The Budget has so many decoys and trap doors that the consumption booster claim falls as flat as old beer
It is 2020 and disappointment aplenty as the Union Budget was presented yesterday. Some talking points are the zero tax resident angle and what I term as the Dubai collapse! India was taxing citizens of India only on the basis of residency by applying the test of number of days stayed outside India, but with the new budget proposals, any citizen of India living and working in any other zero tax country, say for example in the United Arab Emirates (UAE) and not liable to pay tax there, would be taxed in India like a resident. The honeymoon seems well and truly over.
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The removal of Dividend Distribution tax is a decoy as this is a mere perception of removal. Initially, it would evince applause, until tax payers realise that you now have to pay taxes on the dividends earned from companies and on mutual funds, too. There is more reason to read the fine print. I call it the tax audit trap, and it should get the rap. For small and medium businesses, the threshold of R1 crore which was the limit considered for applicability of tax audit has been revised to R5 crore. This though is only if such business has not incurred cash payments and expenses in excess of five percent of sales.
This is once again a 'feel good' provision but with a trap door! For doctors and other professionals, the threshold continues to be R50 lakh and has been maintained at the same level, which brings me to the question of whether doctors, lawyers and other professionals will need tax auditor CAs more than ever? Zero is no hero, because zero deduction may sound like very good news, yet, the salaried class with an income of upto R5 lakh can rest easy; but for anybody earning income above R5 lakh, one has to pay taxes as per the new reduced slab rates but without deductions and exemptions. For those earning income above R15 lakh, one has to pay taxes on the highest slab @30 per cent. However, individuals will also start paying taxes on dividend income which until now were not taxable, wholly in case of mutual funds and upto R10 lakh per annum, in case of companies. This is like wishing a grouchy person good morning and getting the retort: what is so good about it? Good news? What is so good about it?
There is a silver lining though, for youth earning income under R15 lakh per annum, for young persons starting entrepreneurship, for youth with sales less than R100 crore and registered as a start-up, there is a virtually created 'ease of doing business', funding incubation by way of a dedicated early-stage fund and a tax holiday for three years
out of seven years; this being the only silver lining on the horizon from an otherwise social budget which aims at no incentives for spending or creating employment.
I have to wonder whether there could not have been any other set of PSU disinvestments that have met targets that the Government of India needs to sell their stake in one of their most valuable companies i.e. LIC? Every disinvestment should be co-terminus with value creation. Unfortunately, no such provisions have been introduced.
The common man, with his 'old is gold' sentiment has received a setback with the removal of exemptions on Provident Fund. Indians have grown up investing in Provident Funds and superannuation funds. They received an exemption equivalent to the whole amount so contributed. Removal of this exemption means the classic investment of the common man has become redundant. I hesitate to end with a question rather than have answers for tax payers. Yet end I must with the question: Is the budget a consumption booster or consumption roaster?
Mitil Chokshi is a chartered accountant and senior partner, Chokshi and Chokshi, LLP Mumbai.
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