Placing before an agenda for the upcoming Union Budget during the time when banks are flush with funds post-demonetization, SBI called for raising different income tax exemption limits to upgrade economic growth.
The bank expects a hike in personal income tax exemption limit from Rs 2.5 lakh to Rs 3.0 lakh, rise in Section 80C exemption limit from current Rs 1.5 lakh to Rs 2 lakh, interest exemption on housing loan from Rs 2 lakh to Rs 3 lakh and at least decreasing (if not abolishing) the lock-in period for bank fixed deposits from 5 years to 3 years for availing tax exemption.
Those giveaways are going to cost Rs 35,300 crore, but it is expected to be more than balanced by IDS-2 (Income Declaration Scheme) revenue and cancelled note liabilities of the Reserve Bank of India (RBI), the bank added referring to the recent demonetization of Rs 1,000 and Rs 500 notes.
While the revenue forgone through exemptions would be more than Rs 35,000 crore, tax collections under IDS-2 could be approximately Rs 50,000 crore and cancelled liabilities from the RBI is anticipated to be around Rs 75,000 crore, SBI's Chief Economic Advisor Soumya Kanti Ghosh and author of the report added.
Governments have periodically hiked the income tax slabs from Rs 22,000 in 1900-91 to Rs 2.5 lakh in 2014-15. Because of the 7th Pay Commission, the personal disposable income has been increased. Hence, it is believed that there is a need to raise the exemption limit to Rs 3 lakh. As a result of such increase in limit, 75 lakh tax payers will be exempted from income tax.
Demonetization has altered the whole gamut of the economy. The gross domestic product (GDP) is anticipated to rise by 7.1 per cent in 2016-17 as compared to 7.6 per cent growth in 2015-16. Quoting that challenges for Finance Minister Arun Jaitley's forthcoming budget, his fourth are more formidable than before.
The report further mentioned that there is no substitute to investment-led growth as opposed to consumption-led. A more prudent approach will be to choose two-three high potential sectors for fiscal stimulus, agriculture being the most promising followed by the SME. Highlighting that the Government must shift its fiscal objective, the SBI pegged the fiscal deficit target for 2017-18 at Rs 5.75 lakh crore, equivalent to 3.4 per cent of the country's GDP. They are convinced that for the record, FY16 fiscal deficit is now at 4.3 per cent of the GDP (3.9 per cent was budgeted).Intraday on Tuesday, SBI share price is trading at a marginal rise of 0.83 per cent at Rs. 256.25. The stock opened at Rs. 255.10 as compared to its previous close at Rs. 254.15.