Budget 2020 offers conditional income tax rate cuts, banks on rural and infra sectors

New Delhi: Union Finance Minister Nirmala Sitharaman on Saturday (February 1) offered conditional relief to millions of individual income taxpayers, abolished dividend tax for companies and announced record spending in agriculture and infrastructure sectors to pull out the economy from its worst slowdown in more than a decade. Presenting her second budget in Parliament, Sitharaman said the 2020-21 Budget was aimed at boosting incomes and enhancing purchasing power, stressing that the economy's fundamentals were strong and inflation was well contained.

The FM announced that the proposed cut in income tax rates, which would help save about Rs 31,000 a year in tax for persons with annual income of up to Rs 17 lakh, was conditioned on current exemptions and deductions including standard deduction for Rs 50,000 as well as the waiver earned on payment of up to Rs 1.5 lakh in tuition fee of children, and contribution towards insurance premium and provident fund, being given up.

Union Budget 2020: Key highlights

During her budget speech, the FM said import duty on a variety of products ranging from tableware and kitchenware to electrical appliances to footwear, furniture, stationery and toys to boost domestic manufacturing while at the same time provided funds to help farmers set up solar power generation units and set up coal storages to transport perishables.

Alongside, the limit of insurance cover in case of bank failure on deposits was increased to Rs 5 lakh from Rs 1 lakh and a sale of government stake in the country's largest insurer Life Insurance Corporation (LIC) announced. For farm and rural sectors, she allocated Rs 2.83 lakh crore and fixed Rs 15 lakh crore target for giving agriculture credit. Another Rs 1.7 lakh crore spending was planned for transport infrastructure and Rs 40,740 crore allocation was made for the energy sector.

In doing so, the government will miss its deficit target for the third year in a row, pushing shortfall to 3.8 per cent of GDP in the current fiscal as compared to 3.3 per cent previously planned. The fiscal deficit target for the coming fiscal year starting April 1 has been fixed at 3.5 per cent.

FM Sitharaman, who cut tax paid by companies to its lowest in September last year, proposed new tax slabs of 15 per cent and 25 per cent in addition to the existing 10 per cent, 20 per cent and 30 per cent. The new slabs would be for individuals not availing certain specified deductions or exemptions.
Expenditure

The total expenditure has been pegged at Rs 30.42 lakh crore in the Union Budget for 2020-21, keeping in mind the government`s commitment towards various schemes and the need for improvement in the quality of life. For the next fiscal, she pegged net borrowings of Rs 5.45 lakh crore and doubled target of raising revenue from the sale of government stake in PSUs to Rs 2.1 lakh crore. 

Accordingly, receipts for the year beginning on April 1 are estimated at Rs 22.46 lakh crore. Significant tax reforms for boosting investments have been undertaken recently. However, the expected tax buoyancy expected to take time. A good part of the borrowings for 2020-21 will go towards the capital expenditure of the government that has been scaled up by more than 21 per cent. Finance Minister Nirmala Sitharaman said that the measures will spur growth impulses in the economy. 

On the basis of trends available, the government has estimated nominal growth of GDP for the year 2020-21 at 10 per cent. Meanwhile, the revised estimates of expenditure for the current financial year 2019-20 are at a level of Rs 26.99 lakh crore and the receipts are estimated at Rs 19.32 lakh crore.

Defence

FM announced that the Centre has decided to increase the defence budget by six per cent to Rs 3.37 lakh crore against Rs 3.19 lakh crore, which was allocated in 2019 Budget. The defence pension budget has been increased up to Rs 1.33 lakh crore from Rs 1.17 lakh crore allocated in 2019. It is to be noted that the increase in the defence pension budget is more than that given in revenue and capital funds for defence.

The defence forces have been provided Rs 1,10,734 crore for the purpose of modernisation and purchasing new weapon systems. The new allocation is Rs 10, 340 crores more than what was allocated in the 2019 budget.

