NEW DELHI, Jan 30 - Finance Minister Arun Jaitley will on Wednesday present his fourth and perhaps the most challenging Budget that may look to soften the blow of currency ban with tax and other sops in his bid to revive growth.
While largely sticking to the fiscal consolidation roadmap, Jaitley will present the Budget for 2017-18 amid strong headwinds caused by the government decision to invalidate 86 per cent of the currency and the newly elected US President making protectionist noises.
Topping the list of sweeteners could be the hike in Income Tax exemption limit to Rs 3 lakh from the current Rs 2.5 lakh as the Minister will look at putting more money in the hands of people to not just create a feel-good atmosphere, but also check the disruptive impact of demonetisation on the demand-supply chains and cratered credit growth.
Alternatively, he may raise the deduction limit for interest paid on home loans to Rs 2.5 lakh from Rs 2 lakh currently. A higher medical rebate may also be on the cards.
Besides tax-break, there could even be a universal basic income in the Budget, industry officials and tax experts said.
But cutting 30 per cent corporate tax rate to lift sagging investments may not be easy given that government�s official estimate of 7.1 per cent GDP growth for the current financial year does not take into account the chaos wrought by demonetisation.
While revenue collection targets for the current fiscal may exceed, there are doubts if Jaitley may project any substantial jump in tax receipts in 2017-18. Also, the rising oil prices are a cause of worry for him, leaving him with very little fiscal room to manoeuvre social and infrastructure schemes.
Incentives or schemes for farmers and rural India, women and social sectors like health and education may be the cornerstone of his Budget given that five important States including Punjab and Uttar Pradesh will be voting within days of his Budget presentation.
Besides agriculture, the Finance Minister may also announce schemes for boosting domestic manufacturing and promoting start-ups. Tax experts and economists said Jaitley may hike the service tax (currently at 15 per cent) to align with the GST regime.
It will be keenly watched if he makes any changes to the tax regime on investments in equities. At present, gains from transactions in shares held for less than 12 months are considered short-term capital gains and are subject to 15 per cent tax.
Gains on holdings above 12 months qualify for long-term capital gains benefits and are exempted from tax.
Tax experts said ending tax-breaks on equity gains may turn sentiments sour towards the capital market. There is a thought that the one-year limit for long term could be changed to two years but the tax rate is likely to be kept at zero.
He will have to juggle numbers to remain largely within the fiscal consolidation roadmap. The current year�s fiscal deficit target of 3.5 per cent of GDP is mostly likely to be met on the back of surge in tax receipts from the Seventh Pay Commission grant to employees and tax amnesty schemes. � PTI