Nearly all budgets presented in Parliament have the same story to tell and they have been preceded with amplified anticipation from various stakeholders. From house-makers to business barons, governors to gardeners, sports stars to silver screen luminaries, all desire that the government will hit masterstroke and make the nation a completely developed one. Regrettably, most times, these expectations have been negated. Usually ruling party politicians and representatives think otherwise without making meaningful reality check. The Budget presented in the year 2020 is not an exception to this phenomenon.
Economy is on the bumpy road. Every momentous financial indicator is exhibiting stress. Numerous social signs are experiencing trauma. Due to these factors wide gap has occurred between what is present and what is needed. Therefore, many were hoping that with bold thinking the Finance Minister and her government will enlighten various sectors and create the history. Unfortunately 160 minutes long duration budget speech was humdrum and steps selected to pull the economy back on a much greater growth path are timid and timorous.
Nevertheless, the budget has given reasonably strong focus on education, agriculture, rural and social sector development. It has made an attempt to concentrate on troubled areas adequately. Measures announced to double farmers’ income by 2022 are pragmatic which will make the sector competitive and sustainable. The idea to make India a desired destination for higher education under the ‘study in India’ scheme is a well-thought out move. The budget also aims to enlarge the scope of healthcare services by setting up hospitals in the aspirational districts and this can create few job opportunities. Infrastructure sector also has been emphasized in the budget. The budget has allowed the Deposit Insurance and Credit Guarantee Corporation to augment deposit insurance coverage to Rs 500,000 per depositor from Rs 100,000. The other big change for savers is the removal of the Dividend Distribution Tax. This is definitely a big step in making the tax system fair. Dividends from companies or mutual funds will reach the investor in full and are then taxed as per the investor’s income tax slab. Investors who are in the lower tax slabs will have to pay lower tax.
Read this: "Oil and water"
No magic pill for taxpayers
While economists focus on various parameters to praise or vilify the budget, for middle class it boils down to a single parameter, that is, relief in taxation. They are more concerned about what part of their hard earned money will be at their disposal in terms of tax liberations. The budget 2020 has delivered a googly ball for them!
The budget has made the tax structure more complicated by adding three tax slabs. Avid tax planners who enlarged their tax deductions will probably pay more tax under the new regime. Finance Minister has slashed income tax rates, but with conditions and caveats. New tax regime is discretionary and if taxpayers opt to pay tax under the new lower personal tax scheme, they have to forego multitude of exemptions or deductions available under the old regime. About 70 exemptions will not be available under the new regime including Section 80C (investments in PPF,NPS, Life insurance premium etc), Section 80D (medical insurance), tax breaks on HRA, interest paid on housing loan and charitable donations.
The many dollars question that arises now is whether it is sensible to sacrifice exemptions or deductions and choose the new scheme or stick to the old regime to save more? The answer to the question is purely subjective and varies on a case-to-case basis. However, typically, higher the exemptions an individual was claiming, the less likely he is to benefit under the new personal tax regime. For instance, a person who has bought a long-term life insurance policy may have to continue paying the premium and claim the tax benefit on it. Taxpayers who have home loans and have been enjoying other exemptions or deductions might as well stick to the old scheme.
Although the Finance Minister said that the idea of the new regime is to simplify the tax procedure, the dual tax regime makes the system more complicated. Taxpayers have to do their own computations or seek professionals’ assistance to figure out which regime is more advantageous. Moreover, this announcement clearly indicates that the government can no longer afford to pay tax free interest rates on various investment plans.
Moreover, the key issue is whether this new optional tax regime is a disincentive for savings. That’s because the major exemptions that the taxpayer will have to forego are those pertaining to investments like PPF, NPS and ELSS funds. It is a fact that these are important gateway investments which people end up investing in because they are a way of saving on taxes. If one can pay lower taxes without these investments, then fewer people would save. This is definitely an anomaly.
With more and more Indians trying to hide their taxable income by stashing away their money abroad, the Finance Minister has taken several steps in this Budget to put an end to this mode of tax evasion. The measures are bound to impact Non Resident Indians negatively. The budget has reduced the number of days an NRI would have to be in the country in a financial year. With the period of stay in India being reduced from 181 to 120 days, people have to spend more time abroad—more than 245 days compared to 183 days earlier to get the NRI status.
To conclude, the budget 2020 is a run of the mill budget and lacks vision. It has not unleashed the expected big-bang reforms and measures to address the present entrenched economic crisis. The government has completely failed to take recourse to power-packed remedial measures. Well, the good news is the Finance Minister made the longest budget speech by any finance minister in the history of independent India.
Read this: Budget sets stage for economic revival