Agriculture

Finance Minister Nirmala Sitaraman, while presenting her second union budget, has announced 16-point measures to revive the agricultural sector, in line with Prime Minister Narendra Modi's target of doubling farmer income by 2022. FM Sitharaman said that the budget 2020 aims to boost the income of people and enhance their purchasing power.

The Union Budget 2020-21 is focused around three themes, namely Aspirational India, Economic development for all and caring society, she said. Announcing 16 action points plan for farmers, she said that these measures are underlined by the FM to boost the agriculture sector.

Infrastructure

FM said Rs 1.7 lakh crore have been allocated for transport infrastructure in Union Budget 2020-21 and added that 100 more airports will be developed by 2024 to support the UDAN (Ude Desh ka Aam Naagrik) scheme. "India`s domestic aviation sector has been growing and UDAN scheme has contributed to the growth. 100 more airports will be developed by 2024 to support the UDAN scheme," said Sitharaman while presenting the budget for 2020-21. 

The Centre`s scheme UDAN was launched with the objective of making air travel affordable for common citizens of the country. 

Railways

The Railways got a budgetary allocation of Rs 70,000 crore and an outlay for capital expenditure amounting to Rs 1.61 lakh crore, a paltry 3 per cent more than the previous year, from Union Budget 2020. In 2019-2020, the capital expenditure (RE) was Rs 1.56 lakh crore, which was 17.2 per cent more than the CAPEX of 2018-2019. The total receipts of the railways comprising earnings from the passenger, goods, sundry other heads and railway recruitment boards are targeted to increase by 9.5 per cent in the Budget Estimates (BE) of 2020-21 over the Revised Estimates (RE) of 2019-20.

In the 2020-21 budget, funds of Rs 12,000 crore have been allocated for construction of new lines, Rs 2,250 crore for gauge conversion, Rs 700 crore for doubling, Rs 5,786.97 crore for rolling stock and Rs 1,650 crore for signalling and telecom. The allocation for rail passenger comfort this fiscal is Rs 2,725.63 crore. The budget also proposed freight loading at 1,265 MT, which is 42 MT (3.4 per cent) incremental over RE 2019-20.

Revenue receipts amounting to Rs 61,000 crore through passenger earnings and Rs 1,47,000 crore in goods earnings have been envisaged in the coming financial year. The gross traffic receipts are thus kept at Rs 2,25,613 crore. This is 9.6 per cent above RE 2019-20. The operating ratio, which was envisaged to be 95 per cent in BE 2019-20 and revised to 97.46 per cent in RE 2019-2020, now stands at 96.2 per cent in BE 2020-21.

The budget also proposed setting up of a large solar power capacity alongside the rail tracks on land owned by the railways. Redevelopment of four stations and operation of 150 passenger trains would be done through the public-private-partnership (PPP) model. It also announced the introduction of more Tejas type trains which will connect iconic tourist destinations, a 148-km-long Bengaluru suburban transport project at a cost of Rs 18,600 crore, setting up of a "Krishi Rail" through PPP arrangements. 

Income Tax 

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 per cent tax. A 10 per cent tax will be charged on income between Rs 5 and 7.5 lakh, 15 per cent, 20 per cent and 25 per cent on next Rs 2.5 lakh each and 30 per cent on income above Rs 15 lakh. "Currently, annual income up to Rs 2.5 lakh is exempt from income tax. While a 5 per cent tax is charged for income between Rs 2.5 and 5 lakh. 20 per cent 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 taxpayers," she said.

Taxpayer Charter & Corporate Tax

Direct tax body CBDT will adopt a "taxpayer charter" which will ensure trust between a taxpayer and the administration and reduce harassment, Finance Minister Nirmala Sitharaman said on Saturday. "We wish to enshrine in the statutes a 'taxpayer charter' through this budget. Our government would like to reassure taxpayers that we remain committed to taking measures so that our citizens are free from harassment of any kind," she said.

The Economic Survey 2019-20 tabled in Parliament on Friday had said that ethical wealth creation is the key to India becoming a USD 5 trillion economy by 2025.

