The Union Budget 2020- Analysed

HNI

Positives:

• Deposit insurance coverage hiked to Rs 5 Lakhs from Rs 1 Lakh.
• New investment avenue in the form of debt exchange- traded funds (ETFs), comprising primarily government securities.
• New tax regime* marginally beneficial for individuals if they do not claim deduction/exemption in old tax regime.
• Non-resident Indians can invest in certain specified categories of government securities.
• Difference between consideration value of real estate transaction and circle rate for calculation of capital gains increased to 10% from 5%.

Negatives:

• Removal of Dividend Distribution Tax (DDT), with dividend now taxable in the hands of recipients at their applicable income tax rate, to adversely impact individuals with high taxable income; for high networth individuals, the dividend will attract 30% tax, excluding Surcharge and Cess.
• Cumulative ceiling by employer for Provident Fund, NPS and superannuation fund limited to Rs 7.5 Lakhs annually. Any contribution by employer above this to be considered as perquisite and will be taxed in the hands of the individual. Also, any annual accretion by way of interest, dividend or other amount of similar nature will be treated as perquisite to the extent it relates to employer’s contribution that is included in total income.

How to beat the budget:

• Debt ETFs investing primarily in government securities can be considered as one of the investment avenues to enhance diversification of the portfolio.
• Select taxation regime after evaluating tax payable amount in current and new tax regimes.

SME Owners

Positives:

• Scheme to provide subordinate debt to micro, small and medium enterprises (MSME), which will be fully guaranteed through Credit Guarantee Trust for Medium and Small Entrepreneurs.
• National Logistics Policy to create single window e-logistics market and make MSMEs competitive.
• App-based invoice financing loan products to be launched for MSMEs to reduce delayed payments and consequential cash flow mismatches.
• Rs 1,000 Crores scheme anchored by EXIM Bank and Small Industries Development Bank of India to handhold MSMEs in selected sectors, such as auto components and pharmaceuticals, for technology upgradation, research and development (R&D), business strategy, etc.
• Invoice financing extended to MSMEs through Trade Receivable Discounting System or TReDs^.
• Customs duty raised on footwear, furniture, etc. to protect domestic businesses.
• Reduction in burden of taxation on employees of startup by deferring the tax payment by five years or till they leave the company or when they sell their shares, whichever is earliest.
• Deduction of 100% of profit allowed to startups with turnover of Rs 100 Crores for three consecutive assessment years from Rs 25 Crores. Also, the period of eligibility for claiming deduction extended to 10 years from seven.
• To reduce compliance burden, turnover threshold for audit raised to Rs 5 Crores from Rs 1 Crore. The increased limit will apply only to businesses that carry out less than 5% of transactions in cash.
• Niryat Rin Vikas Yojana scheme launched for higher export credit disbursement.
• Provides for higher insurance coverage, reduction in premium for small exporters, and simplified procedure for claim settlements.

^ TreDS is an online bill discounting platform that helps cash-starved micro, small and medium enterprises raise funds by selling their trade receivables to corporates.

Negatives:

None

How to beat the budget:

• Subordinate debt scheme to provide better access to capital to entrepreneurs.
• Investments in technology and R&D to improve competitive edge in sectors such as auto components and pharmaceuticals.
• Increasing turnover limit to Rs 5 Crores from Rs 1 Crore to help enhance operational efficiency of SMEs.

Young Salaried Professionals

Positives:

• Deposit insurance coverage hiked to Rs 5 Lakhs from Rs 1 Lakh.
• New tax regime* marginally beneficial for individuals if they do not claim deduction/exemption in old tax regime.
• Reduction in burden of taxation on employees of startups by deferring tax payment by five years, or till they leave the company, or when they sell their shares, whichever is earliest.
• DDT removed and dividend made taxable in the hands of the recipient at the applicable rate is good for individuals with low taxable income.
• Deadline extended for additional interest deduction on affordable housing to March 31, 2021 from March 31.

Negatives:

• Removal of DDT with tax burden now resting with the individual to adversely impact those in higher tax bracket.
• Raising of customs duty on imported footwear, furniture, etc.

How to beat the budget:

• Select taxation regime after evaluating tax payable amount in current and new tax regimes.

Retired Individuals

Positives:

• Proposal to increase deposit insurance coverage to Rs 5 Lakhs from Rs 1 Lakh per depositor likely to bring relief to retired individuals who choose to keep savings in form of deposits in the bank.
• New tax regime* marginally beneficial to individuals if they do not claim deduction/exemption in old tax regime.
• Allocation of Rs 9,500 Crores to welfare schemes targeted towards senior citizens and handicap for fiscal 2021.
• Removal of DDT and adoption of classic system of dividend taxation, where dividend is taxable in the hands of the recipient at the applicable rate, to help retired individuals in lower tax bracket.

Negatives:

• Removal of DDT with tax burden now resting with the individual to adversely impact those in higher tax bracket.

How to beat the budget:

• Select taxation regime after evaluating tax payable amount in current new tax regimes.
• New debt investment avenue, in the from Debt ETF, will now be available to retired individuals, which is safer from credit perspective.

Home Makers:

Positives:

• Proposal to increase deposit insurance coverage to Rs 5 Lakhs from Rs 1 Lakh per depositor likely to bring relief to home makers who choose to keep savings in the form of deposits in the bank.
• Removal of DDT and adoption of classic system of dividend taxation, where dividend is taxable in the hands of recipients at the applicable rate, to help home makers as their tax bracket is usually at the lower end.
• Date of loan sanction for availing additional deduction on interest paid on affordable home loans extended by one more year, to March 31, 2020.

Negatives:

• Raising of customs duty on food processing, footwear, household items, household appliances, furniture, toys, stationary items, precious metal.

How to beat the budget:

• Home makers can choose products manufactured in India.

New tax regime

#Tax will be nil if taxable income is less than Rs 5 Lakhs.