Budget 2020

Budget 2020: Bets on the Long Term while Changing the Short Term

The Economic Survey, published on January 31, 2020, captured the sombre mood of the Indian economy as it warned that the GDP growth rate in the current year will slip to 5%. At the same time, it expressed hope that the GDP growth will pick up to 6 to 6.5% in Financial Year 2020-21.

Let us look at Budget 2020 to understand how the myriad expectations for reverting to the growth path are met.

The Budget in India is not only a plan for income and expenditure of the Central Government but the greatest opportunity for financial policymaking, and this Budget is no different. The Finance Minister, it seems, has chosen to bet on the long term while serving some bitter pill for the short term.

Social Sector Allocations Up

With a total allocation of Rs 12,300 crore for the Swach Bharat Mission in 2020-21, the government is committed to the betterment in this area. “Focus would also be on solid waste collection, source segregation, and processing,” Mrs. Sitharaman said.

The Pradhan Mantri Awas Yojana allocation has increased by about 8.5 per cent to Rs 27,500 crore over revised estimates for the current year.

The Jal Jeevan Mission which aims to provide piped water to all households promotes water harvesting, desalination, and recharging of existing sources. The government has already approved Rs 3.6 lakh crore for the mission; for 2020-21, an additional Rs 11,500 crore has been allocated.

The Government also allocated Rs 4,400 crore for the Clean Air policy, to be focused on cities with a population of more than 1 million. In light of the deteriorating air quality of our cities, this will hugely improve the quality of living.

These missions, when completed, will have a far-reaching impact in increasing the livability index of our cities in particular.

Fiscal Prudence will be Adhered to

In spite of various pressure groups’ wish list of sops and tax benefits, Mrs. Sitharaman has, to her ample credit, stuck to the path of fiscal prudence. She proposes a fiscal deficit number of 3.5% which implies no large scale borrowing programme by the Central Government.

In such a scenario, there will not be any major pressure on the interest rate to go up. A stable low-interest rate regime will greatly benefit the buyers of properties and consumer durables on loan.

Bank Deposit Insurance is Hiked

From an amount of Rs 1 lakh, the insured amount of a bank deposit is increased to Rs 5 lakh. This will offer additional security to the bank depositors.

Personal Income Tax Rejig

The Finance Minister has proposed a major rejig of the personal Income Tax slabs in Budget 2020.

Under the new regime, taxpayers will pay 10%, 15%, 20% and 25% for incomes between Rs 5-7.5 lakh, Rs 7.5-10 lakh, Rs 10-12.5 lakh and Rs 12.5-15 lakh, respectively.

However, to avail of this scheme, which is optional, taxpayers will have to let go of exemptions.

Previously, taxpayers paid 20% for incomes between Rs 5-10 lakh and 30% for incomes between Rs 10-15 lakh.

Income below Rs 2.5 lakh will continue to remain exempt while income between Rs 2.5-5 lakh will continue to get a rebate.

However, an individual taxpayer can avail of the new system or continue with the old system. About 70 different exemptions will be withdrawn in the new system with a lower tax liability.

Affordable House Continues to be a Focus Area in Budget 2020

Finance Minister Nirmala Sitharaman extended Rs 1.5-lakh benefit on interest paid on affordable housing loans by another year to March 2021. The Union Budget also gave tax holiday for another year to affordable housing developers.

“For the realisation of the goal of ‘Housing for All’ and affordable housing, in the last Budget, I had announced an additional deduction of up to one lakh fifty thousand rupees for interest paid on loans taken for the purchase of an affordable house… In order to ensure that more persons avail of this benefit and to further incentivise the affordable housing, I propose to extend the date of loan sanction for availing this additional deduction by one more year,” she said.

The date of approval of affordable housing projects for availing tax holiday, too, was extended by another year.

The Budget continues from last year the additional deduction of up to Rs 1.5 lakh on interest paid on loans for a house valued up to Rs 45 lakh. The total tax deduction stands at Rs 3.5 lakh.

To Sum up

The Union Budget 2020 has allocated large sums to the infrastructure and the social sector and this focus will surely increase the quality of life, income opportunities, and the confidence to consume more and invest in assets like properties.

We also hope that the implementation of these policies will have required urgency, considering the pressing need to revert to the path of economic growth.

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