Budget 2020 Expectations: Govt Likely To Reduce Personal Income Tax Rates To Spur Economic Growth

Many groups have been urging the government to cut personal income tax rates to spur demand and lift economic growth, which sank to a six-year low of 4.5 per cent in the July-September quarter from 7 per cent a year ago.

The pre-Budget consultations, started earlier this week, will last till December 23. (File Photo/ AFP)

New Delhi: As the Modi government 2.0 is months away to present its Budget for 2020-21 fiscal likely on February 1, it is been expected that the Finance Ministry might trim personal income tax rates and reduce the tax levied on long term capital gains from equity investments in a bid to spur the economic growth. A report by news agency Reuters stated that government officials are also debating whether to offer more help to troubled financial services and whether to increase import duties boost private investments and domestic manufacturing. "We are discussing tinkering with ... income tax rates so that more money is put in the people's hands," a senior government official directly involved in budget discussions told Reuters. Even Finance Minister Nirmala Sitharaman, who will present her second Budget this time, has sought inputs from various stakeholders including industry bodies, farmer organisations as well economists for reviving consumption and boosting growth as the customary pre-Budget consultation exercise begins. The pre-Budget consultations, started earlier this week, will last till December 23.

Union Minister of Finance and Corporate Affairs Smt. @nsitharaman holds Pre-Budget consultation with Finance Ministers of States and UTs. For more details:https://t.co/h0RHYzLl5R pic.twitter.com/6xMAqHUIAb

— Ministry of Finance (@FinMinIndia) December 18, 2019

Industry experts and even sources in the Finance Ministry have said that the main focus of the Budget this time will be on boosting economic growth. Many groups have been urging the government to cut personal income tax rates to spur demand and lift economic growth, which sank to a six-year low of 4.5 per cent in the July-September quarter from 7 per cent a year ago. With the government already effecting significant cut in corporate taxes, expectations are high that it would announce some relief for the salaried class by making changes in the personal income tax structure. Industry bodies have demanded that income up to Rs 5 lakh should be exempt from tax for individual taxpayers from the current Rs 2.5 lakh to spur demand for goods and services. They are also demanding hiking the overall deduction limit to at least Rs 3 lakh (from the current Rs 1.5 lakh under Section 80C of the Income Tax Act) to boost investments and increase tax savings for individual taxpayers, news agency PTI reported.

Finance Minister Smt.@nsitharaman holds Pre-Budget Consultation with the Representatives of Agriculture & Agro Processing Sectors. For more details:https://t.co/v9N2RY7EBW pic.twitter.com/FXymoEhbrg

— Ministry of Finance (@FinMinIndia) December 17, 2019

Industry sources said the government has sought their views on matters like ease of doing business, regulatory environment impacting private investment, export competitiveness, role of state (delayed payments, contract enforcement), and revival of private investment and growth, among others. Earlier this year, FM Sitharaman-led Finance Minister had cut corporate tax rates to 15 per cent for new manufacturers and to 22 per cent for existing companies, from about 30 per cent. Sitharaman, during press conferences, had assured that the upcoming Budget will do more to boost growth. Another government official said a proposal to relax long-term capital gains on stock investments was under consideration, to attract investors, Reuters reported. "There are various suggestions, including completely removing it," the official said, adding the issue was discussed at the level of the Prime Minister's office. He said a final decision was still to be taken. It is also being said that the government might as well change import duties on select items to promote domestic manufacturing. The Budget 2020 will be keenly watched by market participants for numbers on key macroeconomic indicators like fiscal deficit. (With inputs from agencies)