Budget 2020 India: On the tax side, one of the significant proposals is to rationalise personal income tax.
Union Budget 2020 India: Finance minister Nirmala Sitharaman, on Saturday, presented a Budget that navigates through various challenges currently facing the country including uplifting economic growth, creating jobs and making sure that expenditures create assets and boosts consumption and growth.
To achieve various competing objectives, the Budget 2020 gave adequate attention to the aspirations of India, tried to boost economic development by creating more space for private investments, and proposed to build social security. The finance minister gave attention to agriculture, irrigation and rural development. Overall, allocation in that sector went up by almost Rs 45,000 crores. Attention was largely on creating assets such as warehouses, village storages, etc. Warehouses were proposed to be funded through viability gap funding. This is a very encouraging step and ushers in a new dimension for agriculture and rural infrastructure. For hospitals also, the government rolled out an ambitious proposal to have hospitals in each district; the finance minister also talked about viability gap funding for such hospitals.
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One heartening announcement was stress on more use of organic fertiliser, instead of chemical versions. This will help in improving soil health and would boost productivity, as at present N, P and K nutrient balance (4:2:1) has been completely skewed. In addition, subsidies have become a millstone round the neck, and need rationalisation.
Further, launch of the National Logistics Policy, 100 additional airport developments, fishery extension through 3,477 Sagar Mitras, etc., would fuel economic growth and employment generation. Expansion of the National Gas Grid to 27,000 km would not only create assets but also provide employment opportunities. As a thumb rule, capital expenditure has better fiscal multipliers, at about 2.5 times. This implies that for every Rs 1 crore of capital expenditure, about Rs 2.45 crore would be added to the nominal GDP.
On the tax side, one of the significant proposals is to rationalise personal income tax. To do that, in case one does not avail of exemption or deduction, the person could reduce his tax incidence. For those still availing, one could go back to the existing regime. The new proposal gives benefit of Rs 40,000 crore.
Another important proposal brought in is to abolish the dividend distribution tax (DDT). This will create revenue foregone of about Rs 80,000 crore.
The start-ups are engines of growth and have a potential to generate significant employment. The government proposed to rationalise tax deduction available to start-ups with a turnover of up to Rs 100 crore as against earlier limit of Rs 25 crore.
One of the objective of the government is to provide housing for all. In order to achieve this objective, the deduction available for affordable housing has been extended by one more year.
The alternate individual tax regime proposed would put more money in the hands of the individuals which would fuel consumption in the economy in turn providing a fillip to economic growth. There is more in the Budget. Overall, one can say that the government has attempted to do tightrope walking.
The author is Senior Director with Deloitte India