6 Expectations from Union Budget 2020

The Finance Minister of India will present India’s Union Budget 2020 on 1st February 2020. With economic growth slowing down and the sight of this year’s missed revenue targets, the task of chalking down this year’s Budget would not be easy.

On the other hand, just like always, there is a genuine wish list of expectations of the common man from the Budget. The government needs to balance the budget with such expectations while staying fiscally prudent. Here are 6 expectations from Union Budget 2020:

1. Relief in the Basic Exemption Limit

As of today, the basic exemption limit for an individual taxpayer below the age of 60 is Rs. 2.50 lakhs. In simple words, if the taxpayer is having taxable income of up to Rs. 2.50 lakhs, they are not required to pay any tax. Last year, the government had introduced a relief for taxpayers with taxable income up to Rs. 5 lakhs, wherein the effective tax payable for such taxpayers would have been zero.

However, such relief is not available for the taxpayers with taxable income more than Rs. 5 lakhs and such taxpayers are liable to pay tax on the taxable income exceeding Rs. 2.50 lakhs at prevalent applicable rates. This limit of Rs. 2.50 lakh has not been revised for some time, and it is largely expected that the Govt. will grant relief in this regard and raise the basic exemption limit.

2. Rejig of Tax Slabs

While the government has very little fiscal space to provide tax relief to individual taxpayers, the recent tax rate cut for the corporates in Sept. 2019 has raised the talks of tax relief for the individual taxpayers as well. Taxpayers can expect the tax rate slabs to be rejigged and enhanced for each tax rate.

Such rejig will effectively transmit partial tax relief to individual taxpayers as well. There are talks that the government is planning to propose a flat rate of tax for taxpayers for the sake of simplification and to plug leakages on account of various exemptions and deductions.

3. Increase in Tax Deduction under Section 80C

expectations union budget 2020

Section 80C of the Income Tax Act, 1961, provides for a tax deduction of up to Rs. 1.50 lakhs for eligible tax-saving payments/ investments, thereby allowing the taxpayers to save tax on such investments. Such payment/investment options include contribution to Public Provident Fund (PPF), payment of life insurance premium, investment in Equity Linked Savings Schemes (ELSS), 5-year tax-saving Fixed Deposits, repayment of home loan etc.

However, these options are eligible for an aggregate deduction of only up to Rs. 1.50 lakhs in a year and hence, the overall tax-saving opportunity is limited under this section. Even this limit is expected to be enhanced to around two lakhs, and even up to Rs. 3 lakh. This enhancement is expected to increase household savings, which have been declining over the recent years.

4. Tax Benefit for Debt ETFs

The month of December 2019 saw its first Corporate Debt ETF (Exchange Traded Fund) in the name of Bharat Bond ETF. This maiden offering was launched by the Govt. of India, replicating an index comprising of bonds issued by AAA-rated Govt. Companies.

The launch of such a debt ETF was aimed at allowing an investment exposure of the bond markets to the retail investors. It is expected that some sort of tax benefit may be introduced for the investors investing in debt ETFs. Such benefit may be in form of tax deduction through investment made or special tax rates for returns from such debt ETFs.

5. Increase in the Additional Deduction Limit for National Pension Scheme (NPS)

expectations union budget 2020

Section 80CCD(1B) of the Income Tax Act provides for an additional tax deduction of upto Rs. 50,000 for making voluntary contributions in NPS and such deduction is over and above the Rs. 1.50 lakh limit available under Section 80C.

Further,  taxpayers can also choose the desired asset allocation in equities, Govt. bonds, and Corporate bonds as per their risk appetite. It is expected that this limit of Rs. 50,000 may be enhanced to Rs. 1 lakh to encourage taxpayers to plan for their retirement effortlessly and align their financial goals with tax-saving plans.

6. Rationalisation of Long Term Capital Gains (LTCG) Tax on Equity Shares

The government had introduced a tax of 10% in the Union Budget 2018 in respect of the LTCG on equity shares and equity-oriented mutual funds. The need of the hour is to improve the investor sentiment, and what can be a better way than making such LTCG tax-exempt once again.

However, to balance this tax benefit, the government may also propose introducing the applicability of LTCG for equity investments held for more than 2 or 3 years instead of 1 year presently. This will encourage retail investors to stay invested for a longer period.

Let us hope that most of these expectations from Union Budget 2020 are met, thereby reducing the tax burden on our pockets. Once the Budget is presented before the Parliament, do come back to Money View Blog to catch the Highlights of Union Budget 2020.