The Union Budget 2020 - Analysed - ves HNI SME owners Young Salaried Professionals + ves How to beat the budget? • Non-resident Indians can invest in certain specified categories of government securities • New tax regime* marginally beneficial for individuals if they do not claim deduction/exemption in old tax regime • Difference between consideration value of real estate transaction and circle rate for calculation of capital gains increased to 10% from 5% • Deposit insurance coverage hiked to Rs 5 lakh from Rs 1 lakh • New investment avenue in the form of debt exchange- traded funds (ETFs), comprising primarily government securities • 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 lakh 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 • 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 • App-based invoice financing loan products to be launched for MSMEs to reduce delayed payments and consequential cash flow mismatches • To reduce compliance burden, turnover threshold for audit raised to Rs 5 crore from Rs 1 crore. The increased limit will apply only to businesses that carry out less than 5% of transactions in cash • 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. • Niryat Rin Vikas Yojana scheme launched for higher export credit disbursement o Provides for higher insurance coverage, reduction in premium for small exporters, and simplified procedure for claim settlements • Rs 1,000 crore 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^ • Deduction of 100% of profit allowed to startups with turnover of Rs 100 crore for three consecutive assessment years from Rs 25 crore. Also, the period of eligibility for claiming deduction extended to 10 years from seven • Customs duty raised on footwear, furniture, etc to protect domestic businesses • 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 None • 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 crore from Rs 1 crore to help enhance operational efficiency of SMEs • DDT removed and dividend made taxable in the hands of the recipient at the applicable rate is good for individuals with low taxable income • New tax regime* marginally beneficial for individuals if they do not claim deduction/exemption in old tax regime • Deadline extended for additional interest deduction on affordable housing to March 31, 2021 from March 31, 2020 • Deposit insurance coverage hiked to Rs 5 lakh from Rs 1 lakh • 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. • Raising of customs duty on imported footwear, furniture, etc • Removal of DDT with tax burden now resting with the individual to adversely impact those in higher tax bracket • Select taxation regime after evaluating tax payable amount in current and new tax regimes ^ 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
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The Union Budget 2020 - Analysed
-ves
HNI
SME owners
Young Salaried
Professionals
+ves How to beat the budget?
• Non-resident Indians can invest in certain specified categories of government securities
• New tax regime* marginally beneficial for individuals if they do not claim deduction/exemption in old tax regime
• Difference between consideration value of real estate transaction and circle rate for calculation of capital gains increased to 10% from 5%
• Deposit insurance coverage hiked to Rs 5 lakh from Rs 1 lakh
• New investment avenue in the form of debt exchange-traded funds (ETFs), comprising primarily government securities
• 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 lakh 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
• 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
• App-based invoice financing loan products to be launched for MSMEs to reduce delayed payments and consequential cash flow mismatches
• To reduce compliance burden, turnover threshold for audit raised to Rs 5 crore from Rs 1 crore. The increased limit will apply only to businesses that carry out less than 5% of transactions in cash
• 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.
• Niryat Rin Vikas Yojana scheme launched for higher export credit disbursement
o Provides for higher insurance coverage, reduction in premium for small exporters, and simplified procedure for claim settlements
• Rs 1,000 crore 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^
• Deduction of 100% of profit allowed to startups with turnover of Rs 100 crore for three consecutive assessment years from Rs 25 crore. Also, the period of eligibility for claiming deduction extended to 10 years from seven
• Customs duty raised on footwear, furniture, etc to protect domestic businesses
• 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
None • 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 crore from Rs 1 crore to help enhance operational efficiency of SMEs
• DDT removed and dividend made taxable in the hands of the recipient at the applicable rate is good for individuals with low taxable income
• New tax regime* marginally beneficial for individuals if they do not claim deduction/exemption in old tax regime
• Deadline extended for additional interest deduction on affordable housing to March 31, 2021 from March 31, 2020
• Deposit insurance coverage hiked to Rs 5 lakh from Rs 1 lakh
• 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.
• Raising of customs duty on imported footwear, furniture, etc
• Removal of DDT with tax burden now resting with the individual to adversely impact those in higher tax bracket
• Select taxation regime after evaluating tax payable amount in current and new tax regimes
^ 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
Retired Individuals
-ves
Home makers
How to beat the budget?+ves
Source : Based on the budget speech by the finance minister – Nirmala Sitharaman on 1 Feb, 2020.
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• Allocation of Rs 9,500 crore to welfare schemes targeted towards senior citizens and handicap for fiscal 2021
• Proposal to increase deposit insurance coverage to Rs 5 lakh 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
• 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
• New tax regime* marginally beneficial to individuals if they do not claim deduction/exemption in old tax regime
• Removal of DDT with tax burden now resting with the individual to adversely impact those in higher tax bracket
• New debt investment avenue, in the form debt ETF, will now be available to retired individuals, which is safer from credit perspective
• Select taxation regime after evaluating tax payable amount in current and new tax regimes
• Proposal to increase deposit insurance coverage to Rs 5 lakh 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
• Date of loan sanction for availing additional deduction on interest paid on affordable home loans extended by one more year, to March 31, 2020
• 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
• Raising of customs duty on food processing, footwear, household items, household appliances, furniture, toys, stationary items, precious metal
• Home makers can choose products manufactured in India
* New tax regime
0-2.5 lakh 0%
2.5-5.0 lakh# 5%
7.5-10.0 lakh 15%
Tax slabs Tax rate
5.0-7.5 lakh 10%
12.5-15.0 lakh 25%
# Tax will be nil if taxable income is less than Rs 5 lakh
10.0-12.5 lakh 20%
Above 15 lakh 30%
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