Each year, the union budget brings with it hopes and expectations of better aligning our source of income to our actual expenditure and taxes. People eagerly await fiscal recommendations by the government that will permit efficient planning of their taxes. Our honorable FM, Nirmala Sitharaman presented the Union Budget 2020 in the longest speech ever of 137 minutes, delivering a mixed bag of goodies for the individuals. The budget aims to push the demand side of the economy by attempting to put more money into the pockets of the individuals. 
The budget centers around three themes:

  • Aspiring India, 
  • Economic Development and 
  • Caring society

It also focuses on the ‘Ease of living’  concept. 
The 2020 Union Budget gave many new proposals intended to supply for the rising cost of living and reduce tax burdens on the individuals besides the budgetary allocations on several infrastructural and developmental projects that will boost employment in the economy and hence, the purchasing power of the individuals.  

A Simplified Tax Regime 

There are several tax-related benefits bringing reason to cheer for taxpayers in the budget this time. A new, simpler (but optional) tax regime is proposed where income slabs are at intervals of 2.5 lakhs each, as described below:

Source: Times Of India

  • Now, the 30% rate kicks in only for individuals earning 15 lakhs and above.
  • Earlier, those earning between 2.5-5 lakhs had to pay a 5% tax. But here’s the catch – the new tax regime won’t offer 70 tax exemptions out of the 100 exemptions that were earlier available in the old tax system.
  • Those who want to utilize the benefits of the tax exemptions and deductions like PF deductions, tuition fees, insurance, and others available under the previous system, can opt for the old tax system as well. 
  • The budget takes ample care to devote flexibility to the tax system while simplifying it. Now anyone can electronically file their tax returns without any special professional help.
  • A taxpayer charter is underway that will clearly define the rights of a taxpayer. 
  • PAN cards will be issued directly based on the Aadhar cards of the individuals. 

The lowered rates aim to increase the personal disposable income of lower and middle-income class groups whereas the foregoing of tax deductions and exceptions will indirectly help in creating demand in the market but might dissuade people from saving more thereby, creating a ripple effect of lowered investment in the coming times. 

More News For Salaried Professionals 

A further push to the start-ups is intended by the government introducing tax relief benefits on Employee Stock Ownership Plans (ESOPs). At present, there exists dual taxation on ESOP shares. The FM announced a proposal of deferring tax payments by five years or until employers leave the company, or when they sell their shares. 

Enhanced Insurance On Bank Deposits

To further lend credibility and trust to the Indian banking sector, the FM proposed the deposit insurance of banks be raised from 1 lakh to 5 lakhs. Thus, any bank account holder has now been assured a maximum sum of 5 lakhs in case a bank goes bankrupt. The LIC is to go public through an IPO as the government intends to disinvest a part of its stake in the insurance behemoth.  

Investing & Housing

  • DDT or Dividend Distribution Tax that was charged at 20.56% (from companies to mutual funds) and 11.56% (from equity funds to investors) earlier has been removed, and the classical system of taxation has been adopted by the government. Benefits here would be only for small investors falling in the lower tax brackets lower.
  • The tax holiday for affordable housing projects has been extended by another year to further boost the dream of owning one’s house indirectly. The affordable housing scheme project – Pradhan Mantri Awas Yojna is one of the major initiatives of the government. The tax holiday will ensure lower and affordable rates of housing. 

The 2020 Budget has evoked mixed responses from economists and common people. But executed right, the proposed ideas have the potential to usher in a new wave of lowered and simplified tax structures where more individuals become taxpayers. Automated systems and taxpayer charter should further enhance the trust of the individuals in paying taxes. As individuals, we could perhaps relax and plan our spending and savings in sync with the new tax routine and new bank deposit insurance. 

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