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Business News/ Money / Personal-finance/  4 takeaways from this budget, for the householder

4 takeaways from this budget, for the householder

The Union Budget 2017-18 will impact the lives of common people in significant ways. Read on to know how

Photo by: Hemant Mishra/MintPremium
Photo by: Hemant Mishra/Mint

Finance minister Arun Jaitley focussed on TEC—Transform, Energize and Clean—as the theme of the Union Budget 2017-18. The integration of the railway budget into the general budget, the collapsing of the ‘plan’ and ‘non-plan’ parts of the expenditure and bringing forward the date of the budget to 1 February; are all obvious pointers to winds of change in the way the government thinks about the future.

The macro pieces of an economy translate into our micro lives, as they work themselves out through the system. The fact that Jaitley has kept the fiscal deficit number at 3.5% of GDP for this year, and promised to bring it down to 3.2% next year—while keeping the revenue deficit number pinned down to 2.1% this year and down to 1.9% next year—is good for us. A financially prudent government will not unleash inflation and will keep government borrowing in check.

Four things in the budget affect us.

One, it looks as if this is the first time that the honest taxpayer has got a mention and sympathy in the budget speech. Apart from greater scrutiny of the money found in banks post-demonetization, there will now be a limit on how much you can spend in cash. No payments of over Rs3 lakh per transaction, per day, will be allowed in cash. Yes, people will split their bills into Rs2.99 lakh and get multiple bills in the name of multiple family members or employees, but the cost of using cash goes up another notch.

Also heartening is the push to make political funding legit: no cash contribution of over Rs2,000 will be allowed to a political party, and the launch of electoral bonds by the Reserve Bank of India will facilitate legitimate donations.

Two, there is a redistribution from the rich to the not-so-well-off. People in the tax slabs of Rs2.5 lakh to Rs5 lakh will now see their tax rates halved—from 10% to 5%. Those in the tax slabs above this will also see a gain, of Rs12,500, and their average tax rate will fall. But if you earn between Rs50 lakh and Rs1 crore, get ready for a 10% surcharge on the tax paid. Your marginal tax rate, post-surcharge and cess, is now 33.99%, up from 30.9%. Those who earn over Rs1 crore will continue with the existing surcharge and cess, and their marginal tax rate remains at 35.54%.

Three, the fear of equity losing its long-term capital gain tax benefits turned out to be unfounded. In fact, real estate has benefitted with the ‘long term’ now being defined as 2 years instead of 3 years. Long-term capital gains taxes are lower than the taxes on short term capital gains.

Now, you will also have more avenues to park your capital gains. As of now, you can invest up to Rs50 lakh of your capital gains in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation Ltd (REC) to mitigate the long-term capital gains tax on real estate.

Of course, in the current real estate market only somebody who bought more than 10 years ago would be booking a profit. The budget has removed the anomaly of those who let out loan-bought houses being able to charge the entire interest as cost. Now, the limit of Rs2 lakh will apply.

Four, as a balm after the shock of demonetization that hurt the small businessmen hard, the tax rate is down to 25% for firms with a turnover of Rs50 crore or less. There is also a promise that the first-time taxpayer would not be subjected to tax scrutiny. Expect your neighbourhood grocer and baker to come into the tax net.

Finally, if you want to understand why the insurance agents were singled out to get an exemption from the 5% tax deducted at source (TDS)—if their income is below the taxable limit—we need to circle back and look at the macro picture. Insurance agents bring low-cost household funds to the government via insurance companies, to fund the deficit, hence the star treatment. Once the tax-to-GDP ratio goes up, we will see this change.

Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, and on the board of FPSB India. She can be reached at

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Published: 01 Feb 2017, 04:08 PM IST
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