Union Budget 2020: Expect the Unexpected?

The Finance Minister slashed the corporate tax rate a couple of months ago and this has increased the expectation of the common man  from the 2020 Budget who is looking forward to changes which will increase his disposable income. Almost everyone is waiting for the ‘D-day’ when Nirmala Sitharaman, our Finance Minister will present the Union Budget 2020.Once again, expectations have started pouring in from all walks of life. The salaried individuals are expecting amendments in the income tax rates and slabs while other individual tax payers are expecting an increase in deduction under section 80C. Let’s try and understand the expectations in detail.

There is an Expectation that finance minister may relax the personal income tax rates.The current income tax slabs and rates are as follows:

Individuals with income up to Rs. 2.5 lakh are exempted from paying tax. Those earning between Rs. 2.5 lakh and Rs. 5 lakh fall in the 5% slab. Similarly, individuals earning between Rs. 5 lakh and Rs. 10 lakh and those earning more than Rs. 10 lakh fall under the slabs of 20% and 30% respectively.Reportedly the slabs and rates might change in the upcoming budget. The new slabs are expected to be Rs. 2.5 lakh to Rs. 7 lakh, Rs. 7 lakh to Rs. 10 lakh, Rs. 10 lakh to Rs. 20 lakh, Rs. 20 lakh to Rs. 10 crore and above Rs. 10 crore. The rates for these slabs would be 5%, 10%, 20%, 30% and 35% respectively. The introduction of the new rates and slabs would result in substantial savings for the salaried individuals.

Besides this, expectations are also high for increasing deductions under section 80C. Current deductions for various common tax saving investments or expenditure is capped at Rs. 1.5 lakh per annum. This is expected to be increased to up to Rs. 3 lakh. But, would this be executed as it is? That’s the ‘reality’ part which we would only come to know on the day of the budget. Experts are also giving opinions regarding relaxation of taxtation provision related to house property & Change in definition of Long term in respect of Equity So that LTCG taxation does not affect the saving and investment cycle, moreover there are talks of abolishing of DDT ie, dividend distribution tax with a view to promote investment,currently dividend paid by domestic companies are subject to DDT of 15% of the aggregate dividend declared.

What's Actually Required?

A consumption wave is required to boost the slowing down economy. The aforementioned expectations are also on the same line. But, just to be frank enough, this takes place every year and if we think it through, does it have a major impact on our lives? Logically, a union budget is supposed to guide us in a way that we amend our personal budgeting to go with the flow. Given the current inflation and economic slowdown, the Finance Minister could consider to increase the disposable income of the common man by raising the tax slabs in a manner that would not result in substantial reduction in the direct tax revenue of the government and yet still manage taxpayers’ expectations.

It is a tight rope walk for the government to meet demands of different stakeholders and to manage fiscal deficit. Some bold policy announcements, relief to the common man, additional dosage of relief to the corporate world, with some leeway on the fiscal deficit with an honest commitment to set the path right once the economy recovers, should do the magic to make the forthcoming budget a memorable one that can help India steer towards a $5 trillion economy.