Budget 2017: Booster for demonetisation as FM Arun Jaitley limits cash donations to political parties at Rs 2,000

By Sudhir Kapadia Partner, EY India
The Economic Survey tantalisingly flagged the tagline “Demonetisation: To Deify or Demonise?” and suggested follow-up actions to achieve its stated objective of curbing black economy.

It seems the finance minister has taken the bull by its horns and implemented some key recommendations of the Special Investigation Team ( SIT) like disallowing any cash transaction above Rs 3 lakh as a tax deduction (capital or revenue) and of the Election Commission to limit cash donations to Rs 2,000 to a political party.

The FM has gone further to address the holiest grail of all – tax exemption for political parties – to be dependent upon compliance of donation norms and filing of timely tax returns. An innovative electoral donation scheme through bonds has also been announced to facilitate non-cash donations to political parties.

On capital gains taxation, while there was a foreboding of some changes in long-term capital gains tax exemptions on listed securities, the FM has actually sprung a pleasant surprise instead by reducing the holding period for land and building assets from three to two years to characterise as long term.

On the corporate tax front, the FM has chosen to provide for the full reduction in corporate tax rate from 30% to 25% for MSMEs (micro, small and medium enterprises) with turnover up to Rs 50 crore while retaining the 30% tax rate for larger companies.