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Understand how Union Budget 2020 will impact you with in-depth analysis and insights from our tax and industry experts.

Union Budget 2020 - Insights by Gautam Mehra

The Union Budget 2020 tax proposals carry forward the theme of simplification, trust and economic development in focused areas. Watch our Tax and Regulatory Services Leader, Gautam Mehra share his views on the key takeaways from the Finance Minister, Nirmala Sitharaman's speech.

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Budget insights: Union Budget 2020

Highlights of Union Budget 2020 announcements in Agriculture

  • It is proposed to encourage the State Governments who undertake the implementation of the following model laws already issued by the Central Government:
    • Model Agricultural Land Leasing Act, 2016;
    • Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017; and
    • Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, 2018.
  • This is proposed to ease agricultural produce procurement across states and bring in efficiencies in agricultural supply chain, thereby realizing better prices for farmers and consumers.
  • It is proposed to implement a framework for development, management and conservation of marine fishery resources.
  • A Village Storage Scheme is proposed that will provide farmers a good holding capacity and reduce logistics cost.

Implications:

The systematic coverage of the agriculture sector in Union Budget 2020 through the 16-point agenda shared by the Finance Minister, reflects a definite intention to bring fundamental development in the Indian agriculture and allied sectors.

The intent to transform the agriculture sector is reflected in the increased allocation of 1.6 lakh crores towards agriculture. The ‘Blue Economy’ initiative is a good move towards organising the aqua/fisheries sector and creating capacities across the value chain. It is a step further from the last budget that created a fisheries development board to regulate the sector.

Highlights of Union Budget 2020 announcements in the Power Sector

  • Budget 2020 has proposed to set-up large solar power capacity alongside rail tracks on railway land.
  • It is proposed to allocate INR 220 billion for power and renewable energy sector and the Government has urged State Governments to implement smart meters.
  • It is proposed to operationalise a scheme to enable farmers to set-up solar power generation capacity on their fallow/ barren lands and to sell it to the grid.
  • It is proposed to close power plants that are old and exceeding carbon emission norms. The land could be used for alternative purposes.

Implications:

  • The time-bound proposal to shift to pre-paid smart meters in Union Budget 2020 can truly help utilities improve cash collection as well as help consumers get a competitive power supply. This is, eventually, a positive for generators too who currently suffer delays of 6-8 months and are sitting on surplus capacity that could be sold if they had access to consumers.
  • Sovereign wealth funds (SWFs) that already have a presence in India’s renewables, hydro, transmission and distribution sectors will see the 100% tax exemption on interest, dividend and capital gains as a huge positive. This, in addition to the corporate tax cut for power generators announced by the Finance Minister, should attract new investments, encourage early closure of inefficient plants and reduce marginal cost of generation.

Union Budget 2020 - Impact on M&A Tax

Touted as the toughest budget in a decade, the Government had its task cut for pleasing the taxpayer and investors with Union Budget 2020. While the direction is clear to – eliminate tax harassment and simplify taxes, whether it would provide the necessary impetus and optimism in the economy only time would tell. There have been significant changes proposed in the tax provisions which would have impact on the transactions/Mergers & Acquisitions (M&A) space:

  • Elimination of Dividend Distribution Tax (DDT) – DDT was as an additional cost for repatriation of dividends from Indian companies. Therefore, the acquisition of a holding company or investment in an Indian operating entity by foreign companies was expensive. Further, the foreign companies will now also be able to take credit of withholding taxes on dividend paid in India.
  • 15% concessional tax rate extended to Power sector – The reduction in taxes should act as a catalyst for investment in the Power Sector. This can provide much needed relief and the foreign investors may look at the sector from positive lens.
  • Time period to obtain approval for affordable housing project extended to March 2021. This may attract much-needed foreign investment in the sector.
  • Period for 5% withholding taxes extended for foreign currency borrowings

Implications:

The amendments/incentives may act as one of the key parameters during an M&A deal.

Union Budget 2020 - Impact on GST

Central GST collection target for this financial year (FY 19-20) has been revised downwards from INR 526,000 crores to INR 514,000 crores. The target for FY 20-21 has been pegged at INR 5,80,000 crores, a growth of about 13% from the revised collection target, which seems to be a positive step towards setting up more realistic targets.

