Union Budget 2020-2021

Union Budget


➢ The Union Budget is also known as the Annual Financial Statement. Article 112 of the Constitution
of India lays down that it is a statement of the estimated expenditure and receipts of the
Government for a particular year.
➢ The Budget keeps the account of the finances of the government for the fiscal year (from 1st April
to 31st March).
➢ The Budget is presented on 1st February (until 2016, it was presented on the last working day of
February) so that it can materialise before the commencement of the new financial year which
starts on 1st April.
➢ In 2017, a 92-year-old tradition was broken when the railway budget was merged with the Union
Budget and presented together.
➢ The Budget has to be passed by the Lok Sabha before it can come into effect.
➢ The Union Budget is divided into Revenue Budget and Capital Budget. For more on these terms,
check Union Budget – Important Economic Terms.
➢ In the Union Budget, the disbursements and receipts of the government comprise the various types
of government funds in India namely, the Consolidated Fund of India, the Contingency Fund and the
Public Account.
➢ The Economic Survey of India is released ahead of the presentation of the Budget. This document is
prepared under the guidance of the Chief Economic Advisor and is presented for discussion in both
Houses during the Budget session


Highlights of Budget 2020:


➢ Unprecedented milestones and achievements of Indian Economy
➢ India is now the fifth largest economy of the world.
➢ 4% average growth clocked during 2014-19 with inflation averaging around 4.5%.
➢ 271 million people raised out of poverty during 2006-16.
➢ India’s Foreign Direct Investment elevated to US$ 284 billion during 2014-19 from US$ 190 bn
during 2009-14.
➢ Central Government debt reduced to 48.7% of GDP (March 2019) from 52.2% (March 2014).
Two cross-cutting developments
➢ Proliferation of technologies (Analytics, Machine Learning, robotics, Bioinformatics and Artificial
Intelligence).
➢ Highest ever number of people in the productive age group (15-65 years) in India.
➢ GST removed many bottlenecks in the system.


Aim of the union budget:


➢ To achieve seamless delivery of services through Digital governance.
➢ To improve physical quality of life through National Infrastructure Pipeline.
➢ Risk mitigation through Disaster Resilience.
➢ Social security through Pension and Insurance penetration.
➢ Three prominent themes around which budget has been framed
➢ Aspirational India in which all sections of the society seek better standards of living, with access to
health, education and better jobs.


Three components:


1. Agriculture, Irrigation and Rural Development.
2. Wellness, Water and Sanitation.
3. Education and Skills.
➢ Economic development for all, indicated in the Prime Minister’s exhortation of “Sabka Saath, Sabka
Vikas, Sabka Vishwas”.
➢ Caring Society that is both humane and compassionate.
➢ These three themes are held together by corruption free policy driven good governance and; clean
and sound financial sector.


Agriculture, Irrigation and Rural Development:


➢ The govt has announced 16 point agenda
➢ Comprehensive measures for 100 water-stressed districts proposed


Blue Economy:


➢ Fisheries exports worth Rs. 1 lakh Cr by 2024-25.
➢ 200 lakh tonnes of fish production by 2022-23.
➢ 3477 Sagar Mithras and 500 Fish Farmer Producer Organisation.


Railways:


➢ Kisan Rail to be setup by Indian Railways through PPP.
➢ To build a seamless national cold supply chain for perishables (milk, meat, fish, etc).
➢ Express and Freight trains to have refrigerated coaches.


Civil aviation:


➢ Krishi Udaan to be launched by the Ministry of Civil Aviation.
➢ Both international and national routes to be covered.


One-Product One-District:


➢ Will help in better marketing and export in the Horticulture sector.
➢ Balanced use of all kinds of fertilizers – traditional organic and innovative fertilizers


Measures for organic, natural, and integrated farming:


➢ Organic products market to be strengthened through Jaivik Kheti Portal.
➢ Zero-Budget Natural Farming to be included.
➢ Integrated Farming Systems in rain-fed areas to be expanded.
➢ Multi-tier cropping, bee-keeping, solar pumps, solar energy production in non-cropping season to
be added.


