larger period of 15 years instead of 10 years for setting of MAT payments. He lowered the corporate tax on companies with turnover of less than Rs 50 crore to 25 per cent from 30 per cent, a move that will benefit 6.67 lakh firms out of 6.94 lakh companies that file returns.

This would lead to a revenue loss of Rs 7,200 crore per annum to the government.Budget put the fiscal deficit at 3.2 per cent of GDP in 2017-18, smaller than the current year's 3.5 per cent but wider than the previous target of 3 per cent. It will shrink to 3 per cent in the year through March 2019 instead of 2018.

The Budget accorded low-cost housing infrastructure status, gave tax relief for overseas investors in some bonds and scrapped Foreign Investment Promotion Board (FIPB) to make it easier for doing business in India. Besides, Rs 10,000 crore will be injected into state- owned banks as capital in the coming fiscal as compared to Rs 25,000 crore budgeted for the current year.