Nirmala Sitharaman offers tax cuts with riders, sops to startups in record 160-minute speech; industry unimpressed

In a record 160 minutes long speech while announcing Budget 2020 proposals in the Lok Sabha on Saturday, Finance Minister Nirmala Sitharaman proposed cuts in personal income tax, extended tax benefits for affordable housing and gave relief to companies on payment of dividend in the Union Budget for 2020-21 as the government looked to boost consumption to bring the economy out of the worst slowdown in 11 years. Her speech, incidentally, broke her own record of a 2-hour-17-minute-long maiden Budget speech in July 2019. India Inc, though termed the Budget as “growth provoking and welfare inducing”, said that urgent implementation of the measures proposed will be crucial for achieving desired outcomes while acknowledging that Finance Minister Nirmala Sitharaman had “little room” to manoeuvre. In one of the strongest negative reactions to the budget, the benchmark Sensex tanked 2.43 percent on Saturday. Investor wealth, measured in terms of the value of all listed shares on BSE, plunged by Rs 3,46,256.76 crore to reach Rs 1,53,04,724.97 crore.

Investor wealth plummeted by Rs 3.46 lakh crore on Saturday as equity markets came crashing after the Union Budget for 2020-21 failed to live up to expectations. The massive sell-off in equity market wiped out investor wealth, which fell by Rs 3,46,256.76 crore to Rs 1,53,04,724.97 crore on the BSE. Harsh Goenka, Chairman of RPG Enterprises tweeted:

Amidst global turbulence and nations dealing with bushfires & corona virus, FM Sitharaman has looked to craft a granular long term strategy to focus on vital issues. The nation was requesting kuch ‘caro na’ to her, however she had little room to manoeuvre!#Budget2020

