Union Budget FY20

Cocktail of Gandhi, Marx and Adam Smith

Ambitious, low on specifics
- Vijay Kumar Gaba

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This presentation does not contain any investment advice or equity research.
Please refer the important disclaimer given at the end of this presentation.
 Key message
Many transformation ideas presented in budget
– mostly statement of intent, no specific programs, allocation or timelines indicated
An audacious attempt to find a balance between Gandhi (socialism), Marx (rich pay for
poor) and Adam Smith (laissez-faire).
- all previous such attempts have failed miserably.
Promise of policy predictability, continuity and certainty broken with impunity
- Negative for business confidence
Overall rating - 6/10,
- for tight fiscal walk and new ideas.

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 Big Idea
• Mega Manufacturing Park
• Study in India
• National grids for highways, power, gas and water
• Development/Deepening of market for corporate bonds and CDS
• PPP in building Railways infrastructure and delivery of passenger freight services
• Promotion of organized rental housing
• Self reliance in aviation with domestic aircraft leasing and MRO infrastructure
• Use of big data for improving compliance (pre filled It returns etc.)
• Incentives for Electric Vehicles
• Divestment of land holdings of CPSEs
• Creation of payment platform for MSMEs

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 Key announcement for capital markets

1. To "consider" raising minimum public shareholding of listed companies to 35%.

2. To rationalize and streamline the existing KYC norms for FPIs to make it investor friendly.
3. Proposal to set up a "Social Stock Exchange" for social enterprises and voluntary organizations.
4. Interoperability of NSDL/CSDL with RBI depository to facilitate retail participation in GSec.
5. Consultation for further opening of FDI in aviation, media and insurance sector.
6. 100% FDI to be permitted for insurance intermediaries.
7. Proposal to ease local sourcing norms for FDI in Single Brand Retail sector.
8. FPI limits in companies enhanced to sector limits with option to companies to set a lower limit.
9. Proposal to merge NRI-Portfolio Investment Scheme Route with the FPI Route .
10. Rs700bn additional capital for PSU Banks.
11. HFCs to be regulated by RBI henceforth.
12. ETFs to be considered at par with ELSS.
13. Disinvestment target raised to Rs1.05trn.
14. Taxation of buy back of shares by listed firms to be at par with unlisted firms and dividend.
15. Hike in custom duties for ACs, tiles, PVC etc to protect and encourage local producers
16. Proposal to provide one time six months' partial credit guarantee to PSBs for first loss of up to
10% in case of high-rated pooled assets of financially sound NBFCs.

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 Key tax proposals
Personal income tax
1. Surcharge on personal income tax hiked -
(i) In cases where taxable income is more than Rs2cr 25% from 15% earlier; and
(ii) In cases where taxable income is more than Rs5cr to 37% from 15% earlier.
2. Filing IT return made mandatory in following cases:
(i) Deposit of cash in current account exceeds Rs1cr in a year; or
(ii) Foreign travel expense on himself or any other person exceeds Rs2lac in a year; or
(iii) Charges for electricity paid for himself or any other person exceed Rs1lac in a year; or
(iv) fulfils such other prescribed conditions, as may be prescribed.
3. Deduction of upto Rs1,50,000 on loan taken to purchase an Electric Vehicle (EV). Only one EV per
assessee eligible. Loan taken between 1-4-2019 to 31-3-2023 eligible.
4. Deduction of upto Rs1,50,000 in respect of loan taken in FY20 to buy an affordable house (stamp duty
value upto Rs45lacs) by a person who does not own any house previously.
Corporate tax
The rate of corporate tax for domestic companies whose the total turnover in FY18 was Rs450cr or less
(earlier Rs250cr or less), shall be 25%. A surcharge of 7% shall be applicable for these companies. No change
in rates for other companies. 5
 Key tax proposals
Miscellaneous
• As per new section 194M, from 1 September 2019, all individual and HUF shall deduct TDS @5% from payments made
to contractors (for personal or business purpose) if such payments exceed Rs50lakh in a year.
• Taxes on gifts to a resident outside India shall be payable in India for any gift made on or after 5 July 2019.
• To claim benefit of rollover of exemption from capital gains tax on investment in specified assets like house, bonds etc.,
filing IT return would be necessary from AY21.
• A person who has not been allotted PAN but possesses an Aadhar Number, can quote Aadhar number for specified
transactions. Such person will be allotted PAN in prescribed manner. A person having both PAN and Aadhar, can quote any
of the two numbers.
• TDS @2% applicable wef 1-9-19 if the cash withdrawal by any person from banks, including cooperative bank, exceed
Rs1cr in a year.
• From 1-11-19, any business whose annual turnover or gross receipts exceeds Rs50cr in a year, must allow payments
through electronics means, besides other modes of payments.
• Deposit taking and systemically important NBFCs allowed them recognize interest on bad debts on receipt basis.
• Section 194LC amended to exempt INR denominated bonds issued overseas from TDS requirement.
• Withdrawal of upto 60% of corpus from NPS account at the time of closer or opting out to be exempt from tax.
• Section 80CCD exemption limit for central government employees increased to 14% (10% earlier).
• Contribution to Tier II account of the pension scheme by central government employees included u/s 80C.
• CPSE ETF eligible for concessional rate of tax on STCG.
• TDS on taxable portion of life insurance payments now to be 5% of income instead of 1% of gross payments.
• From 1-9-19, STT on exercise of option to be calculated on difference between the strike price and settlement price.
• Import duty for precious metals increased to 12.5%. 6
• Rs 1 additional cess on petrol and diesel to fund EV initiatives.
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Tax collection trends

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Fiscal improvement paused

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Reliance on small savings increased to lessen market borrowing

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Trends in sectoral allocations

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Trends in funding of capital expenditure

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Important Disclaimer

It is important to note that Vijay Kumar Gaba does not offer any portfolio management , brokerage, money management,
equity research or investment advisory services of any kind. Please take advise of a qualified and registered investment
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