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Key Highlights of Union Budget 2020

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Each year’s budget is a major event for the market as it derives the mechanism of economic growth and stability. Like every year this year’s budget too was very much eventful amid slowdown clouds hovering over Indian economy. Previous budgets were too eventful for their own decisions. The, 2018 budget highlight was imposing LTCG tax and then followed by interim budget of 2019 which imposed surcharge on super rich of the economy. These decisions didn’t give a good message to the markets altogether. In addition, the falling economic growth, tight fiscal deficit, falling aggregate demand, impacted the market sentiments. So expectations from this budget were very high to improve the sentiment of the markets.So, one can say that budget did delivered on expected lines with less scope of doing big bang expansionary reforms amid tight fiscal conditions.

 

Doubling of Farmers Income by 2022

Keeping above two targets in mind the decisions taken in the budget looks satisfactory. In order to double the farmers income by 2020, the governmentallocated Rs.2.83 lakh crores for agri and allied sectors. In addition, the agricultural credit target for FY21 is Rs.15 lakh crore which will aid in strong agricultural growth and doubling farmers income. The KUSUM scheme of setting solar powered pumps for farms to be extended to more 20 lakh farmers. These were some of the key decisions for agriculture sector which emphasises governments efforts for doubling farmers income. Then the finance minister moved towards economic development goals with focus on catering to MSME sector, providing credit assistance. Providing support to exporters by giving higher credit under NIRVIK scheme with higher insurance coverage, etc. In addition, government announced to provide Rs.27300 crore for development and promotion of industry and commerce for FY21.


Boost to Infrastructure

The second important part government then addressed was focus on infrastructure. Development runs on roads of infrastructure, to accelerate the development, the government plans to expedite the development of highways. This will include 2500km of control highways, 9000 km of economic corridors,2000 km of coastal and land port roads. In order to facilitate such development, government also plans to utilise the resources by monetising 12 lots of highway bundles Apart from roads, electrification of railway networks, more high-speed trains between major cities will be announced.  Air traffic has seen significant growth in past few years in India compared to global average. To service such large air traffic growth 100 new airports will be developed by 2024 as the fleet is expected to double from 600 currently to 1200 by 2024. Government proposed Rs.1.7 lakh crore for transport infrastructure scheme. To help the already in distress power distribution companies, government announced Rs.22000 crore for Power and renewable energy sector. The finance minister also focused on Digital infrastructure by providing more Rs.6000 crore for Bharatnet programme. Changing global landscape on data analytics, Artificial intelligence, Internet of things, etc has made government rethink of India’s position in such area. To promote and develop the above area government has proposed to outlay Rs.8000 crore for period of 5 years.


Change in Tax regime

This year’s budget speech was one of the longest and after announcing above initiatives the finance minister moved towards the taxation part. As major tax reforms like cut in corporate tax were already announced by the government in September, major expectations were on part of abolishment of Dividend distribution tax ( DDT) and LTCG. The government fulfilled the half of expectations by removing DDT from companies. However, the dividend in the hands of recipient will be taxed according to previous rules. Earlier companies used to pay 15% divided distribution tax which now has gone totally. This will give huge boost to the companies as well as investors. Major relief came in when the FM announced the new regime of income tax. The FM announced new tax regime to keep more money in the hands of consumers. The new tax rates for slabs are as below.

TAX SLABs

OLD Tax rates

New Tax Rates

250,000-5,00,000

5%

5%

500,000-750,000

20%

10%

750,000-10,00,000

20%

15%

10,00,000-12,50,000

30%

20%

 

The new tax rates are applicable without any deductions and the government has made the new tax regime optional as one can avail the new tax regime with flat tax rates or one can avail the deductions with old tax regime. This is expected to have impact on insurance companies as under new tax regime no deductions are applicable which were earlier applicable under 80c 80d. However, this move will definitely help in keeping more money at dispose of consumer. With this new tax regime, the government has taken step ahead in simplifying the tax regime and making it easier for tax payers to pay the tax.

 

Other Key highlights of Budget 2020

Apart from these other key highlights of the budget were increase in insurance cover for depositor from Rs.1 lakh to Rs.5 lakh. Stake dilution of LIC and balance stake sale in IDBI bank by the government. In order to facilitate the infrastructure investment government announced 100% tax exemption on Foreign sovereign wealth funds infrastructure investment. Foreign portfolio investment limit in government bonds limit extended to 15% from 9% earlier too augurs well for FPI investors.India is now the 5th largest economy in the world with 7.4% average growth rate for FY14-19.The, budget estimates for FY21 the economic growth is expected to remain in the range of 6%-6.5% for FY20-21 with fiscal deficit touching 3.5% for the same period.

 

Putting all things together, this year’s budget was walk on tight rope for the government with lower scope of fiscal expansion amid such lower growth scenario. However, with the new tax regime and abolishment of DDT government has tried to fulfil some of the market expectations. With the corporate tax cut already in place the government expect tax buoyancy to grow soon. Also, the GST tax collections crossing Rs.1 lakh crore shows some improvement happening at the bottom. As investor we should look for brighter side of the picture and look for improving macro- economic numbers, which will lead for better days of market.

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