This year’s budget speech was one of the longest in history with the FM touching on many different aspects of the economy.
Below are the key highlights of the budget:
Ø Introduction of a new personal income tax regime with lower tax rates but without the availability of most deductions and exemptions. The new regime will have lower rates of 10%/15%/20%/25% vs. existing of 20%/30% for different buckets, and will be optional to the individual.
Ø Abolition of Dividend Distribution Tax. Henceforth, dividend income will be taxable at the hands of the end investors, who will pay tax based on their marginal income tax rate. This move will be beneficial for investors whose income is less than 7.5L p.a. but not for others.
Ø Window for settlement of litigation cases, faceless assessments & appeals, pre-filled ITR will all help in increasing the tax breadth of the economy
Ø 100% tax exemption to Sovereign Wealth Funds for investments in priority sectors till 2024 will provide a major boost to Government National Infrastructure Pipeline initiative
Ø The Disinvestment target for next year has been budgeted at a RECORD HIGH of INR 2.15 lakh crore compared to last year (~INR 65,000 crore). LIC’s IPO and IDBI Bank’s stake sale will be major contributors to achieve the aspirational target.
Ø The Government’s revised fiscal deficit target for FY20 is 3.8% (earlier 3.3%) and set FY21 deficit target at 3.5%. Though a higher fiscal deficit is a concern, the quality of expenditure proposed to be incurred also doesn’t inspire confidence that it will provide a significant boost to the economy.
Ø And as a recurring trend seen over the past many years, there is a slippage on the tax revenue targets. Neither were there any announcements to increase the tax base which will improve the quality of overall tax revenue.
Overall the budget seems to have touched on various aspects but fails in providing any specific action plan to address ongoing systemic issues. The budget was well structured and organized, but lack of details may turn out to be negative for the equity markets in the short term. While there was no announcement on capital gains, even the option to reduce the personal income tax rate does not seem to be beneficial to many individuals. There is also no major roadmap in kickstarting the capex cycle or boosting exports. Thus, we are of the opinion that equity markets may not cheer this budget in the immediate future and will look for some signs of on-the-ground implementation before recovering. And the higher deficit number will also make the bond market investors nervous.
Here’s also a budget highlights document from the government.