Budget 2020: A good opportunity squandered

Tejas Khoday

The disappointment of the stock market to the Union Budget 2020 was evident in the 1000-point fall in a large index like Sensex, which could possibly spark off an additional fall in the days to come. Stock market participants had many requests of the finance minister. The only consolation was the abolishing of dividend distribution tax (DDT). Neither the Long-Term Capital Gains Tax (LTCG) nor the Securities Transaction Tax (STT) were tinkered with at all. Any change in either of these two taxes could have boosted the inflows into stock market.

In addition, with the new tax slabs proposed, which can be availed only without exemptions of any nature,  inflows to Equity Linked Savings Schemes (ELSS) could be impacted to a large extent. The new tax slabs would also impact the inflows into the insurance sector as 80C deductions included insurance policies availed by the taxpayers. While the finance minister spoke of simplifying the personal income tax structure without the need of a tax professional, on a first look basis, it doesn’t seem to be the case.

Out of the 100-odd tax exemptions available to the tax payer earlier, 70 of them have been eliminated. While I haven’t read the fine print yet, the first reactions point to the fact that many of the widely-used exemptions like HRA, PPF, Interest on home loan etc have been removed under the new tax regime. Extreme confusion could prevail in the initial days before tax payers could compute the tax liability from the two cases:

1. Continuing with the earlier tax slabs while availing the limited tax exemptions, or

2. Moving to the new tax regime with rejigged tax slabs but with no tax exemptions.

Coming back to the point of DDT, tax payers falling in the highest tax bracket of 30 percent would end up paying more taxes as compared to earlier as most investors were not used to paying taxes on dividend income of up to Rs 10 lakhs and also, companies announcing the dividends used to pay 15 percent DDT and cess. In a proposal that could impact the bond market positively, FM proposed the opening up of certain categories of G-Secs to NRIs while increasing the Foreign Portfolio Investors (FPI) limit in corporate bonds from 9 percent to 15 percent.

Real estate was one sector where a lot of hopes were pinned to revive consumer demand & employment. The affordable housing segment received some support from the budget with an extended tax holiday, otherwise there was limited scope for cheer.

Overall, the Budget fell short of most expectations from the various stakeholders – companies or individual tax payers – and hasn’t provided any concrete stimulus to address the flailing economy. While fiscal constraints are understandable, in a year when the finance minister is taking a deviation from the FRBM glide path, a lot more could have been done to bring back the confidence and flows to the Indian economy. The Budget was unfortunately, a good opportunity squandered.

Tejas Khoday is co-founder & CEO, FYERS, a Bengaluru based broking firm