- On January 27, 2020
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Everyone is busy with financial planning for the year 2020 and the Finance Ministry is busy with the planning of the upcoming Budget 2020. The union budget for the fiscal year 2020-21 is scheduled on 1st February 2020 and Sitharaman is all set to present her second budget as a Finance Minister. There are many things on the plate of the finance minister such as low industrial output, slowing demand and the overall GDP growth fixed at 5% which is at an 11-year low.
Since the last budget presented on 5th July 2019, the finance minister has announced a lot of incentives for the economy. These incentives include a cut down in tax rates for corporates and new manufacturing companies, new reforms in Goods and Service Tax law, capital infusion for PSU banks and setting up a separate fund for real estate and infrastructure. However, all these are going in vain as the economic indicators haven’t shown any signs of growth revival. Moreover, the government’s tax collections have been low too for a long time.
The call of the hour for the benefits of economists and industrialists as well as the general public is to revive the demand in the economy. This demand revival is more likely to steer the economy back into progress.
So, here are some expectations from the Budget 2020 concerning GST and taxation. Let’s get started –
1. A boost in the cash flows of the middle-class taxpayers
The finance ministry is considering to relax the personal income tax rates in the upcoming budget for the fiscal year 2020-21. The present rates comprise of 5% for income slab from Rs 2.5 to 5 lakh, 20% for income slab from Rs 5 to 10 lakh and 30% for income slab from Rs 10 lakh and above. Hence, one can easily detect the significant tax outgo for the particular section falling in the category of earning income between Rs 5 to 10 lakh. A decrease in the tax rate from 20% to 10% would definitely increase the disposable surplus in the hands of the middle class who are the growth drivers for the economy.
2. New GST Returns
New GST Returns in form RET-1 or RET-2 or RET-3 along with annexures in ANX-1 and ANX-2 might tweak the GST laws to enable new GST Return filing system, w.e.t., April 1st, 2020. To accommodate all these altercations, the Union Finance Minister may tweak the GST laws.
3. Savings-booster for individuals
Most of the tax savings of individuals are accounted to Section 80C. These savings include investment in LIC, government securities, mutual fund ELSS along with payments for housing loan repayment and children’s tuition fee with a condition that all these must be under the overall limit of Rs 1.5 lakh. This limit of Rs 1.5 lakh under section 80C was last upgraded in the Budget 2014.
For an individual, education costs and housing loan repayments form an important part of the financial commitments. Hence, leaving a very little room for savings. This budget could experience an enhancement of the limit under section 80C by the government to provide with a much-needed boost for public savings.
4. Incentives as per the Sector
To have a better outlook for the upcoming budget 2020, the Union Ministry of Finance has been holding meetings with the representatives of various sectors and industries. Sectors like real estate, non-banking financial companies (NBFCs), infrastructure and power Discoms have been suffering from the lack of demand and finances. The government has outlined a plan for real estate and infrastructure but the actions are yet to be carried out. Furthermore, there are assumptions that the infrastructure plan could be aided through the issuance of long term tax-deductible infrastructure bonds by the government.
5. Lower tax-rate for Partnerships and LLPs
Some MSMEs are paying tax at 30%, excluding surcharge and education cess, which consist of partnership firms and Limited Liability Partnerships (LLPs). While the government has handed out a tax cut on corporates and manufacturing companies, the other forms of business enterprises are still paying high taxes at 30%. In this budget, the government could have a tax rate cut down for these business enterprises to balance out a fair play among MSMEs.
Moreover, the government could also aid capital intensive MSMEs for their investments in plant and machinery. The investments could be boosted through a deduction under section 32AC. Section 32AC was introduced in the union budget of 2013 to encourage investments in new plant and machinery by various companies. Hence, the companies were allowed the deduction in addition to depreciation allowance. The minimum investment threshold was set at Rs 25 crore. The Finance Minister could also revamp this section to grant deduction benefits to MSMEs which have a lower investment threshold with a time horizon of 1-2 years.
6. Goods and Services Tax rate cut down
GST rate cuts for over the last two years are the reason behind the dwindling revenue collections. Many economists have been favouring a phased increase in the GST rates. But, the automobiles sector is all set for and is looking forward to a rate cut 28 % to 18 %. Furthermore, there is a chance of exemption from customs duty of 5 % for lithium-ion batteries. With all this, the health care segment in the upcoming budget also expects to have ‘health care services zero-rated product’ under GST. There are speculations that this budget, various items which fall in between 18% and 28 % may be scrutinised for a single rate.
As we all are aware that the government, itself, is running on a tight fiscal situation due to the lesser than expected tax collections and disinvestment collections. So, if there is a possible increase in the disposable surplus in the hands of individuals that can help in reviving consumer demand. Apart from this, the government is also taking into consideration to mobilising public savings via section 80C along with the issue of corporate bonds by way of top-rated PSUs.
So, these were some speculations from our side. if you have some more, do let us know!
Stay tuned for more blogs on GST.