Union Budget 2020: What to expect

The year 2020 starts with a stumbling economy as GDP growth forecasts nosedive to record lows and the retail inflation is at a 5-year high of 7.35%. The ambition of the Modi government to reach 5 trillion economy by 2020 seems impractical at this current rate. Several changes will be needed in the space of labour reform, infrastructure, and the auto industry to build the economy. With the whole of India waiting to hear the budget announcement to be presented by the Finance Minister Nirmala Sitharaman on the 1st of February, let’s look into some possibilities Modi government’s first full-year Union Budget in its second term has to offer:


Reduction in personal-tax

With the cut in corporate tax and addressing the issues on the supply side, Modi’s government will surely shift their focus on the constraints on the demand side and boost consumption rates. Therefore, increasing the existing tax slab rates applicable to individual taxpayers or reduction in the tax rates in each slab or a combination of both looks quite possible as it will definitely increase the amount of disposable income in the hands of individuals which, in turn, will increase consumption and saving in the economy.


Deduction in Long Term Capital Gains Tax Rate

In Budget 2018-19, Long-Term Capital Gains (LTCG) tax was introduced by the Late Former Finance Minister Arun Jaitley. A tax of 10% was introduced on gains arising from the transfer of listed equity shares exceeding Rs.1 Lakh without any indexation benefit. As per the sources, the industry experts want the government to scrap LTCG tax which will help in boosting the investments in the economy. For an investment to qualify as long-term, it should have been held by the investor for a period of 1 year or more. A hike in this holding period has also been a popular suggestion and also looks more likely. A change in the definition of long-term from one year to two years should make a big difference for investors.


Scrapping of Dividend Distribution Tax (DDT)

Dividend Distribution Tax (DDT) is the tax levied on dividends distributed from the companies’ profits. Keep in mind, this benefit gets as of now burdened before the distribution of dividends. The organization needs to pay DDT @20-21%. Further, the individuals who will be receiving this dividend have to pay a 10% income tax if the amount exceeds Rs. 10 Lakh per annum. Various Industry experts are demanding the government to scrap Dividend Distribution Tax (DDT) as both the companies and investors are taking the burden of multiple taxes. The abolition of DDT might eventually result in high investments in profit-making companies and in turn, a higher distribution of dividends. The above tax reforms are expected from the Union Budget 2020 as it will provide tax relief to the common man, investors and major stakeholders of the Indian Economy. Financial Planners & Investors wants the government to consider all of their expectations and reflect the same in this Union Budget. Simplifying tax structure should be one of the primary agenda of the Government in Union Budget 2020.

 



These three major changes, as anticipated by industry experts, look on the way as we near the budget2020 announcement. Even the mutual funds’ industry is to benefit from the tax reforms as a deduction in LTCG and DDT will attract investors. The forthcoming Union Budget should have measures, reflecting the government’s intent to get the economic growth back on track making it all the more crucial. Some primary industries that are to gain from the budget are consumption, infrastructure, and auto. A ray of hope shines in the eyes of every Indian as we prepare ourselves for the announcement of the budget by Nirmala Sitharaman.

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