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Union Budget of India (2019-20)

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Ms. Nirmala Sitharaman, Minister for Finance and Corporate Affairs, Government of India announced the Union Budget for 2019-20, in Parliament on July 05, 2019. The budget aimed at boosting infrastructure and foreign investment, the first since the Bharatiya Janata Party led by Prime Minister Narendra Modi returned for a second term in power. The main focus of this budget is reducing red tape, making best use of technology, building social infrastructure, digital India, pollution free India, make in India, job creation in Micro, Small and Medium Enterprises (MSMEs) and investing heavily in infrastructure making India, a US$ 3 trillion economy by the end of 2020.Total expenditure for 2019-20 is budgeted at INR 2,786,349 crore, an increase of 14.09 % from 2018-19 (budget estimates). Termed as Green budget by PM Modi, it will focus on water, water managements & lean rivers, Swachh Bharat Abhiyan and more emphasis on energy conservation and sustainable development. Below are some highlights of Union Budget 2019-20:

  1. Startups
    This budget does provide lot of heart for startups and the VC industry in general and a bunch of verticals in particular. A separate committee will be created to administer the issues that startups face due to angel tax. As a welcome step the matter will now will not be subject to subjective interpretation by an assessing officer. From now onwards, there won’t be any consequences of angel tax on registered startups. A proposal for greater FDI in insurance is definitely a shot in the arm for the insurance industry and startups operating in the vertical where there is very high investor interest. A budget will be proposed for capitalization of banks and performing NBFCs paving greater ability to get benefits by way of first loss guarantee from public sector banks. Apart from these benefits, there are steps like greater flexibility in set off and carrying forward of losses for startups, bringing larger number of corporates in the lower tax rate threshold, streamlining of labor laws to provide a more consistent set of definitions, and credit guarantee scheme for small businesses that will enable an opportunity to hasten business cycles.
  1. Corporate Tax proposal
    Individual taxpayers with annual income up to INR 5 lakh will get full tax rebate and hence will not be required to pay any tax. Limit for applicability of lower corporate tax rate of 25 per cent increased from INR 250 crore to INR 400 crore.
  1. Aadhaar and PAN interchangeability
    Aadhaar and PAN to be interchangeable and permit those who do not have PAN to file Income Tax returns by only citing their Aadhaar number. More than 120 crore Indians now have Aadhaar card, therefore for ease of tax payers I propose to make PAN card and Aadhar card interchangeable and allow those who don’t have PAN to file returns by simply quoting Aadhaar number and use it wherever they require to use PAN.
  1. Returns
    Taxpayers having annual turnover of less than INR 5 crore can now file quarterly returns.
  1. GST refund module
    Fully automated GST refund module shall be implemented.
  1. GST e-way bill
    An electronic invoice system is proposed that will eventually eliminate the need for a separate e-way bill
  1. Surcharge
    Surcharge increased on individuals having taxable income from INR 2 crore to INR 5 crore and INR 5 crore and above.
  1. Arrival of NRI’s passport
    Aadhaar cards to non-resident Indians holding Indian passport are required to wait for 180 days to get the Aadhaar card on their arrival in the country.
  1. Pension benefit
    Pension benefit is extended to around INR 3 crore for retail traders and shopkeepers with an annual turnover less than INR 1.5 crore under Pradhan Mantri Karam Yogi Man Dhan Scheme.
  1. Digitalized payments
    In order to discourage business payments in cash, there will be a TDS of 2% on cash withdrawals exceeding INR 1 core in a year from bank accounts further, businesses with annual turnover of over INR 50 crore will offer low-cost digital payments. No charges will be levied on customers and merchants as RBI will bear these expenses.
  1. Micro, Small and Medium Enterprises (MSMEs) and Traders
    Government has proposed granting of loans up to INR 1 crore for MSMEs within 59 minutes through a committed online portal. Under the Interest Subvention Scheme for MSMEs, INR 350 crore has been allocated for FY 2019-20 where the government will create a payment stage for MSMEs to enable filing of bills and payment thereof on the platform itself. The Government e-Marketplace (GeM) is being extended to all Central Public Sector Enterprises (CPSEs) providing more opportunities for MSMEs to sell their products.
  1. Foreign Direct Investment (FDI)
    FDI in sectors like aviation, media (animation, AVGC) and insurance sectors can be opened further after multi-stakeholder examination. Insurance Intermediaries will get 100% FDI.
    Also, local sourcing norms to be eased for FDI in single brand retail sector.
  1. Other announcements
    Apart from the above, below are some other announcements:
  • Government has proposed to permit investments made by Foreign Institutional Investor’s (FIIs) / Foreign Portfolio Investments (FPIs) in debt securities issued by Infrastructure Debt Fund.
  • Legacy Dispute Resolution Scheme for quick closure of pending litigations in Central Excise and Service tax from pre-GST regime.
  • To boost affordable housing, additional deduction up to INR5 lakh will be provided for interest paid on loans borrowed up to 31st March, 2020 for purchase of house valued up to INR 45 lakh

Being a 6th largest economy in the world and 3rd largest in Purchasing Power Parity (PPP) terms, the government has continuously shown that it doesn’t lack the intent. Things are moving and we are in a position to fulfill the commitments Indian fund managers have made to financial and strategic investors, overseas and in India. However, there is a slightly different track India must take for the next decade.

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