On GST, directionally, thrust towards simplification and technology-led administration are expected to continue. The proposal of implementing a system of cash reward to incentivise customers seeking invoice should help create a more compliant GST ecosystem. Proposal to make fraudulent claim of input tax credit without any invoice or bill a cognizable and non-bailable offence is important and should help the Government enforce a check on tax evasion, though it needs to be ensured that the same is implemented well on the ground.

Changes incorporated in the Customs Act to provide for stringent checks on preferential duty claims on goods imported under a free trade agreement (FTA) based on rules of origin requirements would necessitate a complete review of current imports by the businesses.

Implications:

There has been a decision to review all Customs duty exemptions by September 2020, which is a directional shift to provide additional incentive to domestic manufacturing. However, it will have to be seen if increasing Customs duty alone would help the Government meet this objective.

Highlights of Union Budget 2020 announcements in Pharma & Life Sciences

  • Increased outlay for health and nutrition.
  • Increased outlay for Ayushman Bharat.
  • “TB Harega Desh Jeetega” campaign launched to end TB by 2025.
  • “Mission Indradhanush” has been expanded to cover 12 diseases, including five new vaccines.
  • Elimination of Foot and Mouth Disease and Brucellosis in cattle and PPR in sheep and goats by 2025.
  • Exemption from basic customs duty on Japanese Encephalitis vaccine imported by the Andhra Pradesh Government through UNICEF falling under Chapter 30 is removed; these goods will attract basic customs duty at 5%.
  • Expansion of Jan Aushadhi Kendra Scheme to all districts offering 2000 medicines and 300 surgical procedures by 2024.
  • Support of INR 10 billion for technology upgrades, R&D, business strategy, etc., for varied industries, including pharma.
  • Imports of medical devices falling under headings 9018 to 9022 will be imposed with 5% health cess, except those exempt from basic customs duty. Export promotion scrips shall not be used for payments of said cess.

Implications:

  • These initiatives will have a positive impact in improving the overall affordability and accessibility to health for all. It will generate more opportunities for pharma and medical devices companies to address the demand generated by health campaigns targeted for specific diseases and Ayushman Bharat.
  • Investment in technology upgrade for R&D will lead to better outcomes and cure.
  • Imposing health cess on the import of medical equipment will provide an impetus to the domestic medical devices industry and create Ayushman-empaneled hospital infrastructure in the aspirational districts.

Highlights of Union Budget 2020 announcements in Logistics

  • Union Budget 2020 has proposed to accelerate the development of highways, including the development of 2500 km access control highways, 9000 km of economic corridors, 2000 km of coastal and land port roads and 2000 km of strategic highways.
  • A National Logistics Policy will be released soon. Inter alia, it will clarify the roles of the Union Government, State Governments and key regulators. It will create a single window e-logistics market and focus on the generation of employment, skills and making MSMEs competitive.
  • The NSAD will give special impetus to infrastructure-focused skill development opportunities. Budget 2020 proposes to set up a project preparation facility for infrastructure projects.
  • To support the Udaan scheme, Union Budget 2020 has announced 100 more airports to be developed by 2024. It is expected that air fleet size shall increase from 600 to 1,200 during this period.
  • It is proposed to provide about INR 1700 billion for transport infrastructure in 2020-21.
  • Withholding tax rate of 5% extended in respect of money borrowed by an Indian company/ business trust in foreign currency under loan agreement, or issue of long-term bonds or rupee-denominated bonds prior to 1 July 2023 (earlier, 1 July 2020).
  • Interest payable in foreign currency to non-residents on long-term bonds or rupee-denominated bonds listed only on IFSC exchanges between 1 April 2020 and 30 June 2023 will enjoy a lower tax rate of 4%.

Implications:

  • The proposed Kisan Rail and Krishi Udaan are good initiatives to improve connectivity and accessibility to help bridge the gap between farms and the agri-produce markets. It would be important to concurrently address gaps in first and last-mile infrastructure and connectivity to ensure end-to-end supply chain.
  • Acknowledging the potential in the sector for employment, the Finance Minister has emphasised that the NSAD will give special impetus to infrastructure-focused skill development opportunities.
  • The proposed setting up of a project preparation facility for infrastructure projects will help address a critical capacity issue for infrastructure sector, as projects often fail to move from concept to implementation because of poor project preparation, resulting in failure to attract funding and project developers. However, these project preparation facilities will need to draw upon experienced manpower resources to help prepare projects, or it could result in sub-optimal realization of objectives.
  • The augmentation of airport capacity under the Udaan Scheme, through the proposed development of 100 new airports by 2024, is a big positive for the aviation sector.
  • The National Logistics Policy, which will be released soon, is expected to help create a single window e-logistics market that focuses on driving efficiencies and reducing the overall logistics cost. 

