Budget, DE-Mystified...

"The Budget proposal aims at achieving ‘economic development’, of an ‘aspirational India’ while ensuring a ‘caring society’ under the themes of ease of living, governance and tweaks in the financial sector. What are the proposals in the Budget that hope to achieve all these? The Budget proposals, de-mystified..."

The 2020 budget speech of the Honourable Finance Minister was the longest ever. The themes of the budget were governance, ease of living and the financial sector. Ease of living was further summed up under ‘aspirational India’, ‘economic development’ and ‘caring society’.

Rural development including agriculture and irrigation, wellness with water and sanitation and education with skills were clubbed under ‘aspirational India‘, and detailed programmes were outlaid. The theme of ‘economic development’ included proposals on the industry, commerce, investment, infrastructure and the new economy. Under the head of ‘caring society’, programmes for women and child, social welfare, culture tourism and environment were envisaged. Structural reforms, digital governance and inclusive growth were echoed with definite proposals while dealing with the issue of governance.

Under the financial sector, the budget speech spelt out the increase of deposit insurance coverage from Rs.1 lakh to Rs.5 lakh per depositor. The Finance Minister also articulated proposals to take LIC to partial disinvestment through the public issue route and also selling off the balance holding in IDBI bank.

Budget at a glance

The Budget Rupee comes from:

• Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17%
• Corporation Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18%
• Union Excise Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
• GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18%
• Customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
• Non-debt capital receipts . . . . . . . . . . . . . . . . . . . . . 6%
• Non-tax revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%
• Borrowings and other liabilities . . . . . . . . . . . . . . . 20%

The Budget Rupee goes to:

• 18 States’ share of taxes and duties . . . . . . . . . . 20%
• Internet payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%
• Defence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%
• Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
• Centrally sponsored schemes . . . . . . . . . . . . . . . 9%
• Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
• Other expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%
• Central sector schemes . . . . . . . . . . . . . . . . . . . . . . 13%
• Finance Commission and other transfers . . . . 10%

The budget proposals have been structural with an ambitious goal of reaching a $5 trillion economy by 2024. The recent slowing down of the economy has also been kept in mind. The budget has acknowledged the fact of slowing down of demand and for this impetus has been given to increase government spending. Rural sector, drinking water and roads have been picked up for increased capital outlays. The proposed fiscal deficit for the year 2020-21 has been pegged at 3.5% while for the current fiscal year, the fiscal deficit has been increased to 3.8%.

Limiting the focus of this column mainly to direct tax proposals, I start with personal income tax under the proposed new regime. The new regime will be optional and will be available to those who forego exemptions and deductions.

"The budget also proposes to further reduce the human interface between the tax department and taxpayers by providing for anonymous online disposal of appeals like in the case of assessments, which was proposed earlier"

Taxable income slabs

• Up to Rs.5 lakh . . . . . . . . . . . . . . . . . . . . . . . . . . NIL
• Rs.5 lakh to Rs.7.5 lakh . . . . . . . . . . . . . . . . . . .10%
• Rs.7.5 lakh to Rs.10 lakh . . . . . . . . . . . . . . . . . 15%
• Rs.10 lakh to Rs.12 .5 lakh . . . . . . . . . . . . . . . 20%
• Rs.12.5 lakh to Rs.15 lakh . . . . . . . . . . . . . . . . 25%
• Rs.15 lakh and above . . . . . . . . . . . . . . . . . . . 30%

Exemptions / Deductions

The government has said that presently more than 100 exemptions / deductions are available. In the new regime more than 70 exemptions / deductions cannot be claimed. The objective behind this proposal is to simplify the tax system, and also help the lower slab taxpayers whose deductions are linked with investment. It has been perceived that almost 80% of taxpayers claim less than Rs.2 lakh deductions. The budget speech says that with this proposal, there will be a revenue loss of about Rs.40,000 crores.

Dividend income

The budget proposed envisages that dividend from companies or mutual fund should be taxed at the recipient end. Presently under Dividend Distribution Tax (DDT) no tax is paid by the recipient. The budget does away with DDT. The removal of DDT will be helpful to foreign inves-tors and also lower income state investors. Big domestic investors like promoters of companies will have an increased burden. For dividend income more than Rs.5000, there will be a TDS of 10%.

Reduced tax rate for co-operative societies and power companies

Like in the case of corporate assessment, the tax rate for co-operative societies has been reduced to 22% after waiving off the claim of exemptions. The rate of corporate tax was reduced prior to the present budget. Also, as in the case of new manufacturing companies, a lower tax rate of 15% has been fixed for new power companies.

Taxpayer charter

The budget acknowledges that taxpayers should be respected and that there should not be any undue harassment to them by the tax authorities. To ensure this, now a ‘Taxpayer Charter’ will come on the statute. Details of this charter will be notified later. The budget also proposes to further reduce the human interface between the tax department and taxpayers by providing for anonymous online disposal of appeals like in the case of assessments, which was proposed earlier.

Helping taxpayers

To reduce painful litigation, the budget has come out with a scheme named ‘Vivad se Vishwas’. Taxpayers can move out of ongoing litigations by only paying the tax amount while escaping interest and penalty. There is also a proposal for the instant allotment of PAN on the basis of Aadhar. The tax audit threshold has been increased to five crores, if less than 5% of turnover is under scrutiny, as against the present threshold limit of Rs.1 crore turnover. Also to reduce the pain of income tax surveys, it has been proposed that survey actions can be conducted only with the approval of senior officers like commissioners or directors. For the registration of charitable trusts, it has been proposed that the process will be carried out electronically against applications made online.

Startups-Section 80 of IAC

Currently, ESOPs are taxable as a prerequisite at the time of exercise. In order to give a boost to the startup ecosystem, the Finance Minister has proposed to ease the burden of taxation on the employees. It is now proposed to defer tax payment as per the situations below –

• 48 months from the end of the assessment year in which the option is exercised or
• till they leave the company or
• when they sell the shares, whichever is earlier.

At present, an eligible startup having a turnover limit condition of Rs.100 crores, the claim of the deduction is 10 years from the existing seven years for three consecutive assessment years.

"The budget proposals are structural with an ambitious goal of reaching a $5 trillion economy by 2024. the budget has acknowledged the fact of slowing down of demand and for this impetus has been given to increase government spending. Rural sector, drinking water and roads have been picked up for increased capital outlays"

Affordable Housing

Tax holiday for affordable housing has been extended by one more year. Further, an additional deduction up to Rs.1.5 lakhs for interest paid on loans taken for affordable housing is also extended up to 31st March 2021. An affordable house means a house whose price is below Rs.45 lakhs

Residence in India – Section 6 of IT Act

Changes have been effected from 1st April 2021 under this section. An individual or an HUF would be ‘not ordinarily resident’ in India if the individual or manager of the HUF has been a non-resident in India in seven out of 10 years preceding the relevant previous year.

For an Indian citizen or PIO, visiting India for determining the residential status, the stay period of 182 days has been reduced to 120 days.

Further, an Indian citizen is deemed to be resident if he is not liable for tax in any other country due to reason of domicile or residence or any other criteria of similar nature. It has been clarified that the amendment is meant for dealing with tax avoidance and it is not against genuine residents in any other country like our working population in the Gulf countries.

Indirect tax

Customs duty has been raised on footwear to 35% from the present 25%. On furniture, customs duty is raised to 25% from 20%. Cen-tral excise duty on cigarettes and other tobac-co products is proposed to be raised, but no change on bidis. Basic customs duty on import of newsprint and lightweight coated paper has been reduced from 10% to 5%. Health cess of 5% will be imposed on the import of medical devices, except those exempt from BCD. Higher customs duty is proposed on certain goods like auto parts, chemicals, etc. which are also manufactured domestically.

Shrinking resource

The Budget proposal should be viewed with due consideration for our limited resources. Our income is mainly from taxation and it is also fall-ing due to large scale evasion under GST. Direct tax collection is not meeting the target, as earlier corporate tax rate was reduced and the personal tax rate has also been cut. Direct tax returns are being filed by only 4% of our population and out of the same many returns are filed for claiming a refund. In the last few years, the private sector has not been investing and our GDP is falling. Too much borrowing will increase our fiscal deficit and the same will be counter-productive. We must understand that the budget is only an annual statement of receipts and expenditure. We all have to resolve to make our country stronger and for that, we all have to work hard and pay our taxes honestly.