Finance Minister Nirmala Sitharaman presented the Union Budget 2020. Major reforms like the reduction of Personal Tax rates, change in Dividend Distribution Tax, reforms in Agriculture, Education, Infra and other sectors, seemed like a step towards the necessary Demand-side measure to spur economic growth.
Crux of the Matter
Budget 2020 centered around the crossroad of two major themes: Demographic Yield that India can have from the working-class age of 15-65 years and Burgeoning Technology, chiefly, AI, machine learning, robots, bio-infotech, etc. Finance Minister Nirmala Sitharaman said that this year’s budget would tackle three major ideas: i) Building more opportunities in health, education and job sector for aspirational India. ii) Structural Reforms that would enhance inclusive economic development. iii) Creating a caring society.
Direct Tax Proposals Budget 2020 outlines new rules for personal taxes. In the old regime, individuals earning above 5 lacs were taxed 30%. Also, of some 100 odd exemptions in the Income Tax, 70 have been However, new tax slabs have been announced in the new regime. According to FM Sitharaman, an individual has a choice of deciding whether to opt for the new tax regime. If one chooses the new regime, the following key conditions need to be met: a) Individuals or HUFs with no business income can have the option to choose the regime every year. b) Individuals or HUFs with business income are allowed to withdraw from the option only once unless the business income is not earned anymore. c) The option has to be exercised only on or before due date of filing income tax return. d) Individuals who opt for the new regime need to forgo exemptions and deductions like Standard Deduction allowed to salaried employees, House Rent Allowance, Investments in PF, PPF, LIC, etc under Sections 80C, 80D, etc. e) Loss or Depreciation carried forward and that can be attributable to the above-mentioned deductions cannot be set-off. Set-off will also be not available for losses from “income from house property”.
Comparison of Tax Rates Under New and Old Regime
*Income as per the old regime means ‘Net Income’ derived after availing applicable deductions. Whereas, in the new regime Income means Gross Income as deductions are not available under it. 1. Individuals with income below 2.5 lacs will not be taxed in the new regime as well. 2. Individuals earning 2.5 – 5 lacs will be taxed at the same rate of 5%. 3. Individuals earning between 5 – 7.5 lacs to be taxed at 10%. 4. Individuals earning between 7.5 – 10 lacs to be taxed at 15%. 5. Individuals earning between 10 – 12.5 lacs to be taxed at 20%. 6. Individuals earning between 12.5 – 15 lacs to be taxed at 25%. 7. Individuals earning above 15 lacs will be charged in a similar way as in the old regime.
Residency Eligibility Changes were also made in the eligibility criteria – residency status – for personal taxes. According to the new rules, a) Indian Citizen not taxed under any other country’s regime will be taxed in India. b) For an Indian Citizen or Person of Indian Origin to be regarded as Non-Resident, the number of days (s)he spends in India has been reduced to 120 days from 182 days. c) For a person to be categorized as “(not) ordinarily citizen”, the person must have met the requirement of being a resident for at least 7 out of 10 years.
Audit and Other Laws As per the existing law, for MSME’s the threshold to get the books audited was INR 1 crore. As per the Budget 2020 proposal, the audit threshold has been increased to INR 5 crore if cash receipts and payments do not exceed 5% of total receipts and payments respectively. The government has also announced that new E-Appeal functionality will be released for resolving and filing tax disputes. For taxpayers whose litigations are pending, the government has announced “Vivas Se Vishwas” that grants full waiver of penalty and interest amounts if the pending tax amount is paid before 31 March 2020.
Dividend Distribution Tax Government announced that DDT will not be levied on companies. It will now be levied on the, a) resident at the applicable tax slab (s)he falls in b) non-resident at 20%. Also, the additional 10% tax levied on specified persons that receive dividends more than INR 10 lacs will no longer be applicable. Investors were looking forward to amendment in the Long Term Capital Gains (LTCG) Tax. However, no announcement regarding it was made.
Proposal for Start-ups FM Sitharaman announced that the government will strengthen laws and policies regarding Intellectual Property. She also said that Seed Funding would also be made available to start-ups in the ideation and early development stage. For a start-up to be considered eligible, the turnover cap has been increased to INR 10 crore. Moreover, eligible start-ups can claim tax holiday for 10 years now instead of 7 years. Taxes paid by start-ups if an employee exercises ESOP has been deferred under the new proposals to the earlier of (a) sale of the particular security, (b) termination of employment, or (c) lapse of 48 months from the end of the applicable Assessment Year.
Sectoral Reforms In a major announcement, FM Sitharaman proposed that Life Insurance Corporation (LIC) would be divested y the way of an Initial Public Offering (IPO). In the backdrop of the government’s key ideas of technology and demographic dividend, FM Sitharaman announced a budget of INR 800 crore towards the National Mission on Quantum Technology and Computing. To overturn the Banking and NBFC sector, the government announced that NBFCs with an asset size of INR 10 crore or loan size of 1 crore is eligible for debt recovery under the SARFAESI Act, 2002. INR 100 crore was allocated for a scheme to be run by EXIM and SIDBI to push exports. Non-Resident Investors will now be allowed to invest in specific Government Securities. FPI limit in corporate bonds will be increased from 9% to 15% of the outstanding debt of corporate bonds. As a part of its Caring India agenda, the government has announced that Tier I and Tier II cities will be empowered with a sufficient number of hospitals. 5% Health Cess was levied on import of medical equipment. FM insisted State Governments implement Model Agricultural Land Leasing Act, 2016, and Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, 2018 in order to enhance farm product procurement process, avail economical logistics support and better price. The government also said that under “Blue Economy” it aims at increasing the fisheries exports to INR 1 lakh crores and include more and more youth to the sector.
Curiopedia
Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialised before the beginning of new financial year in April. Until 2016 it was presented on the last working day of February by the Finance Minister in Parliament. The budget, which is presented by means of the Finance bill and the Appropriation bill has to be passed by Lok Sabha before it can come into effect on 1 April, the start of India’s financial year. More Info
Tax holiday is a temporary reduction or elimination of a tax. It is synonymous with tax abatement, tax subsidy or tax reduction. Governments usually create tax holidays as incentives for business investment. More Info
Curated Coverage
Livemint – Budget 2020: Full text of Nirmala Sitharaman’s budget speech
Economic Times – LTCG tax stays; budget 2020 disappoints mutual fund investors
The Hindu – Budget 2020: Income tax slabs lowered for those who forgo exemptions
Business Today – Budget 2020: Govt proposes to raise fishery exports to Rs 1 lakh crore by FY25
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