Amidst nationwide anticipation, India’s Finance Minister Nirmala Sitharaman presented her 2nd union budget today. Dubbed budget 2020 in keeping with tradition, the announcement contained a detailed account of the government’s income and expenditure for the upcoming fiscal year, running from April 1 to March 31.

If Sitharaman’s maiden budget last year was considered critical for the Indian economy, budget 2020 is even more so. With consumption dipping to new lows, with a job crisis looming in closer, and with several industries facing real and potential losses due to slowing demand among the general public, this is the budget that could make or break the country’s economy.

Expectations around this year’s union budget included income tax relief, several sector-specific reforms, infrastructure investments, and GST rate cuts. Now that it has been presented, here’s looking at some of the highlights of budget 2020.

Fiscal deficit target

The fiscal deficit projections were raised to 3.8% of the GDP for 2019-20, as opposed to the initially budgeted 3.3%.

For 2020-21, the fiscal deficit target has been set at 3.5% of the GDP.

Personal income tax amendments

Income tax relief for individual taxpayers has been long overdue. Budget 2020 has finally touched upon this fundamental area. The salient points with regard to income tax relief are listed here.

  • A new scheme of personal income taxation shall be introduced, with revised tax rates.
  • This new scheme shall be optional.
  • Taxpayers opting for the new scheme of taxation shall be eligible to pay tax at reduced rates, provided they do not claim any deductions or exemptions.

Here’s how the new income tax rates proposed in this budget compare with the earlier rates of tax.

Income slab (in rupees) Rate of tax as per old scheme Rate of tax as per new scheme
5,00,001 to 7,50,000 20% 10%
7,50,001 to 10,00,000 20% 15%
10,00,001 to 12,50,000 30% 20%
12,50,001 to 15,00,000 30% 25%
Above 15,00,000 30% 30%

For income up to Rs. 5 lakhs, no tax shall need to be paid under the old and the new scheme. Furthermore, the Finance Minister also proposed that around 70 of the 100+ deductions and exemptions provided in the Income Tax Act, 1961, are to be scrapped in an attempt to simplify the tax regime.

Corporate relief and tax rate cuts

Budget 2020 also gave some tax relief measures for the corporate sector. Some highlights are lister here.

  • New companies in the power generation sector shall be taxed at a nominal rate of 15%.
  • The turnover threshold limit for mandatory audit has been raised from Rs. 1 crore to Rs. 5 crores.
  • To tackle the increasing incidence of building criminal liabilities for civil offences, the Companies’ Act is to be amended in an effort to decriminalize civil offences.

GST rate cuts

While the highlights of budget 2020 included no specific references to GST rate cuts, Sitharaman did hint at possible relief in the near future, once the government has had some time to look into the areas where GST rates can be lowered.

Dividend Distribution Tax (DDT)

As expected before the budget was presented, the government has abolished Dividend Distribution Tax. Salient points in this regard are as follows.

  • Companies shall no longer be required to pay DDT.
  • Instead, dividend income shall be taxed in the hands of the shareholders as part of the income slab applicable to them.

Ease in Compliance

In an attempt to simplify compliance and make the process of tax assessment and payments easier, the Finance Minister proposed several measures. Some of the main highlights in this regard follow.

  • Taking inspiration from faceless assessment, the Income Tax Act shall be amended to include faceless appeals as well.
  • GST returns shall be simplified, with features to support SMS-based filing and improved input tax credit flow.
  • There shall be an option to prefill the tax return to make filing easier.

Healthcare

  • Mission Indradhanush is to be extended to cover new diseases and support the development of 5 new vaccines.
  • New hospitals shall be set up under viability gap funding to look at areas where there are no medical care. This will be done via a public-private partnership.
  • The TB Harega, Desh Jeetega campaign will be given prominence, so the government can end the incidence of TB in the country by 2025.

Tourism

  • Five archaeological sites are to be developed with on-site museums on site in the following areas: Rakhi Gadi in Haryana, Hastinapur in UP, Dholavira in Gujarat, Shivsagar in Assam and Adichanallur in Tamil Nadu.
  • A tribal museum is to be set up in Ranchi, Jharkhand.
  • A maritime site is proposed to be set up in Lothal.
  • The FM announced that 100 more airports will be developed under UDAN by 2024.

Agriculture

  • The Finance Minister hopes to double the income of farmers by the year 2022.
  • A 16-point action plan was unveiled to promote farm-based activities in conjunction with the state governments. The plan touched upon measures for solving various water-related issues, setting up of solar pumps, use of organic fertilizers, and storage and logistic requirements.
  • The budget also focused on setting up of Kisan Rail by the Indian Railways under the Public-Private-Partnership (PPP) model. The scheme is likely to help farmers safely transport perishable goods without risking spoilage.    
  • The Budget proposes to expand the NABARD Refinance scheme by increasing the agricultural credit availability to up to 15 lakh crores.

Education

  • The Finance Minister stated that discussions are underway with the various states with respect to the introduction of New Education Policy (NEP), and that the policy shall be announced soon.
  • The Government is likely to enable FDI in education to boost the sector.
  • By March 2021, 150 higher education institutes to have various apprentice programmes.
  • Urban local bodies in various states to provide newly qualified engineers with a job opportunity for a year.
  • The Government will work to promote ‘Study in India’ by conducting INDSAT exams for Asian and African students to provide scholarships.

Budgetary allocations

Purpose Amount of Budget Allocation
Agriculture, Irrigation, and Allied Activities Rs. 2.83 lakh crores
Jan Aushadhi Scheme Rs. 69,000 crores
Swachh Bharat Scheme Rs. 12,300 crores
Jal Jeevan Mission Rs. 11,500 crores
Education Rs. 99,300 crores
Skill Development Rs. 3,000 crores
Development of Industry and Commerce Rs. 27,300 crores
Power and Renewable Energy Sector Rs. 22,000 crores
BharatNet Rs. 6,000 crores
National Mission on Quantum Computing and Technology Rs. 8,000 crores
Nutrition-related programs Rs. 35,600 crores
Women-linked programs Rs. 28,600 crores
Senior Citizens Rs. 9,500 crores
Promotion of Tourism Rs. 2,500 crores
Plans for Clean Air Rs. 4,400 crores
Hosting G-20 residency in the year 2022 Rs. 100 crores
TOTAL Rs. 6,22,100 crores

The Takeaway

Budget 2020 focused greatly on public-private partnerships. The FM divided her speech into three primary themes, namely Aspirational India (dealing with agriculture, healthcare, and rural development), Economic Development (focusing on yielding more space for private sector), and Caring Society (centered on a society that’s humane and compassionate).

Budget 2020 also delivered some landmark announcements that were anticipated greatly, particularly with regard to personal tax rate cuts and corporate relief. It remains to be seen if the measures introduced succeed in pulling India’s economy upward.

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