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.
hich could be OK if the
Mutual Fund Tracker: August 2020
Union Budget FY21: Fails to meet high expectations
Mutual Fund Tracker: July 2020
About The Author
Saday Sinha
Mr. Saday Sinha is Founder & CEO of DreamLadder Capital, a boutique wealth advisory firm. He is a seasoned investment professional with over 15 years of experience in the Indian Equity market. He has spent a decade tracking the banking and NBFC sector as part of the Equity Research team at Kotak Securities. He also worked with IDFC as an Analyst with the India Equity Strategy team. He holds a Master's degree in Economics from Delhi School of Economics and is an alumnus of Jamnalal Bajaj Institute of Management Studies, (Mumbai), with specialization in Finance. He writes for various magazines & Newspapers and his valuable opinion has also been sought by news channels like CNBC, ET Now or Bloomberg, in the past. He also speaks at seminars & conferences and lectures at Management institutes.