— Harsh Goenka (@hvgoenka) February 1, 2020

What Budget offers The minister proposed raising customs duty on a variety of products ranging from tableware and kitchenware, electrical appliances to footwear, furniture, stationery and toys to give a level playing field to domestic companies and boost ‘Make in India’. Offering an optional lower rate of income tax to individuals, Sitharaman in her Budget for 2020-21 proposed new tax slabs of 15 percent and 25 percent in addition to the existing 10 percent, 20 percent and 30 percent. The new I-T slabs would be for individuals not availing certain specified deductions or exemptions. Under the proposed I-T slab, annual income up to Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh will pay 5 percent tax. Income between Rs 5 and 7.5 lakh will be taxed at 10 percent, while those between Rs 7.5 and 10 lakh at 15 percent. Those earning between Rs 10 and 12.5 lakh will pay tax at the rate of 20 percent, while those between Rs 12.5 and Rs 15 lakh will pay at the rate of 25 percent. Income above Rs 15 lakh will be taxed at 30 percent. Individuals opting for taxation under new rates will not be entitled to exemption/deductions including under Section 80C and 80D, LTC, housing rent allowance, deduction for entertainment allowance, professional tax, and interest on self-occupied/vacant property. Currently, annual income up to Rs 2.5 lakh is exempt from I-T. While a 5 percent tax is charged for income between Rs 2.5 and 5 lakh. Around 20 percent for income between Rs 5 lakh and Rs 10 lakh and 30 per cent for those earning above Rs 10 lakh. “The new tax regime shall be optional for tax payers,” she said. “The proposed tax structure will provide significant relief to taxpayers and more so to those in the middle class,” Sitharaman added. To boost growth, Sitharaman announced higher spendings on infrastructure, rural development and agri sector. The Finance Minister said the government is proposing a 16-point action plan to boost agriculture and farmers’ welfare. Agricultural services need copious investments, she said, adding government has insured 6.11 crore farmers under the Pradhan Mantri Fasal Bima Yojna. With her post-2019-20 Budget corporate tax cut drilling a Rs 1.45 lakh crore hole in government revenues, the minister hiked the fiscal deficit target for current fiscal to 3.8 percent of GDP, from 3.3 percent. For 2020-21, she pegged the fiscal deficit at 3.5 percent. IPO for LIC announced Insurance behemoth LIC will be listed as part of the government disinvestment initiative. Sitharaman said the listing brings in more financial discipline among the entities. The government proposes to sell a part of its holding in LIC through initial public offer, she said while unveiling Budget 2020-21. Currently, the government owns the entire 100 percent stake in Life Insurance Corporation of India (LIC). The Indian government on Saturday announced its plans to divest a part of its stake in Life Insurance Corp (LIC) in a move that could result in the partial listing of the country’s largest insurance company. Paring its stake in the insurance giant will help the government meet its divestment target, which has been increased to Rs 2.1 lakh ($29.55 billion) in the financial year 2021 compared with Rs 1.05 lakh crore in the current fiscal. The government currently owns 100 percent stake in LIC that was set up in 1956. LIC controls a majority share in the life insurance market in India. Although the government did not give a roadmap for listing LIC, it said that Rs 90,000 crore will be achieved via stake sales in state-owned banks and financial institutions. “It will be a big positive for corporate governance and transparency and will open up one more avenue for fundraising for the government over the years,” said Krishna Kumar Karwa, managing director of Emkay Global Financial Services. DDT removed; dividend to be taxed in hands of recipient Currently, companies are required to pay dividend distribution tax (DDT) on the dividend paid to its shareholders at the rate of 15 percent plus applicable surcharge and cess, in addition to the tax payable by the company on its profits. “This is another bold move, which will further make India an attractive destination for investment,” she said, adding it would result in a revenue sacrifice of Rs 25,000 crore per annum. In order to increase the attractiveness of the Indian equity market and to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate," she said. Imported goods get costlier A large number of items including cigarettes, chewing tobacco along with imported products, like edible oils, fans, table, footwear, electric vehicles, tableware, kitchenware, toys and furniture are set to become more expensive due to hike in taxes proposed in the Union Budget for 2020-21. On the other hand, newsprint, sports goods, the microphone will become cheaper as Finance Minister Nirmala Sitharaman proposed reduction in duties on these items in the Budget for 2020-21. Startups get sops The startup sector got a host of measures including relaxing tax incentives and setting up of investment clearance cell for startups and entrepreneurs with a view to promote their growth. The minister has also proposed to provide early life funding, including a seed fund to support ideation and development of early-stage startups. She asked all the infrastructure agencies of the government to involve startups as they will help in rolling out value-added services in quality public infrastructure for citizens. Sitharaman has proposed easing of tax payments for startups—a decision that was hailed by budding entrepreneurs. Industry reaction ‘mixed’ Automobile industry on Saturday said the Budget lacked immediate measures to revive the industry which has been going through a prolonged slowdown. “The Indian automobile industry was looking forward to some direct benefits in the budget, which could have helped in reviving demand in the context of the current slowdown and huge investments made by the industry for transition to BS-VI and from that aspect, the Budget speech was not what we were expecting,” SIAM President Rajan Wadhera said in a statement. The gems and jewellery industry is a bit disappointed with the status quo on customs duty on the yellow metal. It had lobbied hard for getting customs duty halved from the present 12.5 percent. Disappointed with no changes on the duty front,  Anantha Padmanaban, chairman, All-India Gem & Jewellery Domestic Council said, “we have been pursuing the government to reduce customs duty on gold to 6 percent from the current 12.5 per cent to kill the gray market and boost the organized trade”. The crisis-ridden telecom industry on Saturday expressed disappointment at the Budget not spelling out any substantial relief for the ailing sector, which is saddled with Rs 1.47 lakh crore in unpaid statutory dues. “From what we have seen so far, there appears to be no substantial relief for the telecom sector. Of course, we are waiting to see the details,” Cellular Operators Association of India (COAI) Director General Rajan Mathews. According to Krishna Kumar Karwa, Managing Director-Emkay Global Financial Services, investors are disappointed with no relief on long term capital gains (LTCG) tax and lack of big bang sectoral stimulus. “The removal of Dividend Distribution Tax seen as a continuation of earlier step of reducing corporate tax is well appreciated and sends the right signals to local and global investors,” he added. --With PTI inputs