It was expected that Finance Minister Nirmala Sitharaman would address some of the major issues such as a slow economy, a decrease in foreign direct investment, an increase in unemployment and inflation. While the expectation was that the above issues would be addressed and while doing so the aam aadmi would not be ignored as one of the key objectives was to boost consumption. However, the Budget did not seem to bring a happy ending for the aam aadmi and his kharcha paani.
While the introduction of a new personal tax regime with reduced rates made the aam aadmi happy, the Finance Minister opened a Pandora’s Box with the denial of various exemptions/deductions. This has left the aam aadmi scratching his head as most of the exemptions/deductions such as leave travel allowance, house rent allowance, interest on housing loans, Chapter VIA deductions etc. will no longer be available under the new tax regime.
A snapshot of the reduced rates is given below:
The new concept of Stateless person has been introduced in the Budget 2020 which in effect brings an Indian citizen into the tax net in an event where he/ she is not liable to tax in any other country by virtue of his domicile or residency. Most of the Indian citizens working in the Middle East are not required to pay taxes, by virtue of the tax laws in the Middle East thereby dragging those Indians also within the taxation rules. However, the Central Board of Direct Taxes has clarified that this provision is not intended to tax bonafide workers in foreign countries, thereby bringing a huge relief to the Indians working in Middle East countries.
The Finance Minister has bid adieu to the Dividend Distribution Tax (‘DDT)’ which has brought a sigh of relief amongst corporate players since they had to cough off 20 percent (approx) as DDT, but at the same time brought shareholders/unitholders under the tax net. Individuals will now have to pay taxes on their dividend income. This has brought a huge disappointment amongst super-rich Indians who will have to pay tax at almost at 42 percent of the dividend income earned! The government stood by its stand on taxing the super-rich.
To add to the disappointment of the aam aadmi , the Finance Minister also did not re-instate the exemption on long term capital gains. In a country where an individual invests almost 30 percent of his average annual savings; the reduced tax regime, taxation of dividends and long-term capital gains will only discourage further investments and hamper the country’s economic growth. This was sensed by markets which ended in red.
Lastly, with an aim to reduce litigation, a new Dispute Resolution Scheme—Vivaad se Vishwaas has been introduced, whereby a taxpayer can opt to end litigation before any appellate authority by payment of the disputed demand without any interest and penalty by 31 March 2020 and by 30 June 2020 with a certain additional amount. One will have to really wait and watch to see how the transition happens from Vivaad to Vishwaas.
Budget 2020 has really left the aam aadmi to ponder if the Finance Minister could take the bull by the horns and address the public, in general, to portray Sabka Saath Sabka Vikas Sabka Vishwaas?
(Sabnavis is Founder & Chartered Accountant; Gala is Assistant Manager at Rajeshree Sabnavis & Associates-a boutique tax consultancy firm)
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Updated Date: Feb 07, 2020 11:11:02 IST