Budget 2020 Highlights: 10 Key Announcements Made By FM Nirmala Sitharaman
From income tax to fiscal deficit, here’s a look at the 10 key announcements made by the Finance Minister in Union Budget 2020-21.
Finance Minister Nirmala Sitharaman today delivered the longest budget speech in six years of the Narendra Modi government.
She started her address in the Parliament by paying homage to her predecessor, the late Arun Jaitley, and went on to announce key reforms that sought to address both economic and social aspects of the country.
The three prominent themes of Union Budget 2020-21 were:
- Aspirational India.
- Caring Society.
- Economic Development.
Here’s a look at the key highlights of Budget 2020:
Income Tax: Middle Class India Gets A Rs 40,000 Crore Boost
The Narendra Modi-led government offered an optional relief to individual taxpayers as it looked to bolster consumption and flagging economic growth.
Taxpayers will now be able to avail a lower income tax rate on various slabs by foregoing certain deductions and exemptions, Sitharman announced in the budget. The new regime will be optional and those who want to stick to claiming deductions will be allowed to do so.
The new income tax slabs and rates are as under:
- Rs 5-7.5 lakh per annum: 10 percent from 20 percent earlier.
- Rs 7.5-10 lakh per annum: 15 percent from 20 percent earlier.
- Rs 10-12.5 lakh per annum: 20 percent from 30 percent earlier.
- Rs 12.5-15 lakh per annum: 25 percent from 30 percent earlier.
- Above Rs 15 lakh per annum: 30 percent without any exemptions.
All income below Rs 5 lakh per annum will be tax-exempt in both the old and new regime. The changes will result in a loss of Rs 40,000 crore to the exchequer. (read here)
Real Estate: Benefits For Buyers And Makers Of Affordable Housing
In order to boost affordable housing in India and further the government’s ‘Housing for All’ initiative, Budget 2020 has proposed to extend the date of loan sanction for availing additional deduction of Rs 1.5 lakh by one year to March 31, 2021.
Property developers will also get a tax holiday on the profit earned on affordable housing projects approved by March 31, 2020. The finance minister also proposed to extend the date of approval for affordable housing projects for availing this tax holiday by an additional year.
Dividend Distribution Tax Abolished
In a move that will offer some relief to India Inc., the Narendra Modi-led government eliminated the dividend distribution tax that’s levied on dividends issued by companies.
So far, companies were required to pay DDT at 15 percent, though including surcharge and cess put the effective rate at 20.56 percent. DDT was introduced in 1997 at a 7.5 percent flat rate in an effort towards efficient tax collection. (read more)
Fiscal Deficit Target For 2020-21: ‘Escape Clause’ Invoked
India’s fiscal deficit settled at 3.8 percent in 2019-20 and is targeted at 3.5 percent in 2020-21, Finance Minister Nirmala Sitharaman said. Importantly, the government has decided to invoke the ‘escape clause’ provided for in 2018 amendments to the Fiscal Responsibility and Budget Management Act.
For 2019-20, the fiscal deficit was estimated at 3.3 percent in Budget 2019. For the next fiscal too, the government will deviate from an earlier set fiscal path and target a fiscal deficit of 3.5 percent. (read more)
Also Read: Credibility Of Fiscal Math Depends On Higher Tax Revenue, Divestment Boost
PMC Bank Aftermath: Big Jump In Bank Deposit Insurance Cover
The government has proposed to hike the bank deposit insurance cover to Rs 5 lakh from the current Rs 1 lakh, to protect depositors in the event of a lender’s collapse.
“There is a robust mechanism to monitor the health of all scheduled commercial banks and we want to assure depositors that their deposits are absolutely safe,” Sitharaman said during her budget speech.
