Budget 2020: Major hits and misses of budget you need to know

Budget 2020: Here are some major takeaways of the Union Budget, which had a fair number of hits and misses.

Budget 2020, budget 2020 india, union budget 2020 india, union budget, budget 2020-21, new tax slab, latest tax slab, income tax slab latest, income tax slab budget 2020
Budget 2020-21: Once the DDT is abolished, the dividend amount will be added to investors' taxable income and taxed as per the individual tax bracket.

Budget 2020: With a slew of measures to uplift the economy, the Union Budget 2020 widely focuses on providing comfort to the middle class and MSMEs. Here are some major takeaways of the Budget, which had a fair number of hits and misses.

Hits

1. Deposit Insurance limit increased from Rs 1 lakh to Rs 5 lakh

Enhancing deposit security for the banking consumers, the insurance cover available on bank deposits has been increased by 5 times, to Rs 5 lakh. Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, offers deposit insurance cover to the banks included in the Second Schedule of the RBI Act. According to the depositor insurance programme, each depositor earlier was insured up to Rs 1 lakh in case of bank failure, which will be increased to Rs 5 lakh. This programme covers both principal and interest component of fixed deposits, recurring deposits, current account and savings accounts.

In light of current events that took place in some co-operative banks, this measure is deemed to restore consumer confidence in the banking sector.

2. Extension of Section 80EEA deduction to FY21

Continuing with its goal to attain ‘Housing for all by 2022’, the Budget proposed to extend deduction allowed under Section 80EEA to FY21. This will incentivize homebuyers in affordable housing and thereby, provide much-needed boost in the housing sector. Section 80EEA offers an additional deduction of Rs 1.5 lakh for home loan interest repayment over and above Rs 2 lakh deduction available under Section 24b. However, this section can only be availed by first time homebuyers for housing properties having stamp duty value of up to Rs 45 lakh.

3. Ease of doing business for MSMEs

Budget 2020 has announced several initiatives to incentivize MSMEs. Chief among them is the decision to allow NBFCs to offer invoice financing to MSMEs. This will enhance credit supply to the MSMEs. The budget has also announced an app-based invoice financing loan products to improve cash flow management of MSMEs. Another major announcement is increase in the turnover threshold for audit from the existing Rs 1 crore to Rs 5 crore. This will improve the ease of doing business for the MSMEs. Additionally, the decision to restrict increased limit to businesses carrying out less than 5% of their transactions in cash will incentivize the MSMEs to adopt digital payments.

Misses

a) Strong disincentive for long-term savings

The introduction of the new personal tax regime may negatively impact the long-term financial health of individuals. Various deductions like Section 80C and 80D acted as a strong incentive for the taxpayers, especially those lacking financial discipline, to buy various long-term financial products like tax-saving mutual funds, ULIPs, term insurance policies, pension plans, medical insurance, retirement products, etc. These deductions help in improving the long-term financial security of taxpayers and their families. With the condition of forgoing these deductions to avail the new tax regime, taxpayers lacking financial discipline may stop buying financial products crucial for their long term financial health. Thus, the new tax regime may also reduce the demand for life insurance, tax-saving mutual funds, medical insurance and retirement products.

b) Continual of LTCG tax on equities and equity mutual fund

Equity market plays a huge role in overall economic development and capital formation. The exemption of LTCG on equities helped in the deepening of our equity market and increasing the retail investor participation. Hence, restoration of this exemption would have increased retail investor participation in equities and boosted the overall market sentiment. Moreover, this removal would have also brought in tax parity in equity funds with ULIPs, which still enjoy exemption from LTCG tax.

c) Separate deduction for term insurance policies not introduced

The key goal of buying term insurance is to provide replacement income to dependents of the insured’s ill-timed death. Ideally, one’s term cover should be 10 to 15 times of his annual income. Purchasing a term insurance is the best way to avail such large covers, as their premiums are very low compared to other insurance products. However, as many consumers confuse insurance with investments, they end up buying term policies with insufficient cover. Thus, a separate section for the term policies outside Section 80C in the Budget 2020 would have incentivised taxpayers to purchase life insurance and thereby, avail sufficient life cover.

(The author is CEO & Co-founder, Paisabazaar.com)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.