Expectations from Budget 2017 have increased post demonetisation. Here’s what the tax experts wish for

The Budget for 2017 is riding on a lot of expectation in the aftermath of demonetisation. It’s almost as if people are hoping the government to now make good for the hardship and the pain they endured. Some key states are due for elections in the coming months. And this seems to be the perfect backdrop to make it a dream budget for households and businesses.

Lower tax burden - Since the beginning of time, governments have faced pressure to cut taxes on income. This pressure is now rising from the working class, who are asking for higher exemption limit in the wake of demonetisation. Rs 2.5lakhs is the existing exemption limit. Income disclosure scheme (IDS) has helped the government add around Rs 30,000 crores to its kitty. But the real test of these schemes lie in their ability to bring more people in to the tax net, leading to wider compliance and tax filing. Every increase in the minimum taxable limit or lowering of tax rates, means fall in revenue for the government. The government needs to find that sweet spot where it can balance this loss without severely impacting its fiscal deficit. With Niti Aayog recommending tax slab expansion, a revision may be in the offing.

Popularising NPS – NPS is a credible alternative to EPF for those who prefer equity linked investing to build a corpus for their retirement. It may be hard to sustain high returns on EPF, and therefore the government can focus on offering people an alternative in the form of NPS. The government has made efforts to ease entry to NPS by making it aadhaar linked, more clarity on taxes on its withdrawals are required. NPS is structured in the form of TIER1 and TIER2 accounts. While investments in TIER 1 are eligible for tax benefits. TIER2 is a voluntary investment account. Withdrawals are allowed from TIER 1 post retirement. Investors can withdraw from TIER 2 at any time. However, PFRDA must put together details on tax on withdrawals from TIER 2. Investments to TIER1 may be limited due to tax benefit being Rs 50,000 in a financial year, once there is clarity about TIER2, investors can enjoy the flexibility that comes with TIER2 accounts, as well as stay committed to investing for their retirement.

Use of India Stack – The use of India Stack for Identity (Aadhaar) and payments (UPI) is set to fuel innovation in the fintech sector. Investing through machine learning and AI will have the capacity to reach millions of taxpayers and bring them on board easily and with low cost means. Customers who want buy mutual funds, borrow loans, will be authenticated seamlessly via the aadhaar framework without having to go through paperwork or lengthy approvals. Those have suffered financial exclusion will now be brought online quickly. The government has an important role to play in this journey, It can offer incentives that encourage entrepreneurship in this sector and offer faster regulatory approvals.

Roll out GST – 2017 will turn out to be a historic year for indirect taxes due to launch of GST. This presents immense opportunity for businesses to adopt technology as a means to achieve their objectives. Adoption of GST would lead to wider compliance and replace physical C-forms, VAT forms, state tax approvals and tax payments with electronic and digital forms and payments. We hope the government will stay on course with GST, allowing only very necessary exemptions and offering incentives to small businesses to adopt technology.

Reform tax laws – The finance minister must make use of comfortable majority in the house to bring in simplification of tax laws. Some of the deductions are not relevant in today’s times. For example, children’s education allowance which stands at Rs 100 per month for maximum two children or hostel allowance which is exempt up to Rs 300 per month for maximum two children. Medical reimbursement that stands at Rs 15,000 is meagre in today’s times. Direct tax code may be considered for review once GST has been put in place.

Budget 2017 is will be both historic and promising for India.

(This article is authored by Archit Gupta, Founder & CEO ClearTax.com)