“Budget 2020- Need to convert into reality”

After the Union Budget was presented today, G.Karthikeyan, Convenor, Economic Affairs and taxation panel, Coimbatore Zone CII, through a press release said the following:

The budget was presented with a recessionary phase in the background and hopes amongst the populace and industry alike of some big ticket reforms and tax cuts. It is a welcome move that All around allocations made in health care, renewable energy, education, technology related advancements which will not only benefit the society at large but also help in pushing aggregate demand.  We need to wait and see whether these will suffice in rekindling an animal spirit spurring growth remains to be seen.

On the bright side, personal income tax rates have been reduced via new simplified regime – similar to what was done with corporate tax in Sep 2019 leaving the option open to individuals to choose the simplified new regime or the current old regime. However, no deductions such as chapter VI A like NSC, PPF, LIC, donations, Mediclaim, educational expenses etc,. and interest on housing loan cannot be claimed which is a negative side.

The idea is to increase disposable income in the hands of the individual in a bid to push demand. The Dividend Distribution Tax has been abolished. While this is a good move it also has certain adverse implications – Companies charged DDT at 15% while now this will be charged in the hands of the individual at the marginal rate he is subject to. So a person in the 30% bracket would end up paying 30% on dividends as well. Considering the focus of the budget is wealth creation, this may not be in tune with that aim. A faceless appeal system has also been introduced ostensibly to control and reduce corrupt practices.

A long standing demand of increasing deposit insurance of Banks has been met with the limit per deposit increasing from Rs.1 Lakh to Rs.5 Lakhs.

The MSME categorization limit has been increased to Rs.100 crores and the income exemption changed to 3 out of first 10 years. It is a good move to see that  Start-up ESOPs have been tax deferred. It remains to be seen whether these measures will push demand, consumption, and private investment and help the economy turn around.