Last year, we said goodbye to ₹500 and ₹1,000 denomination notes and introduced a cashless ecosystem. This year isn’t going to be any less exciting. For the first time in the history of Union Budget, General Budget will be announced a month in advance with the Railway Budget.
Barring the demonetisation phase, the Indian economy saw robust growth of 7.6 per cent last year and BFSI (Banking, Financial services and Insurance) was a key growth driver. With the Government’s attack against tax terrorism and their attempt to boost cashless transactions, the industry has received a healthy boost for long-term growth.
Upcoming Assembly Elections signal the end of big-bang announcements and the BFSI sector doesn’t expect any shocks. In fact, expectations are in alignment with reforms taken in 2016 — to boost demand of financial services products and further financial inclusion.
Sops to promote digital transactions
Following the demonetisation drive, the Government is expected to incentivise service providers and citizens to make e-payments. Banks expect service tax to be completely waived for digital transactions. Additionally, tax rebates are sought for customers on e-payments done through UPI or digital wallets. Introduction of digital salary payments, and property and utility taxes, and encouraging smart chip usage for public transportation payments in retail stores is also expected. As is limiting free ATM withdrawals to encourage cashless transactions.
In order to boost demand in smaller towns and cities, retailers and small vendors should be incentivised through an exclusive scheme. Additionally, the BFSI sector suggests encouraging business correspondents through incentives to educate people in small towns and villages about digital payments.
Affordable housing
Though small deposits swelled, the core lending business of banks was hit by demonetisation. In line with the Government’s “Housing for all by 2022” goal through Pradhan Mantri Awas Yojna and to cheer up the realty sector, tax sops are expected to be increased for housing loans. Extension of home loan sops for first-time home buyers by another year (₹50,000 tax deduction on interest paid along with ₹2 lakh deduction for self-occupied property) should also be on the cards.
Increase in Section 80(C) deductions by another ₹50,000, a separate cap for principle payment of home loans, and an increase in tax deduction limits on housing loans (with special focus on metros) are expected.
Recapitalisation of banks
With ₹25,000 recapitalisation fund falling short of expectations in the 2016 Budget, banks expect higher capital infusion from the Government this year. Infusion of capital in NABARD may be on the list.
GST — single registration
Single registration of all branches of banks, NBFCs and insurance companies, and centralised audit for tax dissemination of States will be rolled out.
Sops for tax saving mutual funds
Removing capital gains tax while switching from one scheme to the other, Section 80(C) status or lower capital gains tax to boost demand for infrastructure debt funds; additional deduction of ₹50,000 for ELSS under 80(C); and removing securities transaction tax on mutual fund redemptions to avoid double taxation and encourage small investor participation in equity markets, is expected.
Insurance
Expect separate sub-limit for insurance under Section 80(C) deductions and exemption of tax for annuity payments in alignment with the country’s welfare policy. Life insurance, a long-term investment, exemption under section 10(10D) is sought for policy’s term and not sum assured to premium ratio.
Dairy Infrastructure Development Fund should also be taken seriously by the Government considering the boom in dairy industry.
Microfinance
Clarity in regulations with respect to taking loans from MFIs, small banks and payment banks should be charted. And income relaxation of borrowers for each of these lenders should be made concrete in order to avoid overleveraging of small borrowers and increase in default rates.