Budget 2020-21: As the economy continues to reel under a growth slowdown, Finance Minister Nirmala Sitharaman announced cuts in personal income tax aiming to boost consumer demand.
Budget 2020 India: As the economy continues to reel under a growth slowdown, Finance Minister Nirmala Sitharaman announced cuts in personal income tax aiming to boost consumer demand. However, the decisions, particularly with respect to income tax changes, may not help much in addressing the slowdown woes. In the immediate term, the move that changes the income tax rates may not help much in reviving demand, said Indranil Pan, Chief Economist, IDFC First Bank. Even as the budget was expected to provide benefits to the stressed auto and housing sectors, the budget didn’t announce much in this regard, Indranil Pan added. Nirmala Sitharaman on Saturday announced cut in personal income tax, and gave relief to companies on payment of dividend in the Union Budget for 2020-21 as the government looked to boost consumption to bring the economy out of the worst slowdown in 11 years.
Offering an optional lower rate of income tax to individuals, Sitharaman in the budget for proposed new tax slabs of 15 per cent and 25 per cent in addition to the existing 10 per cent, 20 per cent and 30 per cent. The new I-T slabs would be for individuals not availing certain specified deductions or exemptions. “With capital expenditure being scaled up amid a planned curtailment of the fiscal deficit to gdp ratio, the detailed revenue assumptions for FY21 will need to be carefully scrutinised to assess the credibility of the fiscal math. The modifications in income tax rates may not materially improve consumer sentiment”, Aditi Nayar, Principal Economist, ICRA, told Financial Express Online. The first advance estimates for GDP estimated the economy to grow at 5 per cent in FY20, its slowest pace in 11 years.
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“At a time when private consumption demand and investment are weak, the government has to spend to get the economy out of the vicious circle of low growth and high inflation. Once growth gets the desired momentum, the government can consolidate its expense. Desperate time calls for desperate measures. All we need is GDP to pick up. The math of the fiscal balance as a ratio to GDP will automatically be taken care of”, Rumki Majumdar, Economist, Deloitte India, said.