The decision comes after the collapse of PMC Bank that led to restrictions on deposit withdrawals. According to the Reserve Bank of India’s Financial Stability Report, the Deposit Insurance and Credit Guarantee Corporation has received total claims of about Rs 14,100 crore across defaulting cooperative banks. (read more)
LIC Listing Proposed Via An IPO
The government has proposed to sell a part of its stake in Life Insurance Corporation of India through an initial public offering, the finance minister said in her budget speech. While she didn’t divulge any details, the news of an LIC listing sent insurance stocks scurrying for cover. The state-run insurer was established in 1956 and is fully owned by the Government of India. (read more)
100 New Airports, 5 New Smart Cities, 10,000-Km Gas Grid
In her Budget 2020, the finance minister allocated Rs 1.7 lakh crore for a National infra Pipeline that aims “to improve ease of living for every citizen of our country” and provides huge opportunity for employment.
“I propose to set up a project preparation facility for infra projects. This programme would actively involve young engineers, management graduates and economists. It is also proposed to divert all infrastrucute agencies of the government to involve youth power and startups,” Sitharaman said.
A national policy will soon be released, she said.
Key Highlights Of The Plan:
- National infra pipeline of Rs 106 lakh crore addresses country’s needs.
- To set up project preparation facility for infrastructure projects.
- National logistics policy to be released soon.
- Logistics policy to create single-window e-logistics market.
- Delhi-Mumbai Expressway to be completed by 2023.
- To monetise 12 lots of highway bundles by 2024.
- Indian Railways commissioned 550 Wi-Fi facilities.
- Railways has small operating surplus.
- Solar power capacity to be set-up alongside rail tracks.
- Four station redevelopment projects to be done through PPP mode.
- More Tejas-like trains to connect iconic tourist destinations.
- 100 more airports to be developed by 2024.
- To provide 20% equity, external assistance for metro projects.
- To provide Rs 22,000 crore for power, renewable energy in FY21.
- To expand national gas grid to 27,000 km from 16,200 km.
- Aim policy to enable private sector to build data-centre parks.
- Fibre-to-home through Bharat Net to link 1 lakh gram panchayats.
- Propose to provide Rs 6,000 crore to Bharat Net.
- To initiate two national level science schemes.
Vivad Se Vishwas: Amnesty Scheme To Reduce Direct Tax Litigation
The finance minister announced the ‘Vivad Se Vishwas’ scheme for tax litigation under which only the disputed tax amount will have to be paid on or before March 31, 2020. No interest or penalty will be charged. People who pay after this deadline, but before June 30 will have to pay some charge, Sitharaman said during her speech.
Key Highlights Of The Vivad Se Vishwas Scheme
- ‘Vivad Se Vishwas’ scheme to reduce direct tax litigation.
- To amend the Income Tax Act to enable faceless appeal.
- Under the scheme, assessee to pay only tax amount, not interest, penalty.
- March 31 deadline for paying tax claim, avoid interest, penalty.
- Those who avail after March 31 but before June 30 will have to pay some extra amount.
Also Read: Sabka Vishwas Scheme: Who’s Benefited And Who’s Chosen To Stay Away?
Government’s Disinvestment Target Doubled To A Lofty Rs 2.1 Lakh Crore
India has set itself the highest-ever disinvestment target for 2020-21 even as it missed its previous goal.
The central government aims to garner Rs 2.1 lakh crore through divestments in 2020-21, according to Union Budget 2020-21 documents. Of this, it expects to earn Rs 90,000 crore by selling stake in public sector banks and financial institutions, while the balance Rs 1.2 lakh crore will come by selling stake in central public sector enterprises.
Also Read: Budget 2020: Government Looks To Exit IDBI Bank Fully
In 2019-20, the government had hoped to earn Rs 1.05 lakh crore through divestment receipts. That has now been revised lower at Rs 65,000 crore. (read more)
FPI Limit In Corporate Bonds Hiked
The government plans to increase the investment limit of foreign portfolio investors in corporate bonds from 9 percent to 15 percent, Sitharaman said. The finance minister said certain government securities will be open for foreign investors.
She also proposed debt-exchange traded funds comprising mainly government securities, while stating that Rs 22,000 crore has already provided as support to infrastructure project pipeline.
Also Read: Winners and Losers: Who Got What in India’s Budget 2020
“To address liquidity constraints of NBFCs and housing finance corporations, a partial credit guarantee scheme will be launched by the government,” she added.