Increase in personal income tax exemption limit to Rs.2.5 lakh for savings sought

Increase in exemption limit to Rs.2.5 lakhs for savings under the Income Tax Act, interest rates on small savings schemes to be fixed at five-year government Security yields and an end to the dividend distribution tax — these are among the suggestions the Union Finance Minister Arun Jaitley received on Tuesday at a pre-budget consultative meeting with the representatives of banks and financial institutions (FIs).

The experts have also demanded that Corporate Social Responsibility (CSR) expenses should be treated as business expenditure for taxation purposes.

The suggestions received also include issue of off-shore INR bonds by banks for raising funds for infrastructure requirements, according to an official statement. The regulatory treatment of these bonds is sought to be at par with the domestic infra bonds guidelines, the statement said.

Other suggestions included broad based FDI in agriculture sector, the introduction of a new crop insurance scheme backed by technology and fully integrated financial inclusion and biometric authentication initiatives of the Government. The new crop insurance scheme, said the financial sector experts at the meeting, needs to be redesigned so that the compensation covers not only the cost of cultivation but also some part of the farmer’s prospective income.

Digitization of land records to compensate farmers swiftly, direct distribution of fertilizer subsidies to farmers through Direct Benefit Transfers and savings have also been sought. The savings thus accrued from the reduced leakages could be channelised for increasing public capex spending, it was recommended.

The alignment between G-Secs and small savings schemes rates could be done on a quarterly basis, the experts said. This is so that small savings rate does not become an impediment in the monetary transmission process.

It was also suggested that the Government focus on promoting growth and increase public spending till private sector investment in the economy picks-up. It could consider listing of non-life insurance public sector undertakings while retaining majority Government control, the experts said.

Amendment of Section 41 (4A) of the Income Tax Act to specify a period of retaining the transfer amounts in special reserves to fulfil the purpose of granting long term finance and release of capital in the financial system for deployment purposes was also sought.

In his opening remarks, the Finance Minister said that as part of the governance reforms in Public Sector Banks (PSBs), the Government Bank Board Bureau (BBB) will replace the Appointment Board for appointment of whole time directors as well as non-executive chairman. Government has replaced the earlier mechanism of statement of intent on annual goals for these banks with key performance indicators to make the targets generic and not bank specific so that the need to interact with bank is eliminated or minimised.

The pre-Budget consultative meeting was also attended by Minister of State for Finance Jayant Sinha, Finance Secretary RP Watal, Economic Affairs Secretary Shaktikanta Das, Revenue Secretary Dr. Hasmukh Adhia, Secretary, Financial Services Ms. Anjuly Chib Duggal and Chief Economic Adviser Dr. Arvind Subramanian.

Representatives of banks and financial institutions included Reserve Bank of India Deputy Governor Urjit Patel, SBI Chairman Ms Arundhatti Bhatacharya and Bank of Baroda Executive Director BB Joshi. Axis Bank MD&CEO Ms Shikha Sharma, CITI Bank CEO Pramit Jhaveri and HDFC Bank MD Adtiya Puri also attended the meeting.

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Centre may grant IT rebate for cashless transactions

Income tax rebate is one of the incentives being considered by the government to encourage people to move away from cash transactions and curb black money flows, a senior official said on condition of anonymity. The move may eventually use cashless transaction records to build a credit history for the poor and help them access loans.

Since the Budget had promised measures to promote cashless transactions, a few measures could be announced soon.

“The key consideration is that people pay nothing to use cash but it imposes a lot of hidden costs on the economy. While using cards or mobile wallets to make payments is convenient, they need to pay a fee and service tax. We want to do away with this disincentive,” the official said.

In this year’s Budget, Finance Minister Arun Jaitley said that discouraging cash transactions is one way to curb the flow of black money.

“Now that a majority of Indians has or can have, a RUPAY debit card, I therefore, propose to introduce soon several measures that will incentivise credit or debit card transactions, and disincentivise cash transactions,” Mr. Jaitley had said. The Finance Ministry has begun the process for making the Union Budget for 2016-17.

While the usage of cards and mobile payment solutions such as PayTM and Ezetap is expanding rapidly in urban India, the government is looking at ways to take this to the hinterland. Following the expansion of bank accounts coverage under Pradhan Mantri Jan Dhan Yojana, the government wants to scale up the infrastructure for making digital payments so that the same convenience and acceptability as cash can be attained. The National Payments Corporation of India is building a part of that infrastructure.

“Instead of just withdrawing them in cash at a high implicit cost, if they could make payments from the account digitally, it would help build a transaction history and help them get credit-related services from banks that they would otherwise be ineligible for, like a loan for micro and small business ideas,” the official said.

Another official familiar with the issue said that one of the ideas being examined is that if an income tax rebate could be offered to those who make a substantial part of their annual payments in the cashless mode. Since bank statements are already submitted at the time of filing tax returns, it would easy to gauge the quantum of cash withdrawals made from their accounts.

“This could be used as a behavioural economics tool to drive more people towards vendors offering digital payment modes and in turn, help expand the penetration of point-of-sale devices for cashless deals,” he said.

While small account holders wouldn’t directly benefit from incentives like income tax rebates, they would gain from a rise in outlets accepting cashless payments.

“There is a high cost of cash to the economy that is not explicitly stated, apart from the cost of printing notes and taking soiled notes out of the system: the transport of cash, crimes like the recent ATM van heists, the risk of counterfeiting and the avoidance of tax that the cash economy enables,” the official said.

Of the many solutions to tame black money, cashless transaction is one of the very important solutions, Prime Minister, Narendra Modi, had said in January, stressing that people should make cashless transactions a habit.. “This is a very big opportunity and we should promote this.”

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