Indian Union Budget 2020 – 2021 Highlights

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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:

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.

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:

Income below 5 lakhs – 0%
Income between Rs 5 lakh-7.5 lakh – 10%.
Income between Rs 7.5 lakh-10 lakh – 15%
Income between Rs 10-12.5 lakh – 20%
Income between Rs 12.5 -15 lakh – 25%
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.

Around 70 deductions and exemptions are proposed to be
removed from the Income Tax Act 1961.

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.

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.

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.

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.

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%.

Withholding tax rate on interest payments on bonds listed
on IFSC exchange, is proposed to be 4%.

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.

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.

Date of approval of affordable housing projects, for
availing tax holiday, is proposed to be extended for one
more year.

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.

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.

PAN is proposed to be issued instantly, based on Aadhar.

Indirect Tax Reforms:

Import duty is proposed to be levied on medical devices for
intensive make in India.

GST refund process is proposed to be simplified and automated.
Dynamic QR code for invoices is proposed to be introduced.

Custom Duty is proposed to be increased on Footwear and
Furniture.

Start-ups, SME and MSME Reforms:

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

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.
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.

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.

Amendments are proposed to be brought in Factor Regulation Act
2011 to allow NBFC to extend finance to MSMEs.

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:

Internship opportunities are proposed to be made available to
Engineers with Urban Local Bodies.

Degree level online training programs are proposed to be
introduced through a few National Level Universities/
Institutions.

National recruitment agencies are proposed to conduct Common
eligibility tests in the aspirational districts for
recruitment to non-gazetted posts.

Five New Smart Cities proposed to be built in India.
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.

Project preparation facilities are proposed to be set up for
the infrastructure sector.

National Logistics Policy is proposed to be introduced which
will facilitate the Single window e-logistics market.
Thermal power plants with higher carbon emissions are proposed
to be shut down.

Cities which propose projects for clean air emissions will be
incentivised as per the Budget proposal.

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:

Banking Regulation Act, to be amended.

Insurance cover for Depositor to be increased from Rs 1 Lakh – 5 Lakh.

The Governance mechanism of the Cooperative Banks to be
strengthened.

Banks to be allowed to raise funds from the capital market.
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.

Certain Government Securities to be opened up for investments
by non-resident investors and domestic investors.
FPI’s investment limit in corporate bonds to be increased
from 9% to 15%.

New Legislation to be introduced which will provide a
mechanism for netting off financial contracts.

IFSC GIFT approved free trade zone, can now set up
international Bullions Exchange, for trade by global market
participants.

Others:

The Practice of Manual Scavenging to be eradicated
Pre-paid smart meters shall be provided for public to promote
energy conservation.

Special consideration to reducing air pollution in cities.