All eyes on the second budget of Nirmala Sitharaman for tax relief

NEW DELHI: The common man has his eyes on the finance minister Nirmala Sitharaman The second budget next month for income tax relief, but an economic slowdown and a sharp reduction in corporate tax rates hint that it has very little flexibility to spread great generosity.

Facing criticism for not doing enough to revive a decelerating economy in its inaugural Budget presented on July 5, 2019, Sitharaman in September launched a surprise by reducing the taxes paid by companies on the profits they earn at their lowest level. This abolished the Center's tax kitten by as much as Rs 1.45 lakh crore.

In addition, the taxes on goods and services (GST) were reduced many times in 2019 in several items, including housing, electric vehicles, hotel accommodation, diamond work and outdoor catering.

The double impact of tax rate cuts and the slowdown of collections due to the reduction in consumption in a fallen economy can be reflected in objectives of unreached revenues.

Without realizing this, the common man hopes that the Modi-2.0 government will also give them some relief and that the key contained in the Sitharaman Budget for 2020-21 will be presented on February 1.

Four GST Council meetings headed by the finance minister were held in 2019, and the last one in December amid a deficit in revenue collection due to the economic slowdown.

The GDP growth rate reached a minimum of 6 years of 4.5 percent in the second quarter, forcing the government to take several measures to boost the economy.

Fighting a low economic growth of six years and a high unemployment rate of 45 years, the government reduced corporate tax rates by almost 10 percent to 25.17 percent to match them with Asian rivals such as China and South Korea .

Two and a half months after presenting its inaugural Budget, which was acclaimed as development-oriented and future-oriented, Sitharaman in September announced fiscal measures that will cost the government Rs 1.45 lakh crore in annual revenues and can potentially derail the deficit roadmap country prosecutor.

The government reduced the basic corporate tax rate for existing companies to 22 percent of the current 30 percent; and for new manufacturing companies, established after October 1, 2019 and beginning operations before March 31, 2023, at 15 percent from 25 percent.

Companies in China, South Korea and Indonesia pay 25 percent of taxes, while those in Malaysia pay 24 percent. Only Japan has a higher tax rate than India, with 30.6 percent. Hong Kong has the lowest corporate tax rate of 16.5 percent, while Singapore has a 17 percent rate and Thailand and Vietnam impose a 20 percent tax on businesses.

Giving in to the demands of foreign investors, Sitharaman reduced the improved surcharge on foreign portfolio investors raised in the Budget in July.

The surcharge on long and short term capital gains arising from the transfer of shares was withdrawn.

Following the increase in the budget surcharge, the effective income tax rate for people with a taxable income of Rs 2-5 rupees rose to 39 percent from 35.88 percent and for those above Rs 5 crore at 42.7 percent.

To mitigate the real difficulties of the new companies and their investors, it was decided to eliminate the so-called angel tax for entities registered in the Department of Industry Promotion and Internal Trade (DPIIT).

In response to the clarification call from Prime Minister Narendra Modi that wealth creators should not be observed with suspicion and that they should be respected, the tax department adopted a more friendly approach in their dealings with tax advisors.

In order to address complaints of harassment because of the issuance of notices, citations, orders, etc. by certain tax authorities, it was decided that all these orders will be issued through a centralized computer system and will contain a unique document identification generated by computer October 1 Number.

After the sharp cut in the corporate tax rate, there has been a cry for relief in personal income tax.

There is a general expectation that there could be some relief on this front during the Budget to boost consumption.

Although there was a relief given in the provisional Budget in February, it mainly benefited only those whose income was below Rs 5 lakh. It was announced that there will be no fiscal responsibility if the net taxable income does not exceed Rs 5 lakh.

Another relief for the salaried class was the increase in the standard deduction of Rs 10,000 to Rs 50,000 per year. The standard deduction of Rs 40,000 was introduced in the 2018 Budget in lieu of medical reimbursement and transportation allowance.

With regard to indirect tax, GST remains a concern for several reasons.

According to government data, the collection of the central GST did not reach the estimated budget of almost 40 percent during April-November 2019-20.

The actual collection of CGST during April-November was Rs 3.28.365 crore, while the estimated budget is Rs 5.26 billion rupees for these months.

In another first, the GST Council resorted to voting to decide whether a uniform tax should be applied to the lotteries or if a two-rate system should be followed.

The decisions at the 37 previous meetings of the GST Council, headed by the Minister of Finance of the Union and composed of representatives of all states and UT, were taken unanimously. These included the setting of tax rates on dozens of goods and services, but they had never voted to decide on the issue.

According to Archit Gupta, CEO of Clear Tax, the new GST filing system will become effective as of April 1, 2020. The GST Council may modify the law and regulations to accommodate the new declarations in RET-1 or RET-2 or RET-3 together with annexes in ANX-1 and ANX-2.

The unique invoice reference number assigned to each invoice will help track the goods labeled to that invoice document.

The GST Council along with GSTN should also look for ways to facilitate compliance with small technology-deprived taxpayers, making them self-sufficient, Gupta said.