The Budget also proposed a new dispute resolution scheme-- 'Vivad Se Vishwas' -- for time-bound resolution of 4.83 lakh direct tax cases pending in various appellate forums -- Commissioner (Appeals), ITAT, High Court and Supreme Court. Under the proposed scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get a complete waiver of interest and penalty provided he pays by March 31, 2020. Those who avail this scheme after March 31, 2020, will have to pay some additional amount. The scheme will remain open till June 30, 2020.

In the receipts side, the Budget has pegged gross tax revenues for 2020-21 at Rs 24.23 lakh crore, up 12 per cent from Rs 21.63 lakh crore in current fiscal. Around Rs 6.38 lakh crore is expected to be mopped up from personal income tax in 2020-21, a 14.13 per cent increase over Rs 5.59 lakh crore earned in 2019-20.

Besides, Corporate tax revenue is budgeted to increase 11.63 per cent to Rs 6.81 lakh crore in 2020-21, from Rs 6.10 lakh crore in current fiscal. The revenues from Goods and Services Tax (GST) is estimated at Rs 6.90 lakh crore in 2020-21 as against Rs 6.12 lakh crore in current fiscal.
 
In the current fiscal the government has missed the gross tax revenue collection target by Rs 2.97 lakh crore. The budget estimates for gross tax revenue in 2019-20 was Rs 24.61 lakh crore, while in revised estimates it is pegged at Rs 21.63 lakh crore. Revenues from the corporate tax were cut substantially from Rs 7.66 lakh crore budgeted for 2019-20, to Rs 6.10 lakh crore in revised estimates. Revenue from income tax also missed budget projections of Rs 5.69 lakh crore. In revised estimates, it stands at Rs 5.59 lakh crore for 2019-20.

Dividend Distribution Tax

In her Budget speech, FM Nirmala Sitharaman proposed to remove the deeply unpopular dividend distribution tax (DDT). Sitharaman thus accepted the demand of the industry to reverse the taxability of dividends back to the recipients, making equity investment more attractive. Now, dividends will be taxed in the hands of recipients, a move that will cause Rs 25,000 crore dent to her coffers.

Also, she deferred taxes for ESOPs in the hands of employees which will be an important decision for the employees to own shares in the employer without getting worried about organising cash to pay taxes. This will also provide greater flexibility to the employers and employees in the structuring of their employment prospects. One proposal that could be become contentious was tax being imposed on Indian citizens abroad if they are not taxable in their home country.

Housing

In a bid to increase demand in the realty market, Union Finance Minister Nirmala Sitharaman on Saturday announced a proposal to extend additional deductions of up to Rs 1.5 lakh for the interest paid on loans for the purchase of affordable houses, up to March 2021. The deductions so far were allowed on housing loans sanctioned on or before March 31, 2020.

"For the realisation of the goal of `housing for all` and affordable housing, in the last budget, I had announced an additional deduction of up to Rs 1.50 lakh for interest paid on loans taken for the purchase of an affordable house. In order to ensure that more persons avail of this benefit and to further incentivise the affordable housing, I propose to extend the date of loan sanction for availing this additional deduction by one more year," Sitharaman said.

Further, in order to boost the supply of affordable houses in the country, the Budget proposed a tax holiday on profits earned by developers of affordable housing projects approved by March 31, 2020. She also announced concession to real estate transactions.

Banking 

FM said a clean, reliable and robust financial sector is required for achieving the ambitious target of USD 5 trillion economy. Presenting the Budget for 2020-21, Sitharaman said robust mechanism is in place to monitor the health of all commercial banks and asserted that depositors' money is absolutely safe.

She noted that Rs 3.50 lakh crore capital has been infused in public sector banks in past years while acknowledging that there is a need for greater private capital in banks. Sitharaman further said the government plans amendment to facilitate separation of government pension trust from Pension Fund Regulatory and Development Authority (PFRDA).

