All Eyes On Nirmala Sitharaman’s Budget 2020 For Income Tax Relief
The common man has his eyes set on Finance Minister Nirmala Sitharaman's second budget next month for relief in income tax, but an economic slowdown and a sharp reduction in corporate tax rates hint that she has very little fiscal wiggle room to dole out a big largesse.
Facing flak for not doing enough to revive a slowing economy in her maiden budget presented on July 5, 2019, Sitharaman in September surprised by cutting corporate tax rates to their lowest ever. The government exchequer, in the process, took a Rs 1.45 lakh crore tax revenue hit.
The Goods and Services Tax rates too were lowered many times in 2019, including for items like housing, electric vehicles, hotel rooms, diamond job work and outdoor catering. That hurt government revenue collections further.
Now, there is clamour for revising personal income tax rates to boost consumption in an economy that is growing at the slowest pace in more than six years.
To be sure, there was some relief to individuals in the February 2019 Interim Budget but it primarily benefitted those whose income was below Rs 5 lakh. It was announced that there will be no tax liability if the net taxable income does not exceed Rs 5 lakh.
Another relief for the salaried class was the hike in a standard deduction by Rs 10,000 to Rs 50,000 per year. The standard deduction of Rs 40,000 was introduced in Budget 2018 in lieu of medical reimbursement and conveyance allowance.
There are other tax pains as well for the government.
Giving in to the demands of foreign investors, Sitharaman rolled back the so-called “super-rich tax" announced in Budget 2019-20. Surcharge on long- and short-term capital gains arising from the transfer of equity shares was withdrawn.
The effective income tax rate for individuals with a taxable income of Rs 2-5 crore went up to 39 percent from 35.88 percent and for those above Rs 5 crore to 42.7 percent.
Also, to mitigate genuine difficulties of startups and their investors, the government decided to do away with the so-called “angel tax" for entities registered with the Department for Promotion of Industry and Internal Trade, or DPIIT.
Responding to Prime Minister Narendra Modi's clarion call that wealth creators should not be eyed with suspicion and that they should be respected, the tax department adopted a more friendly approach in its dealings with the tax assessees.
All of this is reflecting in India’s widening fiscal deficit, raising concerns that the govenrment would breach its budgeted target for the third straight financial year.
The gap between the government’s revenue and expenditure widened to Rs 8.07 lakh crore as of November, according to data released by Controller General of Accounts on Tuesday. That’s 114.8% of the budgeted estimate of Rs 7.04 lakh crore for 2019-20.