For a developing country like India- what we need the most is a stronger economy which indeed needs a stronger budget which in turn builds a stronger nation altogether. This budget shall propose to give Indian economy an impetus to emerge as more vibrant and stronger.

Our Finance Minister released Budget 2020 with an aspiration of building a stronger economy. Certain key proposals under the Direct Taxes which relate to an individual taxpayer are as under:

1. Personal Income Tax and simplification of taxation:

In lieu of simplifying the taxation system and providing a significant relief to the tax payers, a new tax regime is brought to the system, giving the tax payers an option to pay taxes at new rates at the cost of forgiving all the deductions and exemptions they claim or continuing to pay at the old tax rates.

One of the most fundamental principles of taxation is- uniform taxation i.e. equal income being taxed equally. This optional tax regime does not at all promote a uniform taxation, making it even more difficult for a common man to grasp. Introduction of new tax rates and continuation of the existing rates as well will in no case create a simplification. Taxpayers will have to do their own calculations to figure out under which regime they will be better off.

Every middle class person is aimed towards more and more of savings to secure his future and leave a secure future for his family as well. He does so by investing in every possible state and manner, so that advantages of the same can even be availed in form of deductions from the taxable income.

Under the new tax regime around 70 of deductions and exemptions of different nature under the Income tax Act, 1961 have been removed. The remaining deductions would also be reviewed for simplification of the system. Some of the very obvious deductions almost every individual claims are u/s 80C, 80D and interest deduction u/s 24. These have been removed from the new tax regime. Now the taxpayers will not have any benefit of investing their money into certain schemes and plans. This will certainly create a sense of demotivation for investment.

Investments in economy create it even healthier. And this cut down is a step back towards creating it a vibrant and a stronger one.

2. Dividend Distribution Tax:

DDT saga coming to end, is definitely a great move. The government currently taxes dividend at the rate of 20.35 per cent (including cess and surcharge) on dividends distributed by companies to their shareholders.

This results in less money in the hands of investors. And thus not attracting them to invest in India. The end of DDT is rightly said to be a bold move by the Government. Adaption of classical system of taxation i.e. taxing the same in the hands of investors will have a two way impact as under:

  • Investors under tax bracket of 10%- will pay tax less than the rate of DDT if the dividend income is included in their income.
  • Investors under tax bracket of 30%- will pay tax more than the rate of DDT if the dividend income is included in their income.

3. Modification in the Residency Provisions:

Individual shall be Indian resident in a year, if he,-

(i) has been in India for an overall period of 365 days or more within four years preceding that year, and

(ii) is in India for an overall period of 60 days or more in that year.

An Indian citizen or a person of Indian origin shall be Indian resident if he is in India for 182 days instead of 60 days in that year. This provision provides relaxation to an Indian citizen or a person of Indian origin allowing them to visit India for longer duration without becoming resident of India.

The Finance Bill 2020 proposes to reduce the threshold to 120 days in the tax year coupled with 365 days in previous four tax years in order for an Indian citizen visiting India.

Reduction in this threshold limit to 120 days is not justifiable to the basic background of the budget to build a stronger and a vibrant economy. This reduction in the period of stay in India will surely demotivate the non-residents to extend their stay in India.

The lesser the period of stay is, the lesser their visit will benefit the economy. This will create impacts in the following ways-

– Reduction in the flow of foreign currency in the Indian Economy

– Lesser benefits to the tourism Industry

– Lesser incentives to the NRIs to visit India apart from business purposes.

It is also proposed to provide that an Indian citizen who is not liable to tax anywhere would be deemed to be a resident of India. This provision can have a far reaching impact on the economy. NRIs will be demotivated to invest in the economy and will start liquidating their existing assets in India, and move to places with no or lower tax liabilities. This will hamper the Indian economy on a serious note as Non-resident investments are one of the major sources that economy looks up to.

Budget 2020 did not bring any effective steps to tackle issues of economic slowdown and unemployment. Also things have become more complicated for a common tax payer. In the light of bringing an ease in the taxation system, the budget has not very much led to the expectations of a common man as well.

Ghanali Manke

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October 2021