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[Budget 2020] A Step Forward In the Right Direction The expectations were to hear some sweeping changes which is why most seem to think of this as a lackluster budget.

By Rashmi Guptey

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The nation was waiting with a bated breath for Budget 2020. The longest budget speech ever delivered by a finance minister which lasted over 2.5 hours had literary quotes from Kashmir to Tamil Nadu. Nirmala Sitharaman covered issues ranging from agriculture, infrastructure, education and skill development to the use of Artificial Intelligence, social welfare schemes and administrative tax measures.

Emphasising that the proliferation of technology along with productivity of its population was important to contemporary India, she based her budget on 3 key areas of "Aspiration, Economic development and a Compassionate and Caring Society"

The expectations were to hear some sweeping changes which is why most seem to think of this as a lackluster budget. However, it is important for us to realise that problems such as low production and consumption levels, poor agricultural growth, slow infrastructure growth and unemployment require time and continued structural reforms to improve. The stock markets reacted negatively but I think this should settle over time and was more knee jerk as always is the case with the stock markets!

Having said that, some of the positive measures in the medium to long term include:

On the agriculture and allied industries front:

  • Dubling farmer income by 2022
  • Impetus on the fishery industry by creating fish producer organisations or "Sagar mitras"
  • Pushing horticulture by declaring "one product one district" for better export and marketing
  • Building a seamless natinal cold supply chain for perishables
  • Setting up a "Kisan Rail" and Krishi Udaan

On the infrastructure front:

  • The Natinal Infrastructure Pipeline is a promising launch with over 6500 project schemes
  • Launch of a National Logistics Policy with a single window e-logistics market, corporatisation of ports and listing on the stock exchanges
  • 100 more airports would be developed by 2024.

Data was given its due importance with a proposal to set up Data Centre parks throughout the country and digital connectivity for all public institutions from Anganwadis to Grampanchayats.

In the financial sector:

  • Increasing deposit insurance coverage from INR 1L to INR 5L
  • Divestment of LIC and IDBI stakes
  • Subordinate debt for MSME entrepreneurs
  • Invoice financing loan products
  • Opening up categories for government securities for NRI's new Debt-ETF consisting primarily of government securities are notable and should in the long-term yield positive outcomes.

Start-ups, the shining stars of the Indian economy have a few announcements to celebrate:

  • Abolishing the dividend distribution tax (DDT). DDT was infamous due to the non-availability of DDT credit to most foreign investors in their home country. Now, the dividend shall be taxed only in the hands of the recipients. This is a mixed bag though with some critics saying this may be more burdensome than helpful
  • 100 per cent tax exemption on interest, dividend and capital gains income with respect to investment made in infrastructure and other notified sectors before 31st March 2024 with a lock-in period of 3 years by Sovereign Wealth Fund of foreign governments is clearly to boost infrastructure
  • A big move on the ESOP front to ease cash flow woes of employees was deferring the tax payment on ESOP to up to five years/ till they leave the company/when they sell their shares. This will boost the ability of start-ups to retain key talent without fear of financing their ESOPs and relieving strain on the employees as well as the start-up!
  • Intellectual property rights were given its due by proposing a digital platform to facilitate a seamless application which is a great move for start-ups and an IPR protection starved nation like ours. Quantum Technologies and Applications were recognised and the INR 8,000 crore outlay over a period of five years is welcome
  • Raising the turnover limit of start-ups from existing INR 25 crore to INR 100 crores was welcomed since it entitles them to tax deduction of 100 per cent on their profits. Further, the eligibility period to claim deduction increased from 7 to 10 years.

On the tax administration front:

  • Tax administratin and litigation issues were eased with announcements such as the launch of the faceless appeal on the lines of faceless assessment
  • "Vivad Se Vishwas' tax amnesty scheme under which a taxpayer would be required to pay only the amount of the disputed taxes if he pays by March 31, 2020 and will get complete waiver of interest and penalty. The scheme will remain open till June 30, 2020. The flip side is that while it sounds like an amnesty scheme it requires 100 per cent tax payment with no room for settlements and or debate on the validity of the tax claim!
  • A Taxpayers' Charter, was my favorite although the fine print needs to be seen, it is aimed at enhancing the trust between taxpayers and the administration enumerating the tax payers rights.
  • GST compliance was simplified making filing returns easier with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow and overall simplification effective April 2020. This was much awaited!
  • Individual Incme tax rates changed as below:
    • INR 0-2.5Lakh: exempt
    • INR 2.5-5 Lakh at 5 per cent,
    • INR 5-7.5 Lakh at 10 per cent,
    • INR 7.5-10 Lakh at 15 per cent,
    • INR 10-12.5 Lakh at 20 per cent,
    • INR 12.5-15 Lakh at 25 per cent and
    • INR 15 lakh and above at 30 per cent.

The new tax regime shall be optional for the taxpayers. An individual who is currently availing more deductions & exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime.

All in all, I don't have serious complaints. The economy can't be fixed overnight and in the medium to long term these measures should provide the required boost to bring the economy back on track!

Rashmi Guptey

CFO and General Counsel, Lightbox VC

Rashmi makes sure that Lightbox and its portfolio companies are legally compliant. As CFO and general counsel, her role includes finance and legal functions.

Awarded as one of India’s top 100 women in Finance in 2019, she’s passionate about the role of governance in building great companies and would love to help in shaping an appropriate policy framework that includes a start up view as new business models evolve.

She loves working in the PE/VC industry since it gives her an opportunity to work with aspiring entrepreneurs and the chance to witness the zeal with which companies are built. She shares her views on policy regime changes from time to time through her blogs and articles.

Rashmi comes from a family that has been in the defence forces for 2 generations where she grew up in air force bases across the country. She loves reading, travelling, trekking in the Sahyadris, candle making, playing the guitar and trying to keep up with her two curious boys who are always looking for answers.

 

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