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Budget 2020: Will the LTCG and DDT go away?

30 Jan 2020

The Union Budget 2020 is less than a week away. There are various speculations over what will the ‘FinMin’ Nirmala Sitharaman deliver this time. The economy is already at its lower side. There are various expectations from the upcoming Union Budget 2020. It will be very interesting to see how the Finance Ministry balances between growth and economic reforms.

The printing of Budget is already in progress. The process started after the traditional “Halwa Party”. The officials of the Finance Ministry are cut off from the outside world till the Budget Day. The Budget will be announced on 1st February which has been preponed this time from the last day of February. The Railway Budget will be also included with the Union Budget this time.

There are various questions and expectations with the Budget. We have tried to cover the top expectations here

1) The abolition of DDT: DDT or Dividend Distribution Tax is levied on the dividends which are paid to the shareholders by profit making companies. Currently all such companies are charged 20-21% DDT apart from the taxes which they have already paid. A further 10% is charged from the shareholder if the amount of Dividend received exceeds 10 lakhs in an year.

DDT can be abolished for the paying companies in order to reduce the tax burden. It is expected to be taxable only at the hands of the receiver.

2) Reworked Long Term Capital Gain Tax (LTCG): The long-term capital gain tax was reintroduced in the 2018-19 budget after 14 years. Any profit earned by the transfer of equity shares exceeding the exemption limit of 1 lakh is taxed at 10%.

The government may either extend the holding period from one year or could also work to abolish the long-term capital gain tax in order to increase the investments which will in turn reform the NBFC sector.

3) More Rebate under Section 80C: The section 80C of the Income Tax Act 1961, currently allows a total deduction of INR 1.5 lakhs which is expected to be increased up to 2 lakhs in the Budget 2020. If there is no change in the deduction, there can be a revision in the tax exemption limit and income tax slabs.

4) Revision of Tax Exemption Limit: Considering the current inflation rates and the economic slowdown which followed, there can be a revision in the tax slabs and rates. Currently the exemption limit is 2.5 lakhs for individuals. The taxpayers are expecting a rise in the exemption limit which can be around the 5 - 7.5 lakh bracket.

The rates of tax can also be revised. Businessmen are expecting a revision in the rates of tax for higher income slabs. Income tax revision is amongst the top expectations from the Budget.

5) Simplification of GST: The GST or Goods and Service Tax was enforced in 2017 and has faced several revisions thereon. GST is applicable on the sell and purchase of any goods or service in the country and the rates vary depending on the sector.

The GST needs to be simplified in order to boost the revenues for the government. Electricity, Oil and Gas and Real Estate needs to be included in the GST framework in order to boost the revenues.

6) Changes in Custom Duty Rates: There has been a growth in the industrial sector after the “Make in India” campaign. To promote the sale and export of domestic manufactured products, the custom duty rates can be revised.

The custom duties on import of finished products could be raised whereas those on the import of raw material and export of finished products can be lowered. This will eventually boost the sales, which will in turn generate employment for citizens and revenue for the government.

These are the topmost expectations from the upcoming 2020 Union Budget. This will help to boost the economy by promoting sectorial growth and will also ease up the burden of taxes on business and citizens. It is expected that the new Budget will help the economy to recover. The financial crisis has its direct impact on market behavior, which in turn is also expected to improve.

The economy is currently in doldrums and thus, there are a lot of expectation from the 2020 budget which is already in the printing process. The budget will be declared on 1st February by the finance minister Nirmala Sitharaman. It is for the first time that a Saturday, the Budget Day will be a full working day for the stock exchange. Let’s hope that the budget fulfills the expectations of most of the taxpayers.

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