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Budget 2017: How has the Union Budget Altered the Taxation Scenario in India? Despite high hopes for a revamped section 80C, however, tax savings instruments remain untouched. The tax deduction limit under 80C remains 1.5 lakhs.

By Archit Gupta

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Finance Minister historical Arun Jaitley's 4th Budget was unveiled earlier today to mixed reactions from the general public. Built around underlying themes of digitization of the economy and easier tax norms, this edition of the Budget was presented a month earlier than before.

Here are the key takeaways from Budget 2017's impact on direct and indirect taxes.

Direct Taxes

Tax Rates Lowered for Earners in the 2.5 - 5 Lakh Income Slab: The tax rate for the lowest income slab has been reduced from 10% to 5%, giving a breather for people in the 2.5 - 5 lakh bracket.

Despite high hopes for a revamped section 80C, however, tax savings instruments remain untouched. The tax deduction limit under 80C remains 1.5 lakhs.

Section 87A: Previously, under Section 87A of the IT Act, tax payers with an income less than 5 lakhs per annum could apply for a rebate on tax paid up to a maximum of Rs.5000.

This rule has now been revised. The rebate has been capped at Rs.2500, while the income limit to claim a rebate has been lowered to 3.5 lakhs a year from 5 lakhs.

Surcharge for High Income Earners: For those with an income between 50 lakhs and 1 crore, a new surcharge of 10% has been introduced to offset the losses from the tax relief in the lower income brackets. The 15% surcharge for incomes exceeding Rs.1 crore remains in force.

Tax Returns and Compliance Measures: Building on the efforts to streamline tax compliance in India, Budget 2017 introduces a few measures to help individual tax-payers.

First time filers will no longer be scrutinized by the government, making the ITR process less intimidating for those entering the workforce.

For all tax-payers, a quick and simple single page form will now replace all tax filing paperwork. This move should see non-filers who drop off due to the demands of the paperwork involved enter the tax net once again.

For Small Enterprises and Startups

Arun Jaitley's Budget also makes special concessions for demonetization-hit Small and Medium Enterprises (SMEs) and startups.

The corporate tax rate for businesses with a turnover of less than 50 crores has been reduced to 25% from 30%. For SMEs with turnover of 2 crores or less, the presumptive tax burden has been eased, with the tax rate reduced to 6% from 8%.

Startups have also been the recipients of generous sops in Budget 2017. Profit-making startups now only have to pay taxes for 3 of their first 7 years, an improvement from the current rule that stipulates tax payments for 3 of the first 5 years of operation.

These measures are also designed to protect this fragile sector from the after-effects of the GST rollout in June this year.

Indirect Taxes

With GST replacing indirect taxes, Budget 2017 has left the current indirect tax regime largely untouched. Nevertheless, a few measures to boost the domestic manufacturing industry and rationalise customs duties have been proposed, including -

  • Increased excise duty on tobacco and tobacco products. The levy on cigars and other tobacco products is up to Rs.4006/thousand from Rs. 3755/thousand previously. The levy has been increased to 78/thousand from 21/thousand for biris.
  • Basic customs duty on import of cashew nut increased from 30% to 45%.
  • LNG customs duty rate reduced to 2.5% from 5%.
  • Renewable energy machinery to be taxed at 5% (down from 10%).
  • Countervailing duty exemption on imported silver items to be withdrawn, resulting in more expensive imports.
  • Lowered duties on parts used for manufacture of LED lights and lamps, in keeping with the vision of the government's efficient lighting and energy schemes such as Prakash Path.
  • Excise duty on parts used in the manufacture of Reverse Osmosis devices reduced to 6% from 12.5%.
  • Customs duty exemption for parts and materials used in manufacture of any devices that are utilized in cashless transactions.

While it's clear that pre-Budget expectations were off the mark in many respects, Budget 2017 takes a cautious route to fulfilling the expectations that have been mounting over the last few months. It remains to be seen if the new direction of welfare focus and infrastructural investment with fiscal prudence will pay off.

Archit Gupta

Founder & CEO, Clear

Clear (née ClearTax) is India’s leading Fintech SaaS company with the mission of simplifying finance. We are trusted by over 6 million Indians, more than 50,000 tax professionals, 1 million small businesses and 3,000 large Enterprises. For small and large businesses, our product suite covers invoicing, GST, range of managed services and credit. For tax professionals, we offer comprehensive GST, Income Tax and TDS solutions. For individuals, we offer tax and wealth management solutions. With this Series C round, we have raised $140 million in equity capital since inception. Our investors include Y Combinator, Composite Capital, Elevation Capital, Founders Fund and Sequoia Capital.


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