Indian Union Budget 2020 – 2021 Highlights

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Indian Union Budget 2020 - 2021 Highlights

Honourable Finance Minister, Smt Nirmala Sitaraman, has presented the Annual Budget for the Financial Year 2020 – 2021, in the parliament on 1st february, 2020.

Nirmala Sitaraman presented the first part of the Budget on expenditures, under three themes:

  1. Aspirational India
  2. Economic Development for all &
  3. Caring society

The second part of the Budget, that dealt with the revenue, sought to radically reduce the general income tax rates and to simplify the Income Tax laws by removing around seventy of the exemptions under the statutes.

Income Tax Reforms:

  1. A Taxpayer’s Charter is proposed to be introduced and implemented. It shall regulate the relationship between tax authorities and tax-payers, with the intention to attain zero tolerance against tax harassment of citizens.
  2. Individual Income-tax – New Simplified tax regime is proposed to be introduced, where the taxpayer who does not avail of any deduction under chapter VI-A for example: deduction under section 80C, can opt for a reduced tax slab for the Financial Year 2020 – 2021 as follows:
    1. Income below 5 lakhs – 0%
    2. Income between Rs 5 lakh-7.5 lakh – 10%.
    3. Income between Rs 7.5 lakh-10 lakh – 15%
    4. Income between Rs 10-12.5 lakh –  20%
    5. Income between Rs 12.5 -15 lakh –  25%
    6. Income above Rs 15 lakh – 30%

However, the New Simplified tax regime is optional and the individuals can choose to be taxed as per the prior existing tax rules.

  1. Around 70 deductions and exemptions are proposed to be removed from the Income Tax Act 1961.
  2. Dividend Distribution Tax (DDT), the tax imposed by the Indian Government on Indian companies on the dividend paid, has been proposed to be removed. Dividend will now be taxed in the hands of the recipients only. Followed by removal of any cascading effect on dividend distributed by a subsidiary company to holding company.
  3. Tax on ESOPs issued by start-ups will now be delayed from the exercise date (as it exists today) to a later date, when the employee sells the shares, or when he/she is relieved from employment, or 5 years, whichever is later.
  4. The Power Generator Sector is now proposed to be eligible to claim Concessional Corporate tax rate of 15% along with Manufacturers, without claiming any other exemption or deductions.
  5. Tax concession is proposed to be provided to Foreign sovereign wealth funds investmenting in India, against tax on capital gains and dividend earned from Investing in India.
  6. The withholding tax rate for interest of money borrowed and bonds issued to such Foreign Sovereign Wealth Funds or on Municipal Bonds is proposed to be 5%.
  7. Withholding tax rate on interest payments on bonds listed on IFSC exchange, is proposed to be 4%.
  8. Co-operatives which are presently taxed at 30% are proposed to  avail a concessional corporate tax rate of  22% without deduction. Further they shall not be subject to Minimum Alternate Tax.
  9. The tax audit limit on MSMEs is proposed to be increased from an annual turnover of Rs 1 crore to Rs 5 crores. The Increased limit applies only to those businesses, which carry on their business with less than 5% receipts in cash.
  10. Date of approval of affordable housing projects, for availing tax holiday, is proposed to be extended for one more year.
  11. The registration process of Charitable institutions for claiming tax exemptions, is proposed to be brought online.  Further, a Unique Identification Number (UIN) will be generated for each institute with a provisional registration (3 years validity), before the commencement of charitable activity.
  12. A Direct Tax Scheme, ‘Vivad se Vishwas’ is proposed to be introduced to provide time for payment of disputed tax amounts with no interest and no penalty, until 31 March 2020. It can also be paid within 30th June, 2020 with nominal interest.
  13. PAN is proposed to be issued instantly, based on Aadhar.

Indirect Tax Reforms: 

  1. Import duty is proposed to be levied on medical devices for intensive make in India.
  2. GST refund process is proposed to be simplified and automated.
  3. Dynamic QR code for invoices is proposed to be introduced.
  4. Custom Duty is proposed to be increased on Footwear and Furniture.

