Nirmala Sitharaman holds two important portfolios — the finance ministry and the corporate affairs ministry — in the Narendra Modi-led Bharatiya Janata Party (BJP) government in its second term at the Centre. This yearShe, however, increased the surcharge for those with an annual taxable income of over Rs 2 crore in th budget of 2019-2020
Excise, customs hikes to hit middle class
Taking advantage of the softening of crude oil prices from their earlier highs, the government has reviewed excise duty and cess on petrol and diesel. It proposes to increase special additional excise duty and road and infrastructure cess each by one rupee a litre on petrol and diesel. It also proposes to increase customs duty on gold and other precious metals from 10 per cent to 12.5 per cent. Air-conditioners will also be costlier, impacting the middle class.
Concessions on purchase of affordable housing
A person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh, yielding a benefit of around Rs 7 lakh to middle class home-buyers over their loan period of 15 years. Currently, interest paid on housing loans is allowed as a deduction to the extent of Rs 2 lakh in respect of self-occupied property. Now, an additional deduction of up to Rs 1.5 lakh for interest paid on loans borrowed up to 31st March, 2020 will be allowed for purchase of an affordable house valued up to Rs 45 lakh.
To incentivise the National Pension System (NPS), the government proposes to increase the limit of tax exemption from the current 40 per cent to 60 per cent of payment on final withdrawal from the NPS; allow deduction for employer’s contribution up to 14 per cent of salary from the current 10 per cent, in case of Central government employees; and allow deduction under section 80C for contributions made to Tier II NPS accounts by Central government employees.
In a bid to make compliance easier for taxpayers, the government proposes to make PAN and Aadhaar interchangeable and allow those who do not have PAN to file income tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote their PAN. More than 120 crore Indians now have Aadhaar, and the government aims to improve the ease of living for citizens.
Pre-filled tax returns to be providedPre-filled tax returns will be made available to taxpayers, containing details of salary income, capital gains from securities, bank interest, dividends and tax deductions. Information regarding these incomes will be collected from sources such as banks, stock exchanges, mutual funds, EPFO, and state registration departments. This will not only significantly reduce the time taken to file a tax return, but will also ensure accuracy of reporting of income and taxes.
‘Faceless’ tax scrutiny to avoid harassment
To eliminate the high level of personal interaction between taxpayers and the income tax department involved in the existing system of scrutiny assessments, and the resulting “undesirable practices” on the part of tax officials, a scheme of electronic assessment involving no human interface is being launched this year in a phased manner. To start with, such e-assessments will be carried out in cases requiring verification of certain specified transactions or discrepancies.
2 per cent TDS on cash withdrawal exceeding Rs 1 cr
To promote digital payments further and discourage the practice of making business payments in cash, the government will levy tax deduction at source (TDS) of two per cent on cash withdrawals exceeding Rs 1 crore in a year from a bank account. Further, business establishments with annual turnover of more than Rs 50 crore will need to offer low-cost digital modes of payment to their customers and no charges or merchant discount rate will be imposed on customers or merchants.
Higher surcharge on those earning over Rs 2 cr
Arguing that income levels have been rising, and that those in the highest income brackets need to contribute more to the nation’s development, the finance minister proposes to enhance the surcharge on individuals having taxable incomes between Rs 2 crore and Rs 5 crore, and Rs 5 crore and above. As a result, the effective tax rates for these two categories will increase by around three per cent and seven per cent respectively.
Firms with sales up to Rs 400 cr to be taxed at 25 per cent
Continuing with the phased reduction in corporation tax rates, the government has proposed that all companies having an annual turnover of up to Rs 400 crore will be subject to a lower corporate tax rate of 25 per cent. This will cover 99.3 per cent of companies, leaving only 0.7 per cent of companies outside this rate. Currently, the tax rate of 25 per cent is only applicable to companies with annual turnover of up to Rs 250 crore.
In addition to relief already given to industry on the GST front, GST processes are being further simplified. A simplified single monthly return is being rolled out. Taxpayers having annual turnover of less than Rs 5 crore will have to file quarterly returns. Free accounting software for return preparation has been made available to small businesses. A fully automated GST refund module is to be implemented. Multiple tax ledgers for a taxpayer will be replaced by one.
Tax incentive for promoting electric vehicles
To make electric vehicles (EVs) affordable, an additional income tax deduction of Rs 1.5 lakh will be provided on the interest paid on loans taken to purchase EVs. This amounts to a benefit of around Rs 2.5 lakh over the loan period to taxpayers who take loans to purchase EVs. The government has already moved the GST Council to lower the GST rate on EVs from 12 per cent to five per cent. It envisions India as a global EV manufacturing hub.
Start-ups to be spared taxman’s scrutiny
To resolve the “angel tax” issue, start-ups and their investors who file the requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The identity of the investor and source of his funds will be established by putting in place a mechanism of e-verification. Funds raised by start-ups will not require any kind of scrutiny from the income tax department.
Nuts & Bolts
Easier payments to MSMEs via digital platform
The government will create a payment platform for micro, small and medium enterprises (MSMEs), to enable filing of bills and payments on the platform itself. As government payments to suppliers and contractors are a major source of cash flow, especially to SMEs and MSMEs, investment in MSMEs will receive a big boost if these delays in payment are eliminated.
Push for aircraft financing and leasing activities
The government will implement a regulatory roadmap for making India a hub for aircraft financing and leasing activities. The country is the world’s third largest domestic aviation market, and the aim is to develop a self-reliant aviation industry, create aspirational jobs in aviation finance, and leverage business opportunities available in India’s financial Special Economic Zones (SEZs) and the International Financial Services Centre (IFSC).
Pension benefits extended to retail traders
Pension benefits are to be extended to about 30 million retail traders and small shopkeepers whose annual turnover is less than Rs 1.5 crore under a new scheme -- the Pradhan Mantri Karam Yogi Maandhan Scheme. Enrolment into the scheme will involve a simple procedure, requiring only Aadhaar and a bank account, and the rest will be on the basis of self-declaration.
Measures for enhancing infrastructure financing
A number of measures are proposed to enhance sources of capital for infrastructure financing. They include a Credit Guarantee Enhancement Corporation for which regulations have been notified by the RBI. It will be set up in 2019-20. An action plan to deepen the market for long-term bonds, including for deepening markets for corporate bond repos and credit default swaps, with specific focus on the infrastructure sector, will be put in place.
Social stock exchange to be set up for NGOs
To utilise the capital markets in meeting the goal of inclusive growth, the government will initiate steps towards creating an electronic fund-raising platform -- a social stock exchange -- under the regulatory ambit of SEBI. This will be meant for listing social enterprises and voluntary organisations working for the realisation of social welfare objectives, so that they can raise capital as equity, debt or as units like a mutual fund.
Electricity and housing for all by 2022
By 2022, the 75th year of India’s independence, the government will ensure that every single rural family, except those who are unwilling to take the connection, will have electricity and a clean cooking facility. The Pradhan Mantri Awas Yojana-Gramin (PMAY-G) aims to achieve the objective of Housing for All by 2022. In the second phase of PMAY-G, during 2019-20 to 2021-22, 19.5 million houses are proposed to be provided to eligible beneficiaries.
India’s space products and services to be commercialised
New Space India Limited (NSIL) has been incorporated as a new commercial arm of the Department of Space to tap the benefits of the Research & Development carried out by the Indian Space Research Organisation. The company will spearhead the commercialisation of various space products, including the production of launch vehicles, transfer of technologies and marketing of space products