Expectations from Union Budget 2016

Expectations from Union Budget 2016

When we talk of expectations from the budget, we could have at least two different interpretations. The first one obvious refers to the wish list. What do we want from the budget?  This list would obviously be really long. Different segments of people would have different expectations from the budget.  Like, I could wish that income tax should be done away with. Similarly someone else may say that good quality education should be made freely available to everyone.  Yes certainly. But that is not going to happen. Not for many more years to come.

Therefore expectations in our context cannot mean our wish list, but it would mean what we expect the Finance Minister to roll out, given all the background discussions that various segments of the Indian populace have had with him directly or indirectly. In this post, we take a look at what the budget is likely to hold in store.

An overarching observation would be to that there is a good possibility of this forthcoming budget being social sector centric. The government has been trying hard to refurbish its image, from being branded as working only for the rich and elite to that which has the entire country’s fabric in mind.   There have been accusations that the government has favoured big, private business houses through preferential treatment for favours.  The government, now with almost two years at the helm, needs to desperately do something to shift gears. While many promises have been made and several announcements also have been made, people have not felt any difference on the ground. Therefore, this budget is likely to focus on increasing inclusivity in growth for all segments of the populace.  There are likely to be announcements to increase the social security for children, women and senior citizens in the country.  Linked to this, there is an expectation that the budget would focus on the rural segment and work towards revival of the rural economy.

The seventh pay commission has placed a lot of pressure on the government coffers. Therefore there may not be too many sops here. It is likely to be a muted budget with an emphasis on reigning in deficit and enhancing government revenue. Some balancing we could see in the form of relaxation in tax limits for individuals. Some specific expectations from the budget are as below:

1. Corporate tax may get reduced by 1%. The FM had announced his intention to rationalise the corporate tax structure over a period of 5 years. This could the first step.
2. For implementation of One Rank One Pension and the recommendations of the 7^th pay commission, the budget may have to provide an allocation of up to Rs.1,10,000 Crores.
3. In the last couple of years, the agriculture in the country had suffered due to poor monsoons. This budget is therefore likely to see some incentives for the agricultural sector to increase production.
4. The Real Estate Investment Trust, that facilitates small investors, to invest in real estate through REIT instruments, is yet to find its ground in India. There are structural hurdles in making it happen. The Dividend Distribution Tax (DDT) needs to be done away with. Last year, government gave relief for REITs from Minimum Alternate Tax (MAT) and made MAT applicable only on actual transfer of units.  There have been representations made to the government on DDT.  Lets see if this comes through.
5. There are expectations that the budget would make some friendly announcements in terms increasing tax limits for home buyers. We could see the limit on home loan interest increased by Rs.50000.
6. Currently if the construction of a project takes more than 3 years to complete, then the maximum deduction allowed on interest is capped at Rs.30000.  The 3 years is from the year when the home loan was availed. And the deduction is allowed from the year when the buyer takes possession of the house. In view of the recent phenomenon noticed all over real estate industry, where we see projects getting enormously delayed, the government may allow for the deduction without the Rs.30000 cap and also from the year in which the possession was to be given as per the original terms of buyer’s agreement.
7. We could also see the limit under 80C to be increased to Rs. 2 lacs (from the current Rs.1.5 lacs). The banks, supported by RBI have been voicing their views for measures to enhance savings in the country.
8. Infrastructure bonds that were used as tax saving investments, might get re-introduced with a limit of Rs.25000.
9. India may take its first steps in the budget 2016, towards introducing a framework for Base Erosion and Profit sharing (BEPS). For the benefit of the reader, BEPS global framework is an agreement amongst the G20 and OECD countries to place a check on the tax-avoidance by multinational companies.  BEPS itself is a medium through which MNCs, by smart use of gaps and technicalities in the tax laws, minimise their tax liability in the country where they earn money. They do it through various ways including transfer pricing or special purpose vehicle or other means. If an MNC sells its shares of its subsidiary in India to one of its other subsidiaries in Mauritius at below market rates and then later sells those shares to another company in a different market at market rates and making huge profits.  This transaction would result in less tax being paid in India. The global framework mentioned above has a 15 point plan to curb tax avoidance by MNCs.

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