Expansion of PM-KUSUM:


➢ 20 lakh farmers to be provided for setting up stand-alone solar pumps.
➢ Another 15 lakh farmers to be helped to solarise their grid-connected pump sets.
➢ Scheme to enable farmers to set up solar power generation capacity on their fallow/barren lands
and to sell it to the grid.


Village Storage Scheme:

➢ Will be run by the SHGs to provide farmers a good holding capacity and reduce their logistics cost.
➢ NABARD to map and geo-tag agri-warehouses, cold storages, reefer van facilities, etc.
➢ Viability Gap Funding for setting up such efficient warehouses at the block/taluk level.
➢ Food Corporation of India (FCI) and Central Warehousing Corporation (CWC) to undertake such
warehouse building.
➢ Financing on Negotiable Warehousing Receipts (e-NWR) to be integrated with e-NAM.
➢ State governments who undertake implementation of model laws (issued by the Central
government) to be encouraged.


1. Model Agricultural Land Leasing Act, 2016.
2. Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act,
2017.
3. Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and
Facilitation) Act, 2018.
➢ Livestock – Doubling of milk processing capacity to 108 MMT from 53.5 MMT by 2025.
Wellness, Water and Sanitation


PM Jan Arogya Yojana (PMJAY):


1. Viability Gap Funding window proposed for setting up hospitals in the PPP mode.
2. Aspirational Districts with no Ayushman empanelled hospitals to be covered in the first
phase.
3. TB Harega Desh Jeetega campaign launched to eliminate tuberculosis by 2025.
4. Under Jal Jeevan Mission Rs. 11,500 Cr allocated for the year 2020-21.
5. Under this augmenting local water sources, recharging existing sources and promoting water
harvesting and desalination will be undertaken.


Swachh Bharat Abhiyan:


1. Allocation of Rs. 12,300 Cr.
2. ODF-Plus in order to sustain ODF behavior.


Education and Skills:


1. New Education Policy will be announced soon.
2. National Police University and National Forensic Science University has been proposed for policing
science, forensic science and cyber-forensics.
3. Degree level full-fledged online education program would be provided by top 100 institutions in the
National Institutional Ranking Framework.
4. 1 – year internship to fresh engineers to be provided by Urban Local Bodies.
5. Medical college to be attached to an existing district hospital in PPP mode.
6. External Commercial Borrowings and FDI to be enabled in education sector.


Economic development:


Investment Clearance Cell has been proposed
1. To provide “end to end” facilitation and support.
2. To work through a portal.
3. Five new smart cities proposed to be developed
National Technical Textiles Mission
1. Implementation period from 2020-21 to 2023-24.
2. The aim is to position India as a global leader in Technical Textiles.


NIRVIK scheme:


1. The objective is to achieve higher export credit disbursement.
2. Turnover of Government e-Marketplace (GeM) proposed to be taken to Rs 3 lakh crore.
3. Scheme for Revision of duties and taxes on exported products to be launched.
Infrastructure
➢ Rs. 100 lakh Cr to be invested in the next five years.
➢ National Infrastructure Pipeline has been launched in December 2019. This had over 6500 projects
worth over Rs.102 lakh Cr.
➢ National Logistics Policy to be released soon. This will
1. Clarify roles of the Union Government, State Governments and key regulators.
2. A single window e-logistics market to be created.
➢ The focus will be on generation of employment, skills and making MSMEs competitive.
➢ Accelerated development of highways will be undertaken.


Railways:


➢ Large solar power capacity to be set up along the rail tracks, on land owned by railways.
➢ Four station redevelopment projects and operation of 150 passenger trains through PPP.
➢ More Tejas type trains to connect iconic tourist destinations.
➢ High speed train between Mumbai and Ahmedabad to be actively pursued.
➢ 148 km long Bengaluru Suburban transport project will be developed at a cost of Rs.18600 Cr.
➢ Centre to provide 20% of equity and facilitate external assistance up to 60% of the project cost.
Ports, waterways and airports
➢ One major port to be corporatized and it would be listed on the stock market.
➢ Economic activity along river banks will be energized based on the Arth Ganga concept of PM.
➢ 100 more airports to be developed by 2024 to support Udaan scheme.
➢ Smart metering will be undertaken and more reforms to be taken to address the distress in
discoms.