Highlights of Union Budget 2020 announcements in Healthcare

  • Healthcare budget allocation has been increased to INR 690bn from INR 626.59bn.
  • Government proposes VGF for setting up new hospitals in tier 2 and tier 3 cities under the PPP mode, focusing on underserved areas, and increasing the uptake of the Ayushman Bharat scheme.
  • The Government has launched the TB campaign, “TB Harega, Desh Jeetega”; reinforces TB free target by 2025.
  • It is proposed to set up medical colleges attached to district hospitals under PPP model with VGF funding from Central Government to overcome the shortage of qualified medical doctors.
  • National science schemes to set up genetic databases for use in medicine, agriculture, etc.
  • Digital connectivity will offer coverage to all anganwadis.
  • The Budget has allocated INR 30bn for skill development programmes for nurses, paramedical staff and caregivers going overseas, as a part of the overall skill development programme.

Implications:

  • These initiatives from the Government will have a positive impact on the sector and solve supply side constraints.
  • New hospitals in tier 2 and tier 3 cities will improve access to care.
  • New medical colleges will improve the supply of clinicians.
  • Skill development will provide employment opportunities both in India and overseas, as well as improve the overall service standards.
  • PPP mode will provide business opportunities to private players with the Government continuing to transition to being a payor from a provider of healthcare services.

Highlights of Union Budget 2020 announcements in E-commerce

  • The Government has proposed a seed fund to support early-stage start-ups and setting-up of an investment clearance cell that will provide entrepreneurs end-to-end facilitation and support at the Centre and State level.
  • Deferment of ESOP taxation and abolishment of DDT for corporates has been proposed in Union Budget 2020.
  • MSME compliance burden has been reduced by raising auditing threshold five times, from INR 10 million to INR 5 million for MSMEs who transact over 95% via digital payments.
  • INR INR 1700 billion has been allocated for transport infrastructure and setting up of a governance framework for ports. In addition, a National logistics policy has been proposed to create a single-window e-logistics market.
  • Government has proposed reduction of withholding tax on technical services to 2% from 10%, and introduction of 1% withholding tax on payments by eCommerce marketplace to seller for sale of good or services on its platform.

Implications:

  • The significant push from the Government towards building transport infrastructure will enable seamless flow of goods and ease challenges of eCommerce players related to last-mile delivery. This is a positive step towards reducing the logistics cost thereby improving global competitiveness of the industry.
  • Financial support and slew of measures introduced to ensure ease of doing business for the Indian start-up ecosystem will act as a major boost for the domestic eCommerce segment and MSMEs, leading to creation of more jobs.
  • Proposed withholding tax changes are expected to have positive as well as negative cash flow implications for eCommerce players. However, additional withholding tax obligation on eCommerce marketplace to lead to additional compliance burden.

Highlights of Union Budget 2020 announcements in Real Estate and Infrastructure

Infrastructure highlights – Budget 2020

  • Viability gap funding to be provided for setting up efficient warehouses and hospitals on PPP basis.
  • Government has proposed to develop five new smart cities on PPP basis.
  • “Kisan Rail” - a seamless national cold supply chain to be set up by Indian Railways on PPP basis.
  • Proposal to attach a medical college to an existing district hospital on PPP basis.
  • Farmers may be able to contribute to solar power generation by utilising barren lands.
  • Land alongside rail tracks to be utilised for solar power generation.
  • The Government will undertake development of 2500 km access control highways, 9000 km of economic corridors, 2000 km of coastal and land port roads and 2000 km of strategic highways.
  • At least 12 lots of highway bundles of over 6000 km to be monetised before 2024.
  • At least one major port to be corporatised and listed on stock exchanges.
  • Over 100 airports to be developed by 2024 to support Udaan scheme.
  • Proposal to expand the national gas grid from the present 16,200 km to 27,000 km.
  • Policy to enable private sector to build Data Centre parks to be rolled out soon.
  • Income from investments in equity and debt made by Sovereign Wealth Funds (fulfilling prescribed conditions) to be exempted from tax.

