Budget 2020: Nirmala Sitharaman ushers host of reforms; delivers much-needed prod to economy

Budget 2020 ushers a host of reforms that pledges to deliver a much-needed prod to the economy. Finance Minister Nirmala Sitharaman’s second Budget speech attempts to infuse energy and encouragement within the youth, hints at generation of more employment opportunities by promoting startups and promises minimum government, maximum governance for the taxpayers. This Budget was based on three prominent themes comprising ‘aspirational India’, ‘economic development’ and ‘caring society’. The themes broadly cater to the sections of the society that seek better standards of living with access to health, education and better jobs, promises reforms across the swathes of the economy.  The policies are calibrated to yield more opportunities for the private sector. Together, it ensures higher productivity and greater efficiency among businesses. On the other hand, the finance minister also attempts to maintain a balance by underscoring various measures taken by the government towards the woman and child welfare, culture and tourism, environment and climate change. The thrust of on direct tax proposals is centred around personal income tax and simplification of taxation, relaxations on dividend distribution tax that helps investors in the low-income groups, incentivise electrical energy generators, tax concession on foreign investments, encourage startups, affordable housing, and faceless appeals. [caption id=“attachment_7679911” align=“alignleft” width=“380”]  File image of Union Finance Minister Nirmala Sitharaman. PTI[/caption] A one-time amnesty scheme was proposed to allow taxpayers to settle old tax disputes with revenue authorities by paying the entire tax amount without interest and penalty in the first phase or with nominal interest and penalty in the second phase. Owing to regular decisions and actions taken by the Goods and Services Tax (GST) Council, this year’s Budget did not see too many changes on the GST front except for a few amendments to resolve issues faced by administration and irregular availment of credits. Emphasising protectionist measures, customs duties underwent significant rejig. The government has proposed an option to avail reduced tax benefits under new slabs for individuals and HUFs, in case they are willing to forego all deductions and exemptions. However, it is claimed that the new slabs will not result in any substantial gain to individual taxpayers. Among other major income tax sops extended bySitharaman are 15 percent concession on the rate of corporate tax to power generators will encourage new entrepreneurs to join the energy sector. Startups will benefit from tax holiday as turnover limit has been enhanced to Rs 100 crore. Tax on employee stock ownership plans (ESOPs) given by starups has also been deferred. ESOPS are important compensation for fast-growing startups whose valuations multiply at a rapid rate. The deferral will provide liquidity, good income opportunity to employees and will help attract more talents. To ease compliance burden on micro, small and medium enterprises (MSMEs), the turnover threshold for tax audit have been increased to Rs 5 crore. Dividend Distribution Tax (DDT) on companies has been proposed to be abolished and dividend income will be taxed in the hands of the recipient. This is likely to benefit investors in the lower tax brackets than those in the higher slabs. After multiple stints of success with the central indirect tax amnesty schemes, various state indirect tax amnesty schemes and considering a pendency of over 4,83,000 direct tax cases in various appellate forums, the finance minister proposed to bring an amnesty scheme titled ‘Vivad Se Vishwas’ scheme depicting the earnest approach of the government to move from dispute paradigm to a trust paradigm and augment revenue collection by incentivising assessees to pay up their dues. On the indirect tax front, the government declared a cash reward system and dynamic QR code for e-invoicing and promised implementation of a simplified return. To cut down on GST frauds, the government made amendments to penalty provisions. The government also made fraudulent availment of credit without invoices a cognizable and non-bailable offence. Several retrospective amendments had been made in response to writ petitions challenging restrictions on input tax credits. The Customs Act has been rewired to strengthen safeguard provisions and imports under FTAs. Though the Budget 2020 is rightly themed as a jan-janka budget, it has left many (including the market) wanting for more. The expectations out of this Budget was for significant tax breaks, but considering the fiscal right rope that the government was forced to walk, one must appreciate the government for the required balancing act performed by the finance minister and her team, given the limited bandwidth available. (Rastogi is Partner of Khaitan & Co, Pratyush Saha, Senior Associate)