New Delhi: As India grapples with slowing gross domestic product (GDP) growth, high unemployment and squeezed credit growth, the Budget 2020 would be expected to provide impetus to boost consumption and demand in the economy while also keeping a tab on inflationary pressures and fiscal slippage. Here are some key expectations from finance minister Nirmala Sitharaman’s second budget speech:
Relief in personal income tax: After the cut in corporate tax rates last year, expectations are high that personal income tax rates and slabs would also be revised in tandem.
Currently, income of up to Rs 2.5 lakh per annum is exempt from tax for individual tax payers up to the age of 60. Given the fact that this exemption limit has remained constant since fiscal 2015, markets are expecting that it can be enhanced to up to Rs 5 lakh.
Also, the limit at which the maximum tax rate of 30% is triggered can also be increased to Rs 20 lakh per annum instead of Rs 10 lakh now in order to increase the disposable income in the hand of the common man.
Increase in deductions: Apart from revising tax rates, the government can also increase deductions under the Section 80C of the Income-tax Act, 1961. Currently, a deduction of Rs 1.5 lakh per annum is provided on investments in instruments such as employee provident fund, public provident fund, principal repayment of housing loan, children’s tuition fee and national savings certificate, etc. It is expected that the government may increase this limit to up to Rs 3 lakh per annum.
Tweaking LTCG clause: Budget 2018 had re-introduced long-term capital gains (LTCG) tax on gains arising from the transfer of listed equity shares exceeding Rs 1 lakh at 10%, without allowing any indexation benefit. Markets expect that this limit might increase from Rs 1 lakh to Rs 2 lakh and the holding period for investments might be extended to two years from the current one year.
Abolition of STT: Experts say that the introduction of 10% tax on LTCG should have paved way for the abolition of STT (securities transaction tax) since this results in double taxation of the same income and discourages foreign investors from investing in India. Hence, the Union Budget 2020 may see abolition of STT.
Abolition of DDT: Dividend Distribution Tax (DDT) is levied on dividends distributed by profit-making companies. It is an additional tax on the profits of a company which are already taxed. If DDT is abolished, it would lead to additional funds being available at the disposal of companies that can be further re-invested for expansion.
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