Real Estate highlights – Budget 2020

  • Dividends from SPVs exempt for REITs/ InvITs would now be subject to WHT at 10%.
  • Time limit for approval of affordable housing projects, eligible for tax holiday, extended to 31 March 2021.
  • Interest on loans (up to INR 0.15 million) for affordable houses sanctioned on or before 31 March 2021 eligible for deduction.
  • Current safe harbour of 5% has been enhanced to 10% in cases where the transaction value is less than the stamp duty value.
  • For determining cost of acquisition, FMV of land and building as on 1 April 2001 to be restricted to the stamp duty value as on 1 April 2001.

Implications:

  • Given the exemption extended to Sovereign Wealth Funds, their investment in infrastructure projects is likely to go northwards.
  • The additional tax on dividend in case of unitholders in REITs/ InvITs are likely to impact yields.
  • The threshold limit (of stamp duty) is likely to result in higher capital gains tax for assets held as on 1 April 2001.
  • Some of policy measure such as creation of new smart cities, study in India, development of data centres and modernisation of railway stations are likely to keep the sector upbeat over a medium to long term. The initiatives would also help in aligning India with the overall global market dynamics.

Personal Taxes

While there are no changes proposed in personal Income Tax rates and slabs, the Government has made certain key proposals to provide relief to small taxpayers, especially to middle class and salaried earners in the form of:

  • Rebate on tax for total income of up to INR 5,00,000 for individuals
  • Increase in standard deduction from INR 40,000 to INR 50,000 for salaried employees
  • Relief for owners of more than one house; second self-occupied house not to be subject to tax on deeming/notional basis; aggregate deduction of interest on home loan for self-occupied properties retained at INR 2,00,000
  • Prescribed monetary threshold for deduction of tax on interest from bank or Post Office deposits increased from INR 10,000 to INR 40,000
  • Proportionate exemption on long-term capital gains arising from proceeds of sale of residential house extended to purchase of two residential houses from one house, subject to:
    • Amount of capital gain not exceeding INR 2 crore [no monetary threshold continues for investment in one residential house]
    • One-time opportunity to claim such exemption

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Corporate Taxes

Domestic companies with a turnover not exceeding INR 250 crore during FY 2016-17 continue to enjoy a reduced tax rate of 25% (increased by applicable surcharge and cess). The base year for this reduced tax rate is proposed to be extended to domestic companies with turnover not exceeding INR 250 crore for FY 2017-18.

The provisions relating to TDS on rental payments provide for a monetary threshold of INR 1.8 lakh. This threshold has been enhanced to INR 2.4 lakh.

Certain key amendments have been proposed in the Interim Budget to provide relief and give an impetus to the Real Estate sector, including the affordable housing market:

  • The provisions were introduced vide Finance Act 2017 to tax notional income on rentals from property held as stock-in-trade for a period beyond one year from the end of the financial year in which the certificate of completion of property was obtained. This period of holding is proposed to be increased to two years.
  • Under the present provisions, deduction on profits is available to developers who are engaged in developing and building affordable housing projects. One of the conditions, i.e. the time taken to seek approval for a project from the competent authority, is proposed to be extended to 31 March 2020.
  • The Government envisages a push towards technology-intensive tax assessments and return processing within the next two years. This is directed towards eliminating personal interface and bringing transparency.

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Indirect Taxes

The Government has estimated the CGST collection for FY 2019-20 at INR 6.10 lakh crore. This assumes a growth of around 20% over the revised estimate FY 2018-19 at INR 5.04 lakh crore.

Given that overall growth in GST collection in the current year over last year is only 8% (INR 97,100 crore vs INR 89,700 crore on a month-on-month basis), it will be interesting to see how this ambitious target is achieved by the Government.

It will need substantial expansion in the tax base and stringent control over revenue leakages.

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Stamp Duty

The proposed amendments in stamp duty provisions are largely aimed at rationalising the various stamp duty provisions as well as streamlining the stamp duty collection mechanism. It is intended to designate stock exchanges and depositories to collect stamp duty on sale or transfer of securities. Such collection will be transferred to the respective state government within the prescribed time. The amendments also propose changes to the rates of duties. It also appears that exemption of stamp duty on transfer of dematerialised shares is proposed to be done away with.

