Article

What to expect from the Union Budget 2020?

30 Jan 2020

Union Budget 2020 comes at a time when the government must spend aggressively to revive demand but is constrained for resources. The current growth slowdown calls for an expansionary fiscal policy but the Finance Minister (FM) cannot afford laxity in fiscal prudence. How to manage this balance is a tight rope walk for the FM. But, for now, there are distinct classes of stakeholders with specific demands. Here are five such constituencies.

What are the salaried people demanding?

Weak growth and inflation at 7.35% is never a happy combination. The salaried class wants restoration of purchasing power and lower tax burden. They are looking at raising the income tax exemption limit to Rs.5 lakhs and concessional tax at 5% up to taxable income of Rs.8 lakhs. Expansion and enhancement of Section 80C and Section 24 limits are long overdue. One way to boost consumption will be to tone down peak GST rates on items of mass consumption as well as reduction in income tax rates across the board.

What are businesses demanding?

Big businesses had something to cheer about when the corporate tax rates were slashed from 30% to 22% in September 2019. Of course, the bone of contention is the 15% concessional tax on new manufacturing, and businesses will appreciate if this is extended to existing businesses also. For the smaller businesses, there is a long list of demands. They need a less cumbersome GST regime and be compensated for the lag effects of demonetisation with tax holidays and easier access to financing. Big investments in infrastructure will surely be welcome.

What does the real estate sector want?

There are demands from real estate developers and from home buyers too. They expect the government to intervene and use the home completion fund to take over more projects and ensure that the keys are handed over. That will release a huge amount of capital and purchasing power. Developers have been left with limited options after RERA implementation and the NBFC (non-banking financial companies) crisis. They need alternate funding channels and a dedicated secondary market where they can issue higher yield securities and also securitize future receivables through REITS (Real Estate Investment Trust). This can really be a force multiplier!

Capital markets have their share of demands too

Capital markets have not had a happy time in the last two budgets. It is time to give them a breather. Of course, market friendly macro moves are a must, but there is a lot more. While scrapping of Securities Transaction Tax (STT) looks impractical, at least, the government can get rid of Long-Term Capital Gains (LTCG) tax. It is OK for the government to raise the LTCG limit to 2 years instead of 1 year, but long term wealth should not be impaired by LTCG tax. The buyback tax introduced last year also needs to go as it is unjust. Dividend Distribution Tax (DDT) is too lucrative for the government, but they can surely look to make it a tax-deductible expense.

Something for the mutual funds too

It is time to exempt equity funds from DDT and LTCG tax. That is just double taxation. Mutual funds will be pleased if the ELSS (Equity Linked Savings Scheme) benefit is extended to debt funds. There is no reason why a retail allocation product like gold funds should be treated any different from equity funds. Retail investors are finally flocking to mutual funds and the budget needs to do its bit.

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What to expect from the Union Budget 2020?

30 Jan 2020

Union Budget 2020 comes at a time when the government must spend aggressively to revive demand but is constrained for resources. The current growth slowdown calls for an expansionary fiscal policy but the Finance Minister (FM) cannot afford laxity in fiscal prudence. How to manage this balance is a tight rope walk for the FM. But, for now, there are distinct classes of stakeholders with specific demands. Here are five such constituencies.

What are the salaried people demanding?

Weak growth and inflation at 7.35% is never a happy combination. The salaried class wants restoration of purchasing power and lower tax burden. They are looking at raising the income tax exemption limit to Rs.5 lakhs and concessional tax at 5% up to taxable income of Rs.8 lakhs. Expansion and enhancement of Section 80C and Section 24 limits are long overdue. One way to boost consumption will be to tone down peak GST rates on items of mass consumption as well as reduction in income tax rates across the board.

What are businesses demanding?

Big businesses had something to cheer about when the corporate tax rates were slashed from 30% to 22% in September 2019. Of course, the bone of contention is the 15% concessional tax on new manufacturing, and businesses will appreciate if this is extended to existing businesses also. For the smaller businesses, there is a long list of demands. They need a less cumbersome GST regime and be compensated for the lag effects of demonetisation with tax holidays and easier access to financing. Big investments in infrastructure will surely be welcome.

What does the real estate sector want?

There are demands from real estate developers and from home buyers too. They expect the government to intervene and use the home completion fund to take over more projects and ensure that the keys are handed over. That will release a huge amount of capital and purchasing power. Developers have been left with limited options after RERA implementation and the NBFC (non-banking financial companies) crisis. They need alternate funding channels and a dedicated secondary market where they can issue higher yield securities and also securitize future receivables through REITS (Real Estate Investment Trust). This can really be a force multiplier!

Capital markets have their share of demands too

Capital markets have not had a happy time in the last two budgets. It is time to give them a breather. Of course, market friendly macro moves are a must, but there is a lot more. While scrapping of Securities Transaction Tax (STT) looks impractical, at least, the government can get rid of Long-Term Capital Gains (LTCG) tax. It is OK for the government to raise the LTCG limit to 2 years instead of 1 year, but long term wealth should not be impaired by LTCG tax. The buyback tax introduced last year also needs to go as it is unjust. Dividend Distribution Tax (DDT) is too lucrative for the government, but they can surely look to make it a tax-deductible expense.

Something for the mutual funds too

It is time to exempt equity funds from DDT and LTCG tax. That is just double taxation. Mutual funds will be pleased if the ELSS (Equity Linked Savings Scheme) benefit is extended to debt funds. There is no reason why a retail allocation product like gold funds should be treated any different from equity funds. Retail investors are finally flocking to mutual funds and the budget needs to do its bit.