Indian Finance Minister Ms Nirmala Sitharaman delivered the longest budget speech on 1st February 2020 to present 2020-2021 of Narendra Modi government 2.2. She started her budget address in the Parliament by paying homage to her predecessor, the late Arun Jaitley, and after that announced vital reforms to address socio-economic aspects. The prominent themes of Union Budget 2020-21 were:
- Economic Development.
- Societal Development.
- Aspirational India.
Key highlights of Budget:
Income Tax: Government offered an optional relief to individual taxpayers as it looked to boost consumption. Taxpayers now will be able to avail a lower income tax rate on various slabs by previous certain deductions and exemptions. The new scheme will be optional, and those who want to stick to claiming deductions will be allowed to do so. The new income tax slabs and rates are as under:
- Rs 5-7.5 lakh per annum: 10 per cent from 20 percent earlier.
- Rs 7.5-10 lakh per annum: 15 percent from 20 percent earlier.
- Rs 10-12.5 lakh per annum: 20 percent from 30 percent earlier.
- Rs 12.5-15 lakh per annum: 25 percent from 30 percent earlier.
In both the old and new regime, all income below Rs 5 lakh per annum will be tax-exempt.
Real Estate: To boost affordable housing in India, Budget has proposed to extend the date of loan sanction for availing additional deduction of Rs 1.5 lakh by one year to March 31, 2021. Property developers will also get a tax holiday on the profit earned on affordable housing projects for availing this tax holiday by an additional year.
Dividend Distribution Tax:
In a move that will offer some relief to India Inc., the government abolished the dividend distribution tax that levied on dividends issued by companies. So far, companies were required to pay DDT at 15 per cent, though including surcharge and cess put the effective rate at 20.56 per cent. DDT first time introduced in 1997 at a 7.5 per cent flat rate in an effort towards efficient tax collection.
Fiscal Deficit Target For 2020-21:
Escape Clause Invoked India’s budgetary deficit settled at 3.8 per cent in 2019-20 and targeted at 3.5 per cent in 2020-21, Finance Minister Nirmala Sitharaman said. Importantly, the government has decided to invoke the ‘escape clause’ provided for in 2018 amendments to the Fiscal Responsibility and Budget Management Act. For 2019-20, the fiscal deficit estimated at 3.3 per cent in Budget 2019. For the next financial too, the government will deviate from an earlier set financial path and target a fiscal deficit of 3.5 per cent.
PMC Bank Collapse:
In Bank Deposit Insurance Cover The government has proposed to hike the bank deposit insurance cover to Rs 5 lakh from the current Rs 1 lakh, to protect depositors in the event of a lender’s collapse. The decision comes after the collapse of PMC Bank that led to restrictions on deposit withdrawals. According to the Reserve Bank of India’s Financial Stability Report, the Deposit Insurance and Credit Guarantee Corporation has received total claims of about Rs 14,100 crore across defaulting cooperative banks.
Life Insurance Corporation (LIC):
The government has proposed to sell a part of its stake in LIC through an initial public offering, the finance minister said in her budget speech. While she didn’t divulge any details, the news of a LIC listing sent insurance stocks scurrying for cover. The state-run insurer was established in 1956 and, wholly owned by the Government of India.
New Infrastructure Projects:
100 New Airports, 5 New Smart Cities, 10,000-Km Gas Grid announced in Budget. The finance minister allocated Rs 1.7 lakh crore for a National infra Pipeline that aims to improve ease of living for every citizen of our country and provides a massive opportunity for employment. Finance Minister proposed to set up a project preparation facility for infrastructure projects. This programme would actively involve young engineers, management graduates and economists. She also proposed to divert all infrastructure agencies of the government to engage youth power and startups,” Sitharaman said. National policy will soon be released, Minister said.
Key Highlights Of The Plan:
- National infra pipeline of Rs 106 lakh crore addresses the country’s needs.
- To set up a project preparation facility for infrastructure projects.
- National logistics policy to be released soon.
- Logistics policy to create a single-window e-logistics market.
- Delhi-Mumbai Expressway to be completed by 2023.
- To monetise 12 lots of highway bundles by 2024.
- Indian Railways commissions 550 wifi facilities.
- Solar power capacity to be set-up alongside rail tracks.
- Four station redevelopment projects to be done through the PPP model.
- More Tejas-like trains to connect iconic tourist destinations.
- One hundred more airports to be developed by 2024.
- To provide 20% equity, external assistance for metro projects.
- To provide Rs 22,000 crore for power, renewable energy in FY21.
- To expand the national gas grid to 27,000 km from 16,200 km.
- Aim policy to enable the private sector to build data-centre parks.
- Fibre-to-home through Bharat Net to link 1 lakh gram panchayats.
- Propose to provide Rs 6,000 crore to Bharat Net.
- To initiate two national-level science schemes.
Vivad Se Vishwas:
To Reduce Direct Tax Litigation, The finance minister announced the ‘Vivad Se Vishwas’ scheme for tax litigation under which only the disputed tax amount will have to be paid on or before March 31, 2020. No interest or penalty will be charged. People who pay after this deadline, but before June 30 will have to pay some charge, Sitharaman said during her speech.
Key Highlights Of The Vivad Se Vishwas Scheme:
To reduce direct tax litigation.
To amend the Income Tax Act to enable faceless appeal. Under the scheme, assessee to pay only tax amount, not interest, penalty.
March 31 deadline for paying tax claim, avoid interest, penalty.
Those who avail after March 31 but before June 30 will have to pay some extra amount.
Government’s Disinvestment Target:
Doubled to a lofty Rs 2.1 Lakh Crore India has set itself the highest-ever disinvestment target for 2020-21 even as it missed its previous goal. The central government aims to garner Rs 2.1 lakh crore through divestments in 2020-21, according to Union Budget 2020-21 documents. Of this, it expects to earn Rs 90,000 crore by selling a stake in public sector banks and financial institutions, while the balance Rs 1.2 lakh crore will come by selling a stake in central public sector enterprises.
In 2019-20, the government had hoped to earn Rs 1.05 lakh crore through divestment receipts. That has now been revised lower at Rs 65,000 crore.
FPI Limit In Corporate Bonds Hiked: The government plans to increase the investment limit of foreign portfolio investors in corporate bonds from 9 per cent to 15 per cent, Sitharaman said. The finance minister said specific government securities would be open for foreign investors. She also proposed debt-exchange traded funds comprising mainly government securities, while stating that Rs 22,000 crore has already provided as support to infrastructure project pipeline.