Budget FY2018: An Overview

BY GAURAV KULSHRESHTHA | 01 FEB 2017

India Finance Minister Arun Jaitley presented the Union Budget 2017-18 with a clear focus on rural and farm spending that would be increased by 24%, as part of a plan to double the farmer’s income in the next five years. This Budget has been presented against a challenging backdrop of heightened global political and economic uncertainties. The Finance Minister has managed to strike a balance between the need for fiscal support for the slowing demand in the aftermath of Demonetization, and yet maintain fiscal prudence.

Nifty ended the day with a gain of 1.8% while the Benchmark 10-year yield was stable at close.

The agenda laid down for Fiscal Year 2017-18 through the Budget is “Transform, Energise and Clean India” and to achieve this, The Government will focus on 10 themes:

  • Farmers – Double income in 5 years
  • Rural Population – Providing employment and basic infrastructure
  • Youth – energize through education, skills and job
  • The Poor and Underprivileged – strengthening social security, healthcare and affordable housing
  • Infrastructure – improving efficiency and productivity.
  • Financial Sector – supporting growth and stability, with stronger institutions
  • Digital Economy – supporting speed, accountability and transparency
  • Public Service – effective Governance
  • Prudent Fiscal Management – optimal deployment of resources, preserve fiscal stability
  • Tax Administration – honoring the honest

We present to you the key highlights of the Budget proposal*:

FISCAL MANAGEMENT:

  • Fiscal deficit for FY2017-18 is targeted at 3.2% of GDP and 3% in 2018-19
  • Revenue Deficit for FY2017-18 is pegged at 1.9%, against 2% mandated by the Fiscal Responsibility and Budget Management Act
  • Net market borrowings of The Government restricted to INR 3.48 lakh crores, much lower than INR 4.25 lakh crores in the previous year
  • Gross market borrowing seen at INR 6.05 lakh crores for FY2017-18
  • Allocation for Capital expenditure stepped up by 25.4% over the previous year

FINANCIAL SECTOR

  • Foreign Investment Promotion Board to be abolished in FY2017-18 and further liberalisation of FDI policy is under consideration
  • An expert committee will be constituted to explore integration of spot and derivatives market in the agricultural sector for commodities trading
  • The shares of Railway PSEs such as IRCTC, IRFC and IRCON will be listed on stock exchanges
  • INR 10,000 crores for recapitalisation of Banks provided in FY2017-18

INFRASTRUCTURE

  • A new Metro Rail Policy will be announced with focus on innovative models of implementation and financing
  • Budget allocation for highways increased from INR 57,976 crores in Budget Estimate’s 2016-17 to INR 64,900 crores in FY2017-18
  • Proposed setting up strategic crude oil reserves at two more locations, namely, Chandikhole in Odisha and Bikaner in Rajasthan. This will take India’s strategic reserve capacity to 15.33 MMT.
  • Proposed to create an integrated public sector ‘oil major’, which will be able to match the performance of international and domestic private sector oil and gas companies
  • For the transportation sector as a whole, including rail, roads, shipping, a provision of INR 2,41,387 crores has been made in FY2017-18.

HOUSING & REAL ESTATE

  • Affordable housing to be given infrastructure status
  • The holding period for getting Long-term capital gain treatment on immovable property reduced to 2 years from 3 years
  • The base year for indexation is proposed to be shifted to 1.4.2001, from 1.4.1981, for all classes of assets including immovable property

OTHER ANNOUNCEMENTS

  • MAT credit is allowed to be carried forward up to a period of 15 years instead of 10 years at present
  • Allowable provision for Non-Performing Asset of Banks increased to 8.5% from 7.5%
  • Under scheme of presumptive income for small and medium tax payers whose turnover is up to INR 2 crores, the present 8% of their turnover, which is counted as presumptive income, is reduced to 6% in respect of turnover, which is by non-cash means
  • No transaction above INR 3 lakh would be permitted in cash
  • Maximum amount of cash donation a political party can receive will be rupees 2000/- from one person
  • Amendment to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that The Government would frame in this regard
  • Every political party would have to file its return within the time prescribed in accordance with the provision of the Income Tax Act
  • Aadhar Pay, a merchant version of Aadhar Enabled Payment System, will be launched shortly

TAXATION RELATED

  • Existing rate of taxation for individual assesses between incomes of INR 2.5 lakhs to INR 5 lakhs reduced to 5% from the present rate of 10%.
  • Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between INR 50 lakhs and INR 1 crore.
  • In order to make MSME companies more viable, income tax for companies with annual turnover up to INR 50 crore is reduced to 25%
  • Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision
  • The Long Term Capital Gain treatment on equity was retained without any change

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