To take advantage of new technology:


➢ Policy to enable the private sector to build Data Centre parks throughout the country to be brought
out soon.
➢ Fiber to the Home (FTTH) connections through BharatNet to link 100000 gram panchayats this year.
➢ The govt has proposed Rs.8000 Cr over the next five years for National Mission on Quantum
Technologies and Applications.


To benefit startups:


➢ A digital platform will be promoted to facilitate seamless application and capture of IPRs.
➢ Facilities for designing, fabrication and validation of proof of concept and further scaling up
Technology Clusters, harbouring test beds and small scale manufacturing will be established.
➢ Mapping of India’s genetic landscape- Two new national level Science Schemes.
1. to be initiated to create a comprehensive database.
2. Early life funding proposed, including a seed fund to support ideation and
3. development of early stage Start-ups.


Caring for society:


➢ The govt has proposed to appoint a task force to study about the age of girls entering motherhood.
The task force top submit recommendations in six months.
➢ Allocation of Rs.28600 Cr proposed for women specific programs.
Environment and Climate change
➢ Has proposed to advise the utilities to close the old thermal power plants with carbon emissions
above the set norms.
➢ Would encourage the states which are formulating and implementing the plans for cleaner air in
cities.


Governance:


➢ Taxpayer charter to be incorporated into the statute. This is expected to bring in efficiency and
fairness in tax administration.
➢ Companies act to be amended to make convert certain offences from criminal to civil offences.
➢ A National Recruitment Agency (NRA) to be established. This is to conduct recruitment for non-
gazetted posts.


Financial Sector:


➢ So far, govt has announced merge of 10 PSBs into 4 and has infused a capital of Rs.350000 Cr.
➢ More governance reforms would be carried out to bring in transparency and greater professionalism.
➢ In order to raise capital, certain banks would be asked to go to the capital market.
➢ The DICGC (Deposit Insurance Credit Guarantee Corporation) has been asked to raise the deposit
insurance from the current level of Rs.1 lakh to Rs.5 lakh per depositor co-operative banks would be
strengthened by amending Banking Regulation Act by enabling oversight and governance powers
given to RBI, enabling access to capital etc.


➢ Pension Fund Regulatory Development Authority of India Act to be amended to
1. Strengthen regulating role of PFRDA
2. Facilitate separation of NPS trust for government employees from PFRDA
3. Enable establishment of a Pension Trust by the employees other than Government
4. Window for MSME’s debt restructuring by RBI to be extended by one year till March 31, 2021
5. New scheme to provide subordinate debt for entrepreneurs of MSMEs by the banks
6. Would be counted as quasi-equity
7. Would be fully guaranteed through the Credit Guarantee Trust for Medium and Small
Entrepreneurs (CGTMSE)
8. The corpus of the CGTMSE would accordingly be augmented by the government
9. Factor Regulation Act 2011 to be amended to enable NBFCs to extend invoice financing to
the MSMEs through TReDS


Export promotion of MSMEs:


➢ For selected sectors such as pharmaceuticals, auto components and others.
➢ Rs. 1000 crore scheme anchored by EXIM Bank together with SIDBI.
➢ Hand holding support for technology upgradations, R&D, business strategy etc.


Financial Market:


➢ To deepen the bond market
➢ Certain specified categories of Government securities would be opened fully for non -resident
investors.
➢ FPI limit in corporate bonds increased to 15% from 9% of its outstanding stock.
➢ Debt Based Exchange Traded Fund (ETF) expanded by a new Debt-ETF consisting primarily of
Government Securities, this would give attractive access to retail investors, pension funds and long-
term investors.
➢ Disinvestment – partial sale of govt holdings in LIC would be conducted by the govt by way of Initial
Public Offering.


Fiscal Management:


➢ Excess/Surplus collections in the GST compensation fund for FY17 and FY18 would be transferred
into the fund in two installments.
➢ The centrally sponsored schemes and Central sector schemes would be overhauled in order to meet
the emerging social and economic needs and to ensure that the scarce resources are utilized
optimally.


For the FY 2019-20:


➢ Revised Estimates of Expenditure: at Rs. 26.99 lakh crore.
➢ Revised Estimates of Receipts: estimated at Rs. 19.32 lakh crore.


