The Economic Survey presented ahead of the Union Budget and Budget 2020 both stress the need to respect wealth creation and do away with tax harassment. This indeed is the overarching theme of Budget 2020.
Income tax slabs
One of the first and most discussed aspects of this Budget is the impact of income tax slabs. According to Budget 2020 announcements, taxpayers can now switch between the old and new income tax regimes, depending on which one is beneficial for them. The new IT structure offers lower slabs but taxpayers won’t be able to avail any exemptions. This switching of income tax slabs can be done year-on-year. The new tax structure is easier to file, and the process is aimed at simplification of the taxation system.
Dividend distribution tax
Aimed at offering some benefit to corporate India, the Budget 2020 has removed dividend distribution tax. This is the tax applied on dividends that companies issue. Till now, companies were needed to pay an effective DDT of over 20 per cent (including cess and surcharge on the actual 15 per cent DDT). Dividend will now only be taxed when it is in the investors’ hands. This move is aimed at making equity markets a more attractive proposition for foreign investors. The abolishing of DDT is expected to draw more foreign direct investments.
A robust startup ecosystem in India gets a further shot in the arm in Budget 2020. One of the incentives is the announcement of an early-stage fund. Another is an aim to resolve the ESOP-related two-time taxation. Accordingly, tax payment on ESOP shares that employees hold is deferred by five years or whenever an employee quits the company/sells shares, whichever happens first. As of now, employees in startups are needed to pay taxes whenever they opt for ESOPs and also pay capital tax gains when they redeem the ESOPs. In an aim to further boost startups, the Finance Minister said eligible startups with yearly turnover of upto Rs 25 crore will be given 100 per cent deduction of profits for three consecutive years (tax assessment years) out of the first seven.
According to Budget 2020, the government has proposed additional hospitals in Tier-II and Tier III cities. There are over 20,000 empanelled hospitals under the PM Jan Arogya Yojajana, and this would be increased by way of a public private partnership model. The Budget also proposes expansion of the Jan Aushadhi Kendra scheme to all districts, wherein 2,000 medicines and 300 surgicals would be provided by 2024. The government also proposes to charge a health cess of 5 per cent on any imports of specified medical equipment. This is aimed at boosting the domestic healthcare industry. The outlay for healthcare in the Budget is Rs 69,000 crore, a 10 percent increase from the current fiscal.
Education gets a Rs 99,300-crore allocation as part of Budget 2020, with Rs 3,000 crore put aside for skill development. The allocation for education was Rs 94,800 in the earlier budget, marking a marginal increase. One of the biggest announcements is the introduction of apprenticeship embedded diploma or degree courses across 150 institutions of higher learning. Accordingly, fresh engineering graduates would be given internship opportunities for up to a year by urban local bodies. To ensure access to education for the deprived, the government has also announced an online degree-level education programme to be started by institutions ranked in the top 100 as part of the National Institutional Ranking framework.
The agricultural sector is India’s backbone. The Budget 2020 has proposed a 16-point plan to boost the sector, and aimed at doubling incomes of farmers by 2022. Agriculture and irrigation have been earmarked Rs 2.83 lakh crore for the FY-2021. Measures to improve 100 water-stressed districts, setting up of Kisa Rail for perishable products and Krishi Udan to improve agri exports are some of the proposals in the Budget. The PM KUSUM scheme aims to provide solar pumps for 20 lakh farmers as part of Budget 2020.
In a nutshell
To sum up, the Budget has aimed to spend on creation of assets and infrastructure. Wealth creation is a key focus but taxes haven’t been increased to generate resources.
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