Budgetary expectations

Budgetary expectations

What is a budget?

“A budget is a financial plan for a defined period, often one year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows.”- Wikipedia

In India, a financial budget is prepared each year. It is presented on the first day of February so that it can be implemented by the beginning of the coming financial year (with effect from 1^st April). It is presented in the loksabha in the form of financial bill and has to be passed in the Lok Sabha by majority before it becomes applicable for next financial year (wef 1^st April)

 

Expectations and realities from budget 2020 in tax matters:

1. Long-Term Capital tax (LTCG)

It was expected that government will increase limit of small amounts like 1 lacks for taxing LTCG tax on equity investment to encourage investment by small shareholders.

Reality:

No change was made in the LTCG tax on equity.

2. Dividend distribution tax (DDT)

It was expected that some relief on levy of DDT would be made. Prior, company had to pay tax on dividend distributed at effective rate of 20.56 %. Also investors with tax bracket more than 10 lacks would have this dividend added to their income and would also be taxed in their hands.

Reality:

DDT will be charged only in the hands of the recipient. Companies would not have to pay DDT.

 

3. 80 C of the Income tax act

Investors expected to enhance limit of PPF. They also expected increase in 80c deduction (prior 1.5 lack ) so that the deduction would increase and tax payable would reduce further.

Reality:

No such change made in 80 C deduction.

4. Income tax slabs

Market expectations were to keep tax upto 5 lacks as nil, 5-10 lacks- 10%, 10-20 lacks- 20% and above 20lacks to be 30        %

 

Reality:

Tax slab	Rate
Upto 2.5 lacks	Nil
2.5-5 lacks	5% *
5-7.5 lacks	10%
7.5-10 lacks	15%
10-12.5 lacks	20%
12.5- 15 lacks	25%
15 lacks and above	30%

 

*Tax rebate of 12500 allowed upto 5 lacks as per section 87 A.

In addition to this, government has imposed an additional cess of health and education upto 4%.

The budget 2020 has given taxpayers the option to choose between the existing income tax regime and a new tax regime with slashed income tax rates and new income tax slabs but no tax exemptions and deductions.

The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions/deductions and will result in lower tax outgo for taxpayers, according to the finance minister.

Individuals can switch tax regime every year and opt for the scheme which levies lowest tax on them.

Conclusion:

Like any budget, government has not catered to all expectations of the investors. While tax relief is provided for some areas like DDT, additional tax is levied in the form of health and education cess. Thus the budget leaves mix sentiments among users, leaving scope for expectations from coming budgets.