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In summary

Global pessimism on growth which broadly aligned with Indian sentiments, an increased fiscal deficit on account lower GST collections and an unprecedented corporate tax rate cut, and the continuing credit issues was certainly not a comfortable backdrop for Union Budget 2020. The fiscal deficit was, expectedly, allowed to increase to 3.8%. While a perceived lack of fiscal stimulus probably saw the markets reacting the way they have done so far, there were a few interesting developments:

  • Privatisation: IDBI Bank, LIC and 6000 km of highways
  • Infra/RE: Data Center Parks, 100 more airports till 2024
  • Trust: Removing criminal provisions from the Companies Act with a promise to work on other laws

There are some positives from a tax perspective:

  • Inbound investment: Tax exemption for sovereign and similar funds who make investments with a 3 year lock-in, coupled with an extension of a liberal 5% tax regime on debt, should have a positive impact
  • Personal tax: These include a removal of the DDT regime and moving back to a shareholder based taxation system, delaying the point of tax for ESOPS, and an optional regime for a lower tax rate for individuals
  • Litigation: Announcement of an income tax dispute resolution scheme may not have as large an impact as in the case of a similar scheme launched for indirect tax a few months ago, since it appears to require a full tax payment as against a 60-70% payment under the indirect tax scheme.

Union Budget 2020 Analysis (PDFs)

Our in-depth analysis helps you understand how Union Budget 2020 proposals will impact you.

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Our experts share their insights on the Union Budget 2020 announcements for their respective sectors.

Shyamal Mukherjee

Shyamal Mukherjee

Chairman
PwC India

An important pivot for this Government has been to build trust in the market. Through this Budget, the Government continues to underline this aspect of building trust. Initiatives like the Tax Payer Charter, increasing the deposit insurance coverage, amendments to the Companies Act on clauses that lead to criminal liability, and strengthening of the Contracts Act bear testimony to this.
Gautam Mehra

Gautam Mehra

Partner and Leader
Tax and Regulatory Services

The Union Budget 2020 tax proposals carry forward the theme of simplification, trust and economic development in focussed areas. The lower and optional personal tax regime is aimed at simplification, while the proposals to de-criminalise civil offences, introduce a Taxpayers Charter, and the introduction of an Income Tax Dispute Resolution Scheme are aimed at building trust and reducing litigation.

The tax exemption to sovereign and other funds for long-term investment in infrastructure is a focussed and positive move, and the shift back to a shareholder model of taxing dividends should be beneficial to small shareholders.
Deepankar Sanwalka

Deepankar Sanwalka

Partner and Leader
Advisory

It is a very elaborate, growth-oriented budget, with the right measure of pragmatism and aspiration. A lot of thought has been put in to address some long-term concerns, especially around agriculture and skill development. Measures to boost consumer confidence is likely to add the much-needed impetus to the economy. The thrust on optimally harnessing science and technology is pathbreaking and I personally look forward to seeing how these measures shape up.
Sanjay Tolia

Sanjay Tolia

Markets Leader

The FM has paved the course for a vibrant India, riding high on inclusive growth and wealth creation. The focus on youth and technology on the one hand, and a governance structure underpinned by mutual trust and a recapitalised financial system on the other, will give a fillip not only to wealth creation but also to its distribution.
Sanjeev Krishan

Sanjeev Krishan

Partner & Leader
Deals

The tax exemptions to Sovereign Wealth Funds (SWFs) is a good step by the Government - most of the developed assets have seen investments by SWFs and this can only be aided by the tax break. It should also help complete infrastructure projects which have been stuck due to lack of funds, but actually have good economic potential, as these can then become targets for long term, patient SWF capital.

In the media

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Gautam Mehra 
Leader,
Tax and Regulatory Services, PwC India

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Frank Dsouza
Leader
Corporate and International Tax, PwC India

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Ranen Banerjee
Leader
Economic Advisory Services, PwC India 

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Gautam  Mehra

Gautam Mehra

Partner and Leader, Tax and Regulatory Services, PwC India

Tel: +91 22 6689 1155

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