MSME

The government on Saturday said a scheme will be introduced to provide subordinate debt to MSME entrepreneurs. The government has also asked the Reserve Bank to extend the Debt Restructuring window for micro, small and medium enterprises by a year to March 31, 2021, in measures aimed at imparting thrust to the MSME sector, FM said. She said necessary amendments will be made to the Factor Regulation Act 2011 to enable non-banking financial companies (NBFCs) to extend invoice financing to the MSMEs through TReDS thereby enhancing the economic and financial sustainability.

"Working capital credit remains a major issue for MSMEs. It is proposed to introduce a scheme to provide a subordinate debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for the Medium and Small Entrepreneurs," Sitharaman observed.

TReDS is an institutional mechanism to facilitate the trade receivable financing of micro, small and medium enterprises (MSMEs) from corporate buyers through multiple financiers.

Highways

To augment infrastructure, an accelerated highways development programme will be taken up that includes constructing 15,500 km of highways including 9,000 km of economic corridors, FM said. The budgetary allocation for the Ministry of Road Transport and Highways has also been enhanced to Rs 91,823.22 crore as against Rs 83,016 crore earlier. "Accelerated development of highways will be undertaken. This will include the development of 2500 Km access control highways, 9000 Km of economic corridors, 2000 Km of coastal and land port roads and 2000 Km of strategic highways," Sitharaman said.

Tabling the Union Budget 2020-21 in Parliament, Sitharaman said the Delhi-Mumbai Expressway will be completed in three years, in addition to two more express highway projects.

Jal Jeevan Mission

The Modi government's ambitious Jal Jeevan Mission to provide water to every household in the country by 2024, has been allocated Rs 11,500 crore. The amount is more than half of the total earmarked funds of Rs 21,518 crore for the Department of Drinking Water and Sanitation under the Jal Shakti Ministry.

PM Narendra Modi had announced the Jal Jeevan Mission on Independence Day. In the last budget, Rs 9416 crore was allocated for this ambitious mission that aims to provide piped water supply to all households by 2024.

The Swachch Bharat Mission (Gramin), another flagship programme of the Modi government, has been allocated Rs 20,000 crore.

Clean Air

Underlining its increased focus on air quality improvement, the central government has earmarked a whopping Rs 4,400 crore for FY 2020-21 for cleaner air, a massive hike from the last Budgetary allocation of Rs 460 crore. The announcement was made by Union Finance Minister Nirmala Sitharaman in her Budget speech in the Lok Sabha on Saturday. The money would be spent on various initiatives including the National Clean Air Programme (NCAP).

Healthcare

“Aspirational India in which all sections of the society seek better standards of living, with access to health, education and better jobs,” FM Sitharaman said. The Union Budget pitched for an outlay of INR 69,000 Cr (USD 9.6 bn) towards healthcare, a nearly 10% increase from last year.

The FM said that the government has a holistic vision of healthcare that translates into the wellness of the citizen. The allotment under healthcare includes INR 6400 Cr for Prime Minister Jan Arogya Yojana (PMJAY). Looking to expand the reach of PMJAY in Tier 2 and Tier 3 markets, Sitharaman said PMJAY currently has more than 20K empanelled hospitals. She also proposed to expand the Jan Aushadhi Kendra Scheme to all districts offering 2000 medicines and 300 surgical instruments by 2024.

Gas

Finance Minister Nirmala Sitharaman on Saturday laid down plans for expansion of national natural gas pipeline network to 27,000 km from the present 16,200 km and pricing reforms as the government looks at boosting the use of environment-friendly fuel.

The government has set a target of raising the share of natural gas in the primary energy basket to 15 per cent by 2030 from current 6.2 per cent. Connecting gas sources to consumption hubs is key to achieving this.

In her speech, while presenting the Budget for 2020-21, Sitharaman said more gas pricing reforms are in the offing. "To deepen gas markets in India, further reforms will be undertaken to facilitate transparent price discovery and ease of transactions," she said.