For year 2020-21:


➢ Nominal growth of GDP estimated at 10%.
➢ Receipts: estimated at Rs.22.46 lakh cr.
➢ Expenditure: at Rs.30.42 lakh cr.
➢ Fiscal deficit of 3.8% estimated in RE 2019-20 and 3.5% for BE 2020-21.
➢ The govt has announced a deviation of 0.5%in the fiscal deficit, consistent with Section 4(3) of
FRBM Act, both for RE 2019-20 and BE 2020-21.
➢ Market borrowings: Net market borrowings: Rs.4.99 lakh crore for 2019-20 and Rs.5.36 lakh crore
for 2020-21.
➢ A good part of the borrowings for the financial year 2020-21 to go towards Capital expenditure that
has been scaled up by more than 21%.


Direct Tax:


➢ A new personal income tax regime has been proposed
➢ It is optional.
➢ About 70 of the existing exemptions and deductions to be removed.
➢ The new corporate tax rate of 15% to be extended to cover new electricity generation companies.
Dividend Distribution Tax removed.
Startups Would enjoy 100% tax deduction for a 3 year consecutive period (these must have a turnover of
up to ₹ 100 Cr).


The cooperatives:


➢ Would be taxed at the same rate as the corporate sector.
➢ Exempted from Alternate Minimum Tax (AMT) as the companies are exempted from Minimum
Alternate Tax (MAT).


Indirect taxes:


GST
➢ Cash reward system envisaged to incentivize customers to seek invoice.
➢ Simplified return with features like SMS based filing for nil return and improved input tax credit flow
to be implemented from 1st April, 2020 as a pilot run.
➢ Dynamic QR-code capturing GST parameters proposed for consumer invoices.
➢ Electronic invoice to capture critical information in a centralized system to be implemented in a
phased manner.
➢ Aadhaar based verification of taxpayers being introduced to weed out dummy or non-existent units.
➢ GST rate structure being deliberated to address inverted duty structure.
➢ 5% health cess to be imposed on imports of medical devices, except those exempt from BCD (Basic
Customs Duty).


Trade Policy Measures:


➢ Customs Act being amended to enable proper checks of imports under FTAs.
➢ Rules of Origin requirements to be reviewed for certain sensitive items.
➢ Provisions relating to safeguard duties to be strengthened to enable regulating such surge in
imports in a systematic way.
➢ Provisions for checking dumping of goods and imports of subsidized goods being strengthened.


Tax facilitation measures:


➢ Instant PAN to be allotted online through Aadhaar.
➢ ‘Vivad Se Vishwas’ scheme, with a deadline of 30th June, 2020, to reduce litigations in direct taxes.
➢ Waiver of interest and penalty – only disputed taxes to be paid for payments till 31st March, 2020.
➢ Additional amount to be paid if availed after 31st March, 2020.
➢ Benefits to taxpayers in whose cases appeals are pending at any level.
➢ Faceless appeals to be enabled by amending the Income Tax Act.


Taxation:


Opt-in Income tax scheme


➢ The budget proposes a new income tax structure for individuals willing to forego exemptions and
deductions. It would be an opt-in income tax scheme. There has been a restructuring of tax slabs,
with a personal income tax regime with reduced rates for those earning up to ₹15 lakh and income
up to ₹5 lakh remaining exempt from tax.
➢ This is aimed at spurring consumption demand and offering relief to taxpayers, especially those
from the middle class.
➢ Taxpayers can, however, opt for the new rates only if they give up almost all tax exemptions and
deductions they enjoy under the current regime. Most exemptions used by salaried employees on
account of leave travel allowance, house rent allowance, housing loan repayments, savings
instruments such as PPF and LIC, as well as the standard deduction will cease to be available.
➢ Those opting for the lower rates will retain tax benefits on payouts at the time of retirement such as
gratuity, employees’ PF and NPS accumulations, employers’ contributions to EPFO, the National
Pension System or superannuation payments (up to ₹7.5 lakh), and amounts received on VRS (up
to ₹5 lakh).
➢ The Finance Minister has claimed that the new opt-in tax schemes could result in savings of ₹78,000
for a person earning ₹15 lakh.
➢ Certain tax practitioners have noted that the new regime would only be attractive for non-salaried
taxpayers or those who don’t avail of any exemptions as of now.
➢ There are concerns that the removal of tax exemptions that spur financial savings could further
decrease the already falling savings rate.
Abolishing the Dividend Distribution Tax
➢ The budget announced the abolishing of the Dividend Distribution Tax payable by the companies.
This will avoid double taxation applicable to dividends.
➢ Currently, companies are required to pay a 15% tax plus applicable surcharge and cess on the
dividends. Further, investors who receive more than ₹10 lakh as a dividend in a financial year have
to pay a 10% tax on such income.
➢ Centre has removed 15% tax plus applicable surcharge and cess on dividends, currently paid by
companies. The dividend will now be taxed only in the hands of the investors.
➢ This would come as a relief for companies and capital market participants. This will help increase
the attractiveness of the Indian equity market.
➢ The removal of DDT would lead to an estimated annual revenue forgone of Rs.25,000 crore.
Taxpayer’s Charter
➢ The Finance Minister proposed a new ‘taxpayer’s charter’ aimed at boosting trust between citizens
and authorities, in order to improve the efficiency of tax administration.
➢ Taking a step in this direction, there is a proposal to amend the provisions of the Income Tax Act to
mandate the Central Board of Direct Taxes to adopt a Taxpayers’ Charter, wherein the taxpayer’s
rights are clearly laid out.
➢ This will help reassure taxpayers that the tax administration remains committed to taking measures
to ensure that citizens are free from harassment.
➢ The Budget also proposed several other steps to smoothen the administration of the IT regime,
including enhancing the use of technology.
➢ A provision for e-appeal has also been included as part of the drive to impart greater efficiency,
transparency, and accountability to the assessment process.


Tax relief:


➢ The Budget deferred tax payment on income earned from Employee Stock Option Plans
(ESOPs). This will allow the employees to own shares in the employer without having to worry about
organizing cash to pay taxes.
➢ Notably, the proposal applies only to start-ups set up post-April 2016.
➢ Considering the fact that ESOP is a significant component of compensation and during formative
years, start-ups take this route to attract and retain talent, the move will give a boost to the start-
up ecosystem in India.


Preventing Tax abuse:


➢ The Finance Bill also proposed major changes to prevent tax abuse by citizens who don’t pay taxes
anywhere in the world.
➢ There has been a reduction in the number of days that an Indian citizen can be granted non-
resident status for tax purposes from 182 to 120.
➢ Citizens who don’t pay taxes anywhere will be deemed to be a resident of India.
➢ The definition of ‘not ordinary resident’ has been tightened.
➢ The budget also proposes tax being imposed on Indian citizens abroad if they are not taxable in
their home country.
➢ There are some challenges in implementing the above changes. For example in the case of UAE,
where people are technically taxed but the tax rate is zero, it is still not clear if these Indian ex-pats
working in the UAE would be taxed.


Customs Duty:


➢ Customs duty on a range of articles like household goods, electrical appliances, auto parts,
footwear, furniture, and some mobile phone parts has been raised in the Union Budget.
➢ The move is aimed to keep uncontrolled dumping in check. This will help uphold the interests of the
MSME segment.


Tax on e-commerce transactions:


➢ The budget proposed a new tax levy on e-commerce transactions as part of measures to widen the
tax base.
➢ E-com platforms will have to deduct TDS on all payments or credits to e-commerce participants at
the rate of 1% in PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases.
➢ The scheme, however, provides an exemption to small businessmen, individuals and HUF who
receive less than ₹5 lakh and furnish PAN/Aadhaar.


Fiscal management:


➢ The slow growth rate in India poses challenges to fiscal consolidation.
➢ Given the government intends to provide stimulus to the slowing economy through tax cuts, it will
further affect fiscal deficit management.
➢ The central government has proposed, taking a 0.5% deviation from fiscal deficit targets under the
Fiscal Responsibility and Budget Management law to end 2019-20 with a 3.8% deficit. It has
proposed to attain a 3.5% deficit in the 2020-21 fiscal year.
➢ Section 4 (2) of the Fiscal Responsibility and Budget Management (FRBM) Act provides for a trigger
mechanism for a deviation from the estimated fiscal deficit on account of structural reforms in the
economy “with unanticipated fiscal implications”.
➢ The scope for an interest rate reduction is now ruled out with a higher fiscal deficit number.
➢ An increase in the fiscal deficit will put further pressure on inflation, which is on the rise. The scope
for interest rate reduction by the RBI will not have much scope.


