Budget 2020: Pros & Cons

The much awaited union budget 2020 was unveiled by the Finance minister Nirmala Sitharaman on February 1.

The Pros:

It bought some relief for foreign investors as the memorandum to the Finance Bill, 2020, intended to abolish DDT and revert to the classic system of taxation, where dividends are taxed directly in the hands of the shareholders. Now foreign investors can also claim their tax credit in their respective countries for the tax paid on dividends in India. It also abolished the tax payable by companies and mutual funds, so unitholders will have to pay tax for such incomes. To deal with the after effects, section 80M of the Income Tax Act, 1961, that was omitted after introduction of DDT is given a fresh take with some amendments. This will enable domestic companies to claim deduction in taxes with respect to dividend received from another domestic companies. It is also suggested to limit the deduction of interest expenditure to 20% of dividend income/income from units.

Government was also quite concerned with meeting the demands of start-ups. As proposed, an eligible start-up with turnover not exceeding Rs 100 crore would be able to claim tax holiday for a block of three consecutive years out of 10 years from its incorporation. Government also introduced Vivadh se vishwas scheme which is proposed that if a taxpayer pays the amount of disputed tax by March 31, 2020, the amount of undisputed interest and penalty shall be completely waived. The taxpayers availing the scheme after March 31, 2020, but before June 30, 2020, will have to pay some additional amount. The scheme would remain open till June 30, 2020.

The Cons:

In years, the Indian Economy is growing at the lowest rate and the unemployment rate is more than ever. Nirmala Sitharaman, Finance Minister has an unavoidable task to attend to. We often see when companies are stressed, they tend to do too much. Rather they should always do less. They should use their resources in a limited manner. Hence, leading to directed resources with better implementation. The last year's budget was useful, but not what we needed. A speech was delivered out of which, Part A was about three themes. The first point was: Incentivise states to implement the three model agricultural laws passed by the Union government over the last three years. And the last, List the Life Insurance Corporation on the stock exchange. Only these two were useful.

Part B, on the tax changes, includes the section on simplifying personal income tax by lowering rates and removing exemptions, reducing one level of the treble taxation of dividends, extending tax concessions for employee share purchases and attempting to reduce tax litigation.

Coming to the important part, the slowdown must be discussed clearly in the meetings by the Prime minister and Finance minister. To set things right, an Open public recognition of the current economic distress would have been a huge enabler, which was lacking in the speech.

Secondly, Government Has delayed paying its dues. To make the budget simpler next year, the government will have to pay the money in this financial year. Another challenge, import tariffs on many items have been increased. Imports under the purview of FTAs are to be reviewed for adherence to the rules of origin — with the threat of higher duties. “The private sector is fearful of the arbitrary power wielded by officials and does not speak up. There is no voice, but there is an exit in the form of reduced investment.” The last page of Kelkar and Shah’s book read. The only thing that has been demonstrably absent has been the governments capacity to implement.