The FM was faced with an enormous challenge of stimulating growth and at the same time maintaining fiscal discipline in putting together this year’s budget. In my view, the FM had two groups of policy options for using her meagre resources even after increased fiscal deficit—to either allocate funds towards the government’s non-defence capital expenditure, which means undertaking large-scale infrastructure spending, or to increase household income to spur consumption. She did a brilliant balancing act to do a bit of both.

The FM needs to be complimented for her long-term vision and intellectual integrity for not succumbing to myopic solutions that could have had an adverse impact on the economy. India needs prudent fiscal management, but a slightly higher fiscal deficit in the short run is acceptable. The capital investment on infrastructure, the focus on investments in healthcare and foreign direct investment (FDI) in education could be game changers. The budget touches various sectors and it’s likely to generate business in them. The government is also putting a lot of effort into the apprenticeship programme to upgrade skills and help Indian engineers go up the value chain. Huge amount of investments in healthcare infrastructure for creation of more doctors is a welcome move.

The FM has maintained fiscal prudence and presented a budget that manifests the same.

The much-expected liberalization in personal income tax rates has been proposed but in the form of an optional tax regime where a taxpayer would have to forego almost all the exemptions and deductions available to claim in the current tax regime. But the proposed tax regime may well be a game changer, taking India to a system of taxation without exemptions and deductions. In the new regime, there’s no special threshold for senior citizens or super senior citizens. However, many analysts are still wondering who saves tax really. The new regime, if successful, may widen the base and encourage those who currently do not pay tax to come within the tax system.

There is a return to the classical system of taxation of dividend—instead of taxing dividend distribution in the hands of corporates, dividends are to be taxed in the hands of the recipient shareholders. This will be good for attracting foreign investment as it will now be a creditable tax for foreign investors in their home country. More investment will lead to more jobs which, in turn, will lead to more income and more consumption. That’s simplistic but the FM has too many aspects of the economy to look after.

Encouragement to startups and entrepreneurial India with a favourable employee stock option plan (ESOP) regime also makes a lot of economic sense.

The budget comes close on the heels of an Oxfam report, Time to care, which was presented in Davos and urged governments around the world to intervene for social equity. The FM, besides not yielding to any demands for doing away the surcharges currently applicable on high income earners, has proposed changes in tax residency rules to allow for taxation in India of non-resident Indians who are “stateless" and effectively pay no taxes anywhere.

In another proposal, a cap of 7.5 lakh has been introduced on employers’ contribution into provident fund (PF), superannuation fund and the National Pension System (NPS)—all combined together. Further, accretions on “excess" contribution will also be taxable. What will also go well with those arguing the case of social equity is the re-introduction of dividend taxation in the hands of the recipient shareholders without any cap and without any special rate of tax.

The FM has proposed insertion of the taxpayer’s charter in the statute, an international best practice, that allows taxpayers to know their rights and obligations. I like how in each successive budget, a taxpayer is being recognized as an entity to be respected, to be felicitated and to be protected from harassment. Introduction of the tax amnesty scheme, Vivaad se Vishwaas Tak, will hopefully unlock a huge amount of tax revenue stuck in litigation. Faceless assessments and digitization of several processes is a step towards simplified administration. Bit by bit, we are getting to the FM’s vision of simple, easy-to-understand and easy-to-comply-with system of taxation.

The woods are lovely, dark and deep, But I have promises to keep, And miles to go before I sleep....

Sonu Iyer is tax partner and people advisory services leader, EY India.

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