Deposit Insurance scheme:


➢ The budget has proposed to increase the deposit insurance coverage for bank deposits to ₹5 lakh
from ₹1 lakh.
➢ This move will give a big comfort to depositors amid the ongoing crisis in the financial system of
India and specifically in the NBFCs.
➢ The Deposit Insurance and Credit Guarantee Corporation (DICGC) had proposed to increase the
deposit insurance limit to the ₹3-5 lakh range following the crisis at PMC Bank.
➢ The DICGC Act will have to be amended to increase the deposit cover.
➢ Notably, the increase in deposit cover will increase the cost for the banks.


Disinvestment:


➢ The budget proposes a massive target of ₹2.1 lakh crore for the financial year 2020-21, as
compared to a target of ₹1.5 lakh crore in the current financial year.
➢ The plan is to raise ₹90,000 crores by selling a stake in public sector banks and financial
institutions, and the remaining by selling a stake in central public sector enterprises.
➢ As part of the disinvestment process, the government is planning to sell a part of its stake in the
Life Insurance Corporation of India through an initial public offering.
➢ This would require the government to amend the LIC Act since the act states that the capital of the
LIC will be wholly subscribed by the Government of India.


Infrastructure:


₹1.7 lakh crore had been provided for transport infrastructure in 2020-21.
Digital connectivity
The budget has allocated ₹6,000 crores under the BharatNet program to enhance broadband connectivity
in rural areas. There is also the proposal for a new policy to allow private players to set up data parks in
the country.


Air transport:


100 more airports will be developed by 2025 to support the UDAN scheme, aimed at better regional
connectivity.


Roadways:


The Road Transport and Highways Ministry saw an increase of 10% in its budgetary allocation, but a large
chunk of it is through monetization of national highways by the NHAI.


Shipping:


➢ The government proposes to make seaports more efficient through the use of technology.
➢ The budget announces that at least one major port would be corporatized and then listed on the
stock exchanges. The allocation for the Ministry of Shipping has seen an increase of 18%.


Railways:


The budget emphasizes increasing private participation in Indian railways. As part of this, it proposes 150
trains under the public-private partnership (PPP) mode and the redevelopment of four stations with the
help of the private sector.


Power and Renewable energy:


➢ The Union Budget has allocated ₹22,000 crores to the power and renewable energy sector in 2020-
21, aiming to improve the financial health of power distribution firms.
➢ The proposals for prepaid smart metering and freedom to choose power suppliers will lay the
ground to bring competition in the sector and give consumers a choice. This will increase the
efficiency of the whole system.
➢ The Budget provisions have given impetus to clean energy and power.
➢ The budget proposes expansion of the national gas grid from the present 16,200 km to 27,000 km.
Reforms would be undertaken to facilitate transparent price discovery and ease of transaction for
natural gas.
➢ The proposal for the building of solar power capacity along railway tracks in railway-owned land and
support to farmers to set up solar power facilities connected to the grid will help boost solar power
production in India.
➢ The budget announces a concessional income tax rate of 15% for new power companies. This will
help new investments in renewable power.


Social Sector:


Healthcare:


➢ The government has announced an outlay of about ₹69,000 crores for the health sector in the
2020-2021 Budget with ₹6,400 crores earmarked for the Centre’s flagship health insurance scheme,
Prime Minister Jan Arogya Yojana (PMJAY).
➢ Centre will provide viability gap funding to set up hospitals in PPP mode under Ayushman Bharat.
➢ The budget also proposes the expansion of the Jan Aushadhi Kendra Scheme to all districts.
➢ The government has proposed setting up of medical colleges in existing district hospitals under the
Public-Private Partnership (PPP) model to address the shortage of qualified doctors.


Education:


The budget proposes enabling external commercial borrowings and FDI in higher education.

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