Presently, the price of natural gas produced domestically is fixed by a formula that averages out rates in gas surplus nations such as Russia and the US. "Further, it is proposed to expand the national gas grid from the present 16,200 km to 27,000 km," she said without giving a timeline.

Tourism

FM on Saturday proposed to allocate Rs 2,500 crore in 2020-21 for the tourism sector and construction of eight new museums, which includes building infrastructure around 5 iconic sites. "To make India an attractive destination for both international and domestic tourists, we propose Rs 2,500 crore in 2020-21 for the tourism sector and Rs 3,150 crore for Ministry of Culture," said Sitharaman. 

Highlighting improved tourism revenues due to better ranking, the Finance Minister said, "India had moved up from rank 65 in 2014 to 34 in 2019 in the Travel and Tourism Competitive Index (World Economic Forum)." "Due to tourism revenues foreign Exchange earnings grew 7.4 per cent to Rs 1.88 lakh crore for the period January 2019 from Rs 1.75 lakh crore," she said.

 She further proposed 8 new museums, which include building infrastructure around 5 iconic sites, besides proposing the renovation of 5 major museums across the length and breadth of India.

The 5 archaeological sites to be developed as iconic sites with on-site museums are situated at Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh), Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu). It also includes - Maritime Museum to highlight Harappan Age at Lothal, Ahmedabad, by Ministry of Shipping, Kolkata, Indian Museum: Re-curation of the oldest museum in India as announced by Prime Minister Narendra Modi in January 2020, Numismatics and Trade Museum to be located in the historic Old Mint Building, Support for setting up Tribal Museum in Ranchi (Jharkhand) and Renovation and re-curation of 4 more museums across India.

Women/Divyangs

Finance Minister Nirmala Sitharaman on Saturday said a task force will be set up to recommend marriageable age for women. Presenting the Budget for 2020-21, Sitharaman said Rs 9,500 crore has been provided for senior citizens and Divyangs, while Rs 35,600 crore has been allocated for nutrition-related programme in FY21.

The FM further said that Rs 85,000 crore has been allocated for Scheduled Castes (SCs) and Other Backward Classes (OBCs) in the Budget. 

Education

FM proposed a total outlay of Rs 99,300 crore for the education sector in 2020-21 and Rs 3,000 crore for skill development.

"By 2030, India is set to have the largest working-age population in the world. We propose a total outlay of Rs 99,300 crore for the education sector in 2020-21 and Rs 3,000 crore for skill development," said Sitharaman.

Sitharaman announced that about 150 higher educational institutions will start apprenticeship embedded degree and diploma courses by March 2020-21 to improve the employability of students in the general stream. While the government will also start a program whereby urban local bodies across the country would provide internship opportunities to fresh engineers for a period of up to one year, the National Skill Development Agency (NDS) will give special thrust to infrastructure-focused skill development opportunities, the Minister said. 

The online education program will be offered only by institutions that are ranked within the top 100 in the National Institutional Ranking Framework (NIRF).Observing that India should be a preferred destination for higher education, she said: "An Ind-SAT exam under the "Study in India" program is proposed to be held in Asian and African countries for benchmarking foreign candidates who receive scholarships for studying in Indian higher education centers."

Prime Minister Narendra Modi praised the Budget for its "vision and action". Hailing the budget, the PM said it will accelerate economic growth, financially empower every citizen and strengthen the foundation of the economy in the new decade. Praising it for having both "vision and action", PM Modi said its provision of faceless appeal, new and simple structure of direct tax, move towards unified procurement system, stress on disinvestment are some of the steps which will reduce the government out of people's lives and will enhance their "ease of living".

However, the Opposition slammed Sitharaman's announcements as "insipid", saying they show that the government is "all talk". Her second budget, which she took a record 160-minute to present, left opposition parties unimpressed with Congress leader Rahul Gandhi saying that it offered no strategic idea or anything concrete, and left the issue of unemployment unaddressed.