UNION BUDGET 2020-21: LITTLE ROOM TO SPEND, GOVT PLAYS SAFE ON FISCFacing one of the steepest slides in growth and just into the first year ofits second term, the NDA-2 government decided to play safe when it came toimparting a positive impulse to the economy. Union Budget 2020-21, presentedby Finance Minister Nirmala Sitharaman Saturday, kept a tight leash onexpenditure, tacitly admitting there was little headroom for higherspending.For 2020-21, it projected a nominal growth rate of 10 per cent, translatinginto a real growth of 5.5-6 per cent, given that average inflation for theyear may hover around 4-4.5 per cent.Despite a sharp cut in expenditure, necessitated more due to fallingreceipts, the Centre's fiscal deficit was 0.5 percentage points higher thanbudgeted for 2019-20 at 3.8 per cent of the GDP. For the next year too, theBudget has curtailed spending across sectors including the flagship schemes,hoping to rein in the deficit at 3.3 per cent of GDP. This, however,excludes a bevy of off-Budget borrowing items.Sitharaman's significant intervention related to 'optional' changes inpersonal income tax structure (more on it below).There have been