Ashwin Vasista, Associate, Singhania and Co

BEFORE
Goods and Services Tax

• The introduction of the Goods and Services Tax (GST) is in itself a path-breaking fiscal reform. Corporate tax and other indirect taxes may be revamped keeping in view GST requirement.
• There exists a high probability that this government will pass the GST Bill during this Budget Session.
• The government is working overtime to make GST a reality with a target of 1st April, 2017. All the states will have to pass the GST Bill, which will be on the same lines as the Central Bill/Act. Implementing GST before 16 September 2017 is a Constitutional necessity.
• Since the rate of GST is expected to be around 18 per cent, we expect that Jaitley will raise the service tax rate from the existing 15 per cent by at least 1 per cent as a precursor to the rollout of GST.
• In the upcoming Budget, one can look forward to certain measures like a clear-cut roadmap and the government´s irrevocable intention on GST implementation. The government may also come out with proposals for compensation to states due to likely GST revenue loss.
• The chances are that the government may consider tabling the GST Bill in the Budget Session itself.
• However, GST will evolve and mature over the next few years, before it settles down as an ideal and comprehensive indirect tax regime for the country.

Pension Income

• Pension Income for senior citizens should be made completely tax free. This will not only help the elderly to build up some savings, it will also reduce operational work for the income-tax authorities.
• We hope the government makes some announcements in this Budget regarding a likely Social Security Scheme.

Expectations

• Allocation for the education sector is expected to go up by 10-12 per cent in order to establish world class universities and a Higher Education Financing Agency (HEFA). This HEFA should offer affordable loans to educational institutions for infrastructure and R&D related requirement.
• The Railways will outsource certain services and operations to increase efficiency and profitability.
• We expect the Railways to construct high-traction projects such as various freight corridors, warehouses, last-mile connectivity options for ports and electrification of various routes.
• We expect continuation of tax incentives and benefits for the renewable energy sector.
• The focus will be on stricter and time-bound implementation of these budgets.
• Also, in line with the recent indications, we expect allocations for defence to be higher.
• To curb diesel consumption, the Budget may propose the use of electric vehicles in public transport and for government vehicles within three years.
• We expect that the government will roll out infrastructure bonds in order to raise funds for infrastructure projects.
• We expect that funds will be allocated as per policy and a roadmap will be set for inland water transportation.
• We expect that big ticket projects which meet specified criteria will be put on the fast-track route.
• We expect that funding provided under the National Investment and Infrastructure Fund will be tracked faster to infrastructure projects in order to avoid delay in project completion.
• We expect that special incentives will be given for industries involved in the renewable energy sector.

Increased taxes on Tobacco, Alcohol, Luxury Goods and imports

• The prices of tobacco products and alcohol witness increase in price in every Budget as these have been a perennial source of revenues. Going forward, we can expect more of the same. The price of imported goods such as high-end electronics, automobiles, as well as gold is also expected to rise as the government attempts to increase indirect tax revenues. Also, the Budget may include steps to the tune of making imported items less attractive to control its budgetary deficit and simultaneously promote the ´Make in India´ initiative.

Long Term Capital Gains

• The government may change the definition of ´long-term,´ raising the time limit for capital gains tax relief to a minimum of two or three years from one year at present. A change in the definition of ´long-term´, if announced in the Budget for 2017-18, could likely prompt millions of individuals who trade in stocks to shuffle their savings portfolio. The argument in favour of a longer holding period is that it will help retail investors avoid panic selling when markets are volatile because of external conditions.
• Though the above change might cause some disruption in the market, we believe it could also encourage stock investors to take a longer-term perspective.
• We say that any plan to impose tax on LTCG would make the Indian equity market unattractive to global markets.

Real Estate

• We expect that the interest rate reduction on home loans which was proposed by the Prime Minister on New Year´s Eve will get a legal backing.
• We expect that special funds will be allotted under affordable housing for all schemes in order to meet the government vision of ´Housing for all´ by 2020.
• We expect that special funds will be allotted for rural housing under the Pradhan Mantri Awas Yojana (PMAY).
• We expect that a policy will be laid out for boosting demand for higher disposable income, higher income-tax exemption limit on interest payment and principal repayment of housing loans.

Income-Tax

• The tax exemption slab for individual taxpayers would be raised from the current Rs 2.5 lakh level to a new level of Rs 3 lakh per annum and Rs 5 lakh for senior citizens.
• PPF, EPF, and NPS can all come into one unified pension scheme. Withdrawal from National Pension Scheme (NPS) should be made tax free. To bring parity in the tax treatment of withdrawal from NPS vis-a-vis Provident Fund (PF), withdrawal of NPS proceeds should be fully exempted. Currently, NPS is subject to income-tax under the EET (Exempt-Exempt-Tax) regime, that is, withdrawals made from NPS are taxed in the hands of the individual to the extent of 60 per cent. However, this is not in parity with other pension schemes such as PF, which is under the EEE regime.

The government has positioned NPS as an alternative to PF. Therefore, to bring parity and incentivise employees to be part of NPS, NPS must be brought under the EEE regime. In our view, we hope that the NPS scheme is brought at par with PF and PPF withdrawal scheme.

• Taxpayers may be allowed switch between these schemes; swapping between the investments should not be taxed.
• As the government has been collecting education cess from taxpayers to create infrastructure and boost education of the weaker sections of society, it is in the interest of society that the taxpayer should be given the benefit of 100 per cent deduction for education of dependent children, as it will go a long way in building trust and confidence in the government. This exercise itself will be a major boost for improvement of the education sector in India.
• The government should also allow 100 per cent deduction for medical expenses of the taxpayer. This is because medicines and medical fees are already taxed by the government, and no citizen should face double taxation. This move will again boost investment in the medical sector.

E-Commerce

• We expect that tax incentives will be rolled out for merchants accepting digital payments and customers who are paying by digital channels.
• We expect that the government will propose establishment of at least two-three cyber forensic labs in each state in order avoid misuse of the e-commerce platform.

After
Goods and Services Tax

• There was expectation in the minds of citizens that the Budget will set a road-map implementation of Goods and Services Tax, but the Budget speech of the Finance Minister gave a status report and reaffirmed that from 1st of April 2017, the government will try and reach out to trade and industry stakeholders, making them aware about the new taxation policy.

Pension Income

• As expected by us, pension income for senior citizens has not been made tax free, but the government´s move to reduce the tax rate for income up to Rs 5 lakh from 10 per cent to 5 per cent has been a boon for their savings.
• Though the Social Security Scheme has not been coined the way it was expected by us, the scheme of Aadhaar-based smart cards containing health details is welcomed by us, and we look forward to more such schemes in the future in the interest of senior citizens.

Education

• We had expected that there will be a raise in allocation of funds towards establishing world-class educational universities and a separate fund would be created for giving subsidised loans to educational institutions for development of infrastructure and R&D, but the Budget has come up with new policies decisions which were the need of the hour and the government in the Budget has set out a number of schemes for development of the education sector.
• The most important decision of the government is to bring in a National Testing Agency which will be a single authority to conduct all entrance exams. An institute of this nature will help in conducting national-level examinations for entrance to professional and non-professional courses and will streamline admission processes to educational institutions.

Infrastructure Sector
Railway

• As expected by us, the Railways will see some privatisation. The Budget facilitates end-to-end cargo logistics with the help of private companies and individuals under the PPP model. This proposed move is one step in the direction of the privatisation of services by the Railways.
• The government has proposed to come up with a Metro Rail policy so that construction and investments in these projects will be streamlined and will promote development of indigenisation of hardware and software.
• No new rail projects have been proposed by the government.
• To raise funds for ongoing railway projects, the government has proposed to list IRCTC, IRFC and IRCON on the stock market.

Renewable Energy

• The government has proposed to convert over 7,000 railway stations into solar-powered stations.
• Regarding the second phase of the proposed solar park scheme, we hope that our rural areas will receive electricity.
• We were expecting that the government will propose that all government vehicles will run on batteries or any other form of renewable energy. This Budget has raised the allocation of funds in order to give a push to industries/ companies involved in production of vehicles which run on electricity or batteries. This move is to make sure that there is reduction on the dependency of individuals on petroleum products.

Telecommunications

• In order to strengthen the government´s agenda of Digital India, the ´Bharat Net´ programme is set to give connectivity to over 1,50,00,000 Gram Panchayats.

Financial Sector: Digital E-Commerce

• The government has proposed to abolish FIPB; it is a good move, as it will further help in bringing in 100 per cent foreign investment through the automatic route.
• The proposed BHIM app will enable the country to move towards a cashless society.
• Aadhaar-enabled payments are a great move, as the entire banking system has now been connected to the social metric, and this will further enable a cashless society.
• With the rapid use of digital technology for payments, the government has filled the vacuum which was created due to lack of proper cyber laws.
• In order to promote the digital economy, the government has proposed to establish a new Payment Regulatory Board in place of the existing Regulatory and Supervision of Payment and Settlement System with more authority to make decisions.

Real Estate

• The profit-linked income-tax deduction for promoters of buildings who are promoting affordable housing is welcomed by us.
• One year´s time given to builders with regard to stock-in-trade after completion of construction is positive, and will reduce cost on builders, and prices will dip.