The Finance Minister of our country presented the Union Budget on 1st February 2020. Certain hopes would have burdened the back considering the lacklustre GDP growth of 4.5% of in the September quarter; the slowest since March 2013 and below expectation revenue collections, which would be impacted by the tax rate cut in September 2019. The budget was expected to infuse some momentum in the economy to revive growth, attract investments, create jobs and ultimately boost the domestic consumption. The task was here to balance between infusing funds to boost the economy and cut down on tax collection to stimulate consumption.
The budget was due to be presented on a Saturday and hence the bourses decided to stray from the convention practice and decided to remain open for the day.
Following were the key highlights and takeaways from the budget-
Rural and Agriculture Sector-
- Krishi Udaan to be launched by Civil Aviation Ministry to transport agri-products to national as well as international destinations. Indian Railways will set up Kisan Rail through PPP arrangement, for transportation of perishable goods.
- INR 1.23 lakh crore allocation for rural development and Panchayati Raj.
- INR 1.6 lakh crore allocation for agriculture and allied activities.
- Setting up hospitals in Public-Private Partnership model. Districts those don’t have Ayushman will be given priority.
- INR 12,300 crore allocation for Swachch Bharat for FY 20-21.
- To provide piped water supply to all households, the government has approved the budget of INR 3.6 lakh crores.
- INR 99,300 allocation for education activities.
- It has been proposed to start degree level full-fledged online education programme to ensure wider access to education.
- Develop five new smart cities in collaboration with States in PPP mode.
- Development of highways, including the development of 2500 Km access control highways, 9000 Km of economic corridors, 2000 Km of coastal and land port roads and 2000 Km of strategic highways.
- INR 1.70 lakh crore budget allocation for transport infrastructure.
- INR INR 22,000 crores to power and renewable energy sector.
- It is further proposed to expand the national gas grid from the present 16,200 km to 27,000 km.
- INR 6,000 crore allocation for Bharatnet programme in 2020-21 to provide internet connectivity to public institutions such as Anganwadis, health and wellness centres, government schools, PDS outlets, post offices and police stations.
- INR 8,000 crore allocation over five years for the National Mission on Quantum Technologies and Applications.
- INR 35,600 crore for nutrition-related programmes for the financial year 2020-21.
- INR 28,600 crore for programs that are specific to women.
- INR 85,000 crore for welfare of Scheduled Castes and Other Backward classes.
- INR 53,700 crore for welfare of Scheduled Tribes.
- INR 9,500 crore for senior citizens and Divyang.
- INR 3,150 crore to the Ministry of Culture for 2020-21.
- INR 2,500 crore for tourism promotion.
Disinvestment- The government has proposed to sell a part of its holding in LIC by way of Initial Public Offer (IPO).
Government has estimated nominal growth of GDP for the year 2020-21, based on trends available, at 10%. The fiscal deficit has been pegged at 3.8%. Receipts for the year 2020-21 are estimated at Rs. 22.46 lakh cr and expenditure has been kept at Rs 30.42 lakh cr. The fiscal deficit target has been revised to 3.8%.
The Finance Minister then proceeded to present the much-anticipated amendments in the taxation regime. Changes in the tax were as follows-
- The FM has introduced a new simplified tax regime for personal tax by introducing new slabs and tax rates for individuals. The new tax rates are as follows-
|0 – 2,50,0000||Exempt||Exempt|
|2,50,000 – 5,00,000||5%||5%|
|5,00,000 – 7,50,000||10%||20%|
|7,50,000 – 10,00,000||15%||20%|
|10,00,000 – 12,50,000||20%||30%|
|12,50,000 – 15,00,000||25%||30%|
However, these revised rates can only be availed by an assessee if they forego certain available exemptions and deductions in the Income-tax Act. Further, these rates are optional and the assessee can continue to claim exemptions/deductions and pay tax at the old rates. As per the FM, the tax foregone would be Rs 40,000 crores.
- The dividend distribution tax has been abolished. The dividend will now be taxed in the hands of recipients at the prevailing rates. A total of Rs 25,000 crore is revenue foregone due to DDT abolition.
- FM Nirmala Sitharaman says currently more than 100 exemptions provided in the Income Tax Act. Now around 70 of them have been removed in the simplified regime. Remaining will be reviewed over the coming years to simplify the system.
- Corporate tax rate cut for power generation companies as well.
- The government will grant 100% exemptions for sovereign wealth funds in infrastructure and other notified sector with a minimum lock-in of three years. The rate of withholding tax has been extended to 2023 for FPIs.
- FM Nirmala Sitharaman says that it will amend the I-T Act to enable faceless appeals on the lines of faceless assessments.
- A new direct tax dispute settlement under ‘Vivad se Vishwaas Scheme’ introduced where no penalty will be charged if taxpayers pay by March 31, 2020.
- For affordable housing, the deduction of Rs 1,50,000 will be extended to loan sanction by one year. Tax holiday on profits of developers involved in affordable housing projects will be extended by one year to March 2021.
- Cooperatives are taxed at 30 per cent now. They can choose a 22 per cent tax with 10 per cent surcharge and 4 per cent cess with no exemptions.
- PAN cards to be allocated instantly using Aadhaar.
- The revenue limit for tax audit raised from INR 1 crore to INR 5 crores
- Customs duty raised on footwear to 35% from 25% and on furniture goods to 25% from 20%.
- 5% health cess to be imposed on the imports of medical devices, except those exempt from BCD.
- A simplified GST return shall be implemented from the 1st April 2020.
- An increase is proposed in National Calamity Contingent Duty (NCCD) on Cigarettes and Tobacco Products. NCCD on Bidis remains unchanged.
The budget failed to meet the expectations of the market as the indexes crashed during the day. The Sensex slumped 1,275 points from the day’s high to close at 39,735. It hit an intra-day low of 039,631.24 and a high of 40,905.78. The Nifty plunged 300.25 points to 11,661.
Source: Budget Speech.