Smt. Nirmala Sitharaman, Finance Minister of India, presented the 1st Union Budget of 3rd decade of 21st century. The budget aimed at energizing the Indian economy through a combination of short term, medium term and long term measures.
It has been structured on the theme of “Ease of Living” and is centered around three main ideas:
- Economic Development
- Aspirational India
- A Caring Society.
- 0.1 1. There is now a new simplified tax regime for individual taxpayers:
- 0.2 2. Dividend Distribution Tax (DDT) to be abolished.
- 0.3 3. Life Insurance Corporation (LIC) to go Public
- 0.4 4. Disinvestment Target
- 0.5 5. Tax Benefit for Sovereign Wealth Funds
- 0.6 6. Additional Allocation to the Healthcare Sector
- 0.7 7. Education Sector gets a Major Boost
- 0.8 8. Deposit Insurance raised to Rs. 5 Lakhs
- 0.9 9. The Government has estimated the Nominal GDP Growth to be at 10%
- 0.10 10. Debt Exchange-Traded Fund (ETF) Announced
- 1 How have the Markets reacted?
1. There is now a new simplified tax regime for individual taxpayers:
Income (In Rs.)
|Up to 5,00,000||
5,00,000 – 7,50,000
|7,50,000 – 10,00,000||
|10,00,000 – 12,50,000||
|12,50,000 – 15,00,000||
An important point to note is that under the New Income Tax Scheme, one will have to forego exemptions and reliefs. The new scheme is also optional and one can choose to remain under the old income tax scheme.
2. Dividend Distribution Tax (DDT) to be abolished.
Dividend Distribution Tax (DDT) is to be removed and companies will no longer be required to pay DDT. Instead, the dividend will be taxed at the hands of the recipient at the applicable slab rate.
3. Life Insurance Corporation (LIC) to go Public
The Finance Minister has proposed to sell a part of its holdings in Life Insurance Corporation (LIC) by way of an Initial Public Offering (IPO).
4. Disinvestment Target
The Government has set a Disinvestment Target of Rs. 2.1 Lakh Crore for the Financial Year 2020-21 compared to Rs. 1.05 Lakh Crore which was the target for the Financial Year 2019-20. The Government is also going to sell its stake in IDBI Bank to private investors.
5. Tax Benefit for Sovereign Wealth Funds
The Finance Minister proposes a 100 percent tax concession to sovereign wealth funds on investment in infra projects.
Here are the Top Mutual Funds in Infrastructure Sector
- L&T Infrastructure Fund – Direct Plan
- Franklin Build India – Direct Plan
- DSP India TIGER Fund – Direct Plan
6. Additional Allocation to the Healthcare Sector
The Union Budget provided an additional allocation of Rs. 69,000 crore in the health care sector. The Finance Minister said that they had a holistic vision of health care. There are currently 20,000 empaneled hospitals under Ayushman Bharat and more need to be added in Tier 2 and Tier 3 cities to benefit the poor.
Here are the Top Mutual Funds in Pharma and Healthcare Sector
- Nippon India Pharma Fund – Direct Plan
- ICICI Prudential Pharma Healthcare And Diagnostics (P.H.D) Fund – Direct Plan
- SBI Healthcare Opportunities Fund – Direct Plan
7. Education Sector gets a Major Boost
The center has announced that they will be implementing a new education policy for which Sitharaman has allocated Rs. 99,300 crore for the education sector and Rs. 3,000 crore for skill development in the next financial year.
8. Deposit Insurance raised to Rs. 5 Lakhs
The Finance Minister has said that a robust mechanism has been put in place to monitor the health of all scheduled banks ensuring that all depositor’s money is safe. Deposit Insurance & Credit Guarantee Corp (DICGC) has been permitted to increase the deposit insurance from Rs. 1 Lakh to Rs. 5 Lakh, raised five times.
9. The Government has estimated the Nominal GDP Growth to be at 10%
FM Sitharaman said that the nominal GDP growth rate for the Financial Year 2020-21 is estimated to be at 10%. FM also said that the fiscal deficit for Financial Year 2020-21 is at 3.8% of GDP compared to the earlier target of 3.3%.
10. Debt Exchange-Traded Fund (ETF) Announced
A New Debt Exchange-Traded Fund (ETF) comprising government securities was proposed in Budget 2020.
How have the Markets reacted?
The Budget proposals announced by the Finance Minister Nirmala Sitharaman failed to uplift investor sentiment. The S&P BSE Sensex and NSE Nifty 50 fell -2.43% and -2.51% respectively.
The reaction of the market to the budget has always been largely negative. In 2009, after the budget was announced by then Finance Minister Pranab Mukherjee, the Sensex fell 5.83%. In fact, since 2009, we have seen a positive reaction only 4 times in 2010 (+1.08%), 2011 (+0.69%), 2017 (+1.76%) and 2019 (+0.59%).
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