Governance Based Reforms:

  1. Companies Act, 2013 is proposed to be amended, to decriminalize acts which are civil in nature.
  2. Model Agricultural Land Leasing Act of 2016, Model Agricultural Produce and livestock and Marketing Act of 2017 and Model Agricultural Produce and Livestock contract farming and services promotion and facilitation Act of 2018 to be strictly implemented by state governments.
  3. Creating warehousing, in line with Warehouse Development and Regulatory Authority (WDRA) norms at block and taluk level.
  4. Proper Regulations are proposed to be implemented, to enable the Education sector to easily access External Commercial Borrowing and Foreign Direct Investment.
  5. The Indian Contract Act, 1872 is proposed to be strengthened and suitable amendments shall be proposed soon.
  6. Simplified procedure for exporters under the ‘Nirvik’ scheme including high insurance cover and reduction in premium, is proposed.
  7. A new Digital Platform to simplify the process of obtaining Intellectual property creation through a simple application process is proposed to be brought about.  An institute of excellence is also proposed to be created.

Start-ups, SME and MSME Reforms:

The Finance Minister says “Entrepreneurship is the strength of India”

  1. Definition of Start-up was earlier limited to companies/ LLPs with turnover upto Rs 25 crores, and now it is proposed to be increased to the limit of Rs 100 crores.
  2. Start-ups can claim tax exemptions for a period of 3 year in a block of 10 years instead of a block of 7 years as per the proposed budget.
  3. Investment clearance cell is proposed to be established, to provide end to end services, which will facilitate clearances at Central and State level, and will also provide a portal for pre-investment advice and information.
  4. Amendments are proposed to be brought in Factor Regulation Act 2011 to allow NBFC to extend finance to MSMEs.
  5. Scheme to provide subordinated debt to entrepreneurs of MSME is proposed to be introduced, which will be treated as ‘Quasi-Equity’ guaranteed by Credit Guarantee Corporation of India.

Sectoral Boosts:

  1. Internship opportunities are proposed to be made available to Engineers with Urban Local Bodies.
  2. Degree level online training programs are proposed  to be introduced through a few National Level Universities/ Institutions.
  3. National recruitment agencies are proposed to conduct Common eligibility tests in the aspirational districts for recruitment to non-gazetted posts.
  4. Five New Smart Cities proposed to be built in India.
  5. Government proposed to float schemes to boost the Electronics manufacturing industry and encourage manufacture of mobile phones which can be leveraged by manufacturers of medical devices too.
  6. Project preparation facilities are proposed to be set up for the infrastructure sector.
  7. National Logistics Policy is proposed  to be introduced which will facilitate the Single window e-logistics market.
  8. Thermal power plants with higher carbon emissions are proposed to be shut down.
  9. Cities which propose projects for clean air emissions will be incentivised as per the Budget proposal.
  10. The Pharmaceutical sector is proposed to be given handholding support in selected areas of operations.

Financial Sector:

The Finance Minister called the Financial Sector a hand which holds the economy and Indian aspirations.  Hence a clean, reliable and robust financial sector is critical. The following proposals are made to bring about reforms in the Financial Sector:

  1. Banking Regulation Act, to be amended.
  2. Insurance cover for Depositor to be increased from Rs 1 Lakh – 5 Lakh.
  3. The Governance mechanism of the Cooperative Banks to be strengthened.
  4. Banks to be allowed to raise funds from the capital market.
  5. Eligibility Limits for NBFC to participate in securitisation to be lowered from existing requirement of asset size of Rs 500 crores to Rs 100 crores.
  6. Certain Government Securities to be opened up for investments by non-resident investors and domestic investors.
  7. FPI’s investment limit in corporate bonds to be increased from 9% to 15%.
  8. New Legislation to be introduced which will provide a mechanism for netting off financial contracts.
  9. IFSC GIFT approved free trade zone, can now set up international Bullions Exchange, for trade by global market participants.

 Others:

  1. The Practice of Manual Scavenging to be eradicated
  2. Pre-paid smart meters shall be provided for public to promote energy conservation.
  3. Special consideration to reducing air pollution in cities.