Budget 2020 in 2 minutes: Fiscal deficit target, income tax rates, and more

The personal income tax has been simplified and reduced. Individuals will have to pay tax at the reduced rate of 10% for incomes of Rs 5-7.5 lakh, against the current rate of 20%

Union Finance Minister Nirmala Sitharaman presented her second Budget in Parliament on Saturday.

Sitharaman slashed income tax for individuals, abolished dividend tax for companies and announced record spending in agriculture and infrastructure sectors to pull out the economy from its worst slowdown in more than a decade. Here are the highlights of Budget 2019:

Here are the highlights of Budget 2020:

Fiscal deficit for 2019-20 higher at 3.8%

The finance minister estimated a fiscal deficit of 3.8 per cent (Revised Estimate) for 2019-20 and 3.5 per cent (Budget Estimate) for 2020-21, on the ground that the government had undertaken significant tax reforms for boosting investments, and that the expected tax buoyancy would take time. She used a trigger mechanism under the FRBM Act, which provides for a deviation from the estimated fiscal deficit on account of structural reforms in the economy.

 

Customs duties on household appliances hiked

Customs duties on various household appliances such as ceiling and table fans, coffee makers, shavers, grinders and mixers, and hand dryers are to be increased from 10 per cent to 20 per cent. Duties on printed circuit board assembly on cellular phones has been doubled to 20 per cent, and the duty on display panels and touch assembly for cellular phones has been hiked to 10 per cent, from zero at present.  

 

Customs duties on electric vehicle kits now higher

Customs duty on completely build units of commercial electric vehicles has been raised from 25 per cent to 40 per cent. The duty on semi knocked down units of passenger electric vehicles doubled to 30 per cent and that of semi knocked units of buses, trucks and two-wheelers hiked from 15 per cent to 25 per cent. Duty on CKD units of electric vehicles has been increased from 10 per cent to 15 per cent.

Big increase in excise duty on cigarettes, chewing tobacco

There has been a big increase in the excise duty on cigarettes. For non-filter cigarettes below 65 mm, the excise duty was increased from Rs 90 per thousand to Rs 200 per thousand. On filter cigarettes over 65 mm and up to 70 mm, the duty was hiked from Rs 145 per thousand to Rs 250 per thousand. Excise duty was also increased on chewing tobacco, scented zarda, hookahs and snuff.

 

Simplified Goods and Services Tax return from April 1

A simplified GST return will be implemented from April 1, 2020. It is currently under a pilot run. It will make return filing simple, with features like SMS-based filing for nil return, return pre-filling, improved input tax credit flow and overall simplification. The refund process has been simplified and has been made fully automated, with no human interface.  

 

Crackdown on fraudulent claims of FTA benefits  

To curb undue claims of benefits under Free Trade Agreements (FTAs), stringent checks are to be introduced on imports under FTAs, which have been on the rise, posing threats to domestic industry. Such imports require stringent checks. For this purpose, suitable provisions are being incorporated in the Customs Act. Rules of Origin requirements are to be reviewed, particularly for sensitive items, to ensure that FTAs are aligned to policy aims.

Provisions for safeguard duties to be strengthened

The provisions governing safeguard duties which are applied when a surge in imports causes serious injury to domestic industry are being strengthened. The amended provisions will facilitate the regulation of such surge in imports in a systematic way.  The provisions for checking dumping of goods and imports of subsidised goods are also being strengthened, to ensure a level playing field for domestic industry.

 

Customs duty exemptions to be reviewed

Exemptions from customs duty have been given in public interest from time to time. However, a number of these have outlived their utility or have become outdated. On review, certain such exemptions are being withdrawn. Remaining custom duty exemptions shall be comprehensively reviewed by September, 2020 for taking a view on their relevance.

 

Income tax rates reduced, more slabs now

The personal income tax has been simplified and reduced. Individuals will have to pay tax at the reduced rate of 10 per cent for incomes of Rs 5-7.5 lakh, against the current rate of 20 per cent. For incomes of Rs 7.5-10 lakh, they will pay 15 per cent against 20 per cent now, and 20 per cent on incomes of Rs 10-12.5 lakh, against the current rate of 30 per cent. Incomes of Rs 12.5-15 lakh will be taxed at the reduced rate of 25 per cent against the existing rate of 30 per cent. Incomes above Rs 15 lakh will continue to be taxed at 30 per cent. However, individual taxpayers will have to forgo certain deductions and exemptions.

 

Dividends to be taxed in the hands of recipients

Dividend distribution tax (DDT) paid by companies on dividends paid to their shareholders has been removed. Such dividends will now be taxed only in the hands of the recipients at their applicable slab rates. Currently, companies are required to pay DDT on dividends paid to their shareholders at a rate of 15 per cent, plus applicable surcharge and cess, in addition to the tax payable by the company on its profits, which increased the tax burden for investors.

Tax on ESOPs deferred by 5 years

The burden of taxation on employees’ ESOPs has been eased by deferring the payment of tax by five years, or until they leave the company or when they sell their shares, whichever is earliest. This and the provision for seed funding is expected to go a long way in boosting India’s startup ecosystem.    

 

A scheme to reduce litigation in direct taxes

Under the proposed ‘Vivad Se Vishwas’ scheme, a taxpayer will have to pay only the disputed taxes, and will get a complete waiver of interest and penalty provided he pays by March 31, 2020.  Those who avail of this scheme after March 31, 2020 will have to pay some additional amount. The scheme will remain open until June 30, 2020. Taxpayers in whose cases appeals are pending at any level can benefit from this scheme. There are currently 483,000 direct tax cases pending in various appellate forums. In the last budget, the Sabka Vishwas Scheme was brought in to reduce litigation in indirect taxes. It resulted in settling over 189,000 cases.

 

Tax concession for sovereign wealth funds

In order to incentivise investments by sovereign wealth funds of foreign governments in priority sectors, the Budget has proposed to grant 100 per cent tax exemption to their interest, dividend and capital gains income in respect of investments made in infrastructure and other notified sectors before March 31, 2024, and with a minimum lock-in period of three years.

 

A new Taxpayers’ Charter on the cards

With the aim of building trust between taxpayers and the administration, and with the objective of enhancing the efficiency of the delivery system of the Income Tax Department, the provisions of the Income Tax Act are to be amended to mandate the Central Board of Direct Taxes (CBDT) to adopt a Taxpayers’ Charter. The details of the contents of the charter are to be notified soon.

Instant PAN through Aadhaar

In the last Budget, the finance minister had introduced the interchangeability of PAN and Aadhaar, for which necessary rules were already notified. In order to further ease the process of allotment of PAN, the government plans to soon launch a system under which PAN will be instantly allotted online on the basis of Aadhaar, without any requirement of filling up a detailed application form.