Fri. Mar 29th, 2024
indian Economy

In the backdrop of continued downward gesticulation of India’s Gross Domestic Product (GDP) which fell down to 4.5 per cent in the second quarter of July-September in current 2019-20 fiscal year for the seventh consecutive quarter, the union finance minister Niramala Sitharaman is all set to present her second budget for the fiscal year 2020-21 on February 1, 2020.

Recently, the international credit agency Moody’s slashed down the growth rate from downgrade 5.8 per cent to 4.9 per cent for the financial year 2020. This slowdown in Indian economy has more or less snatched away the tag of the world’s fastest-growing economy. At both ends – consumption and profitability – Indian economy has faced an unexpected slowdown.

The expectations of both – industries and common taxpayers – are on high that the coming Budget will offer some big reliefs in taxes and take preventive measures to boost the consumption and growth in the economy. Union Finance Minister has also promised to take extra measures to boost the growth in the economy. The government seems working hard to strike a balance between the expectations of taxpayers and the resources available in the economy.  The industry suggests that the budget will put more pressure on the government’s finance to bring back the economy on track.

Earlier this year, the corporate tax rate was slashed down to 15 per cent for the new manufacturers and 22 per cent for the existing companies from about 30 per cent to energise the Indian company sector in the economy. With one-dimensional approach, the step of government of India was aimed at increasing the profitability of Indian corporate, ignoring the consumption side of the economy. The move, in result, failed to stimulate consumption. The benefit of cutting tax was a major reform but the benefit was not extended to the public.  G. Pradeepkumar (CEO), Union Mutual Fund, says, ‘the cut in corporate tax rate can increase the profits of a company. However, for sustained growth in business, more people must buy its products. The demand side needs to be addressed by increasing the disposable income of customers’.

The Federation of Indian Chambers of Commerce & Industry (FICCI) has advised in its pre-budget expectations that government should revise the income tax slabs for taxpayers. Individuals earning up to Rs 2.5 lakhs are not under the income tax ambit. A total of 5 per cent tax has been levied on those individuals earning between Rs 2.5 lakh to Rs 5 lakh per annum. And, for an annual income between Rs 5 lakh to Rs 10 lakh, individuals have to pay 20 per cent income tax. The maximum income tax in India is 30 per cent which is applicable to Individuals earning over Rs 10 lakh per annum. FICCI has suggested that a major part of the population earning up to Rs 5 lakh per annum should be exempted from the tax-paying net.  On the other hand, 10 per cent income tax rate should be imposed on individuals earning between Rs 5 to Rs 10 lakh per annum. Individuals earning up to Rs 10 to Rs 20 lakh per annum should bring in 20 per cent income tax category. The maximum 30 per cent income tax should be levied on individuals earning over Rs 20 lakh per annum.

If the government accepts to increase the basic exemption limit up to Rs 10lakhs, it will result in higher consumption. It will create higher capacity utilization; can attract more investment and thus creating more job opportunities.

The industry groups have also suggested the government to withdraw the long-term capital gains tax. The tax-cut on long-term capital gains from equity investment will encourage the retail investment in mutual funds and shares. This step can attract investors in the economy and is supposed to spur economic growth.

The budget should also provide tax benefits to those investors who want to save for their children’s education. The tuition fee should be removed from Sec 80 C and a separate deduction should be offered for education expenses. The deduction limit of Rs 1.5 lakh under Section 80 C is not enough in the time of such high cost of education.

The insurance benefit in India has still not been extended to everyone.  While the tax deduction is given for health and life insurance, such benefits should be extended to other products such as fire insurance and property and casualty insurance which will attract individuals to get these assets insured.

Everyone dreams of having his/her own house. The coming budget should offer a special investment and savings plan where individuals can save to pay for the down payment. Such ‘homebuyer accounts’ should allow contributions of up to Rs 5 lakh a year. The government has announced several measures to ease the problems of real estate which includes an additional deduction of Rs 1.5 lakh for the interest paid on a home loan up to Rs 35 lakh with total values of home not exceeding Rs 45 lakhs. The idea is to remove this restriction and a higher deduction should be extended to all home buyers.

The presumptive taxation was extended to professionals with annual receipts under Rs 50 lakh and increased the limit for small businesses from Rs 1 crore to Rs 2 crore last year. Small businesses currently offer 8% (or 6% if digital) of their turnover as income on which tax is levied. For a service-oriented business where income is higher than the 8% limit, this percentage should be increased.

The budget should revise the TDS fee from 10% to 5% for professionals. The amount gets refunded after filing the return. To avoid such hassle of refunds and a lock-in period of funds, the budget should reduce TDS for professionals.

A new Section 54GB was introduced which made the capital gains exempted for entrepreneurs if the sale proceeds of property were used to buy specified assets of new business within a specified time to encourage entrepreneurship in the economy.  This benefit should be extended to businessmen in the services sector also.

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