India’s 2020 Budget Highlights
April marks the beginning of the financial year in India. Each year in February the Finance Minister of India rolls out a union budget which explains the government’s monetary policies for the coming year. The budget encompasses everything from taxation to defense spending. Budgetary changes impact prices, foreign investment, domestic spending, and stock market performance. Needless to say, declaration of the union budget is a big event in India. This year’s budget outlines how the government will spend the equivalent of $430 billion during financial year 2020-21. Here is a look at some of the more interesting updates.
It is important to remember that this budget is the output of Prime Minister Modi’s government. This is the same administration that brought about sweeping changes such as demonetization and GST. In an effort to simplify and reduce taxes for the common man the government has proposed some changes to the tax regime. The 2020 budget has broken-up the prevailing personal income tax brackets. There will be a greater number of tax slabs. For example, previously there was a single tax bracket for everyone with an annual income between INR 0.5 million and INR 1 million. This was taxed at 20%. The new budget breaks this up into two tax slabs. The first will be for people earning INR 0.5M – INR 0.75M per year. They will be taxed at 10%. The other slab will apply to everyone who earns between INR 0.75M – INR 1M annually. This group will be taxed at 15%. There are similar updates to higher tax brackets as well. However, the reduced taxes come with a rider. To take advantage of the new slabs taxpayers would have to forego tax exemptions. Overall these changes would slightly reduce the overall tax burden for millions of Indians.
The simplification in tax laws is expected to widen the tax base. Despite a reduction in income tax rates the government projects tax revenue to grow by 14% over the previous year. The budget also provides an updated definition of the term NRI (nonresident Indian). Those NRIs who don’t pay taxes elsewhere will now be taxed in India.
A few new investment categories will be opened to NRIs. The upper limit of foreign investments in corporate bonds is being raised. The government plans to setup advisory units to facilitate investment in government securities. In addition the government will disinvest its stake in notable public sector units.
The new budget provides additional tax waivers to startups. The upper limit of tax exempt income for startups has also been significantly raised. This move is clearly aimed to nurture entrepreneurship, which helps create new jobs. In another bold move the government has waived the dividend distribution tax (DDT). This will be replaced by the shareholder-based taxation system wherein dividend income is taxed at the recipient end.
Private sector technology companies will now be allowed to build data center parks. The government aims to link 100,000 villages via fibre to home connections this year. There are plans to widen the national highway network. More than 100 new passenger trains will be started. The government has proposed sizable funding toward centers for artificial intelligence and quantum technologies. A sum equivalent to $3.7 billion has been pledged for programs specific to women.
Most of the changes proposed in the 2020 budget will have a positive effect on international remittances. NRIs will now be able to send money to India in larger amounts, before higher tax slabs apply. Tax exemptions for startups will allow NRI entrepreneurs to significantly expand their businesses in India. High speed connectivity to hundreds of additional villages will bring millions more into India’s digital economy. This will ensure that remittance recipients can take advantage of faster and more efficient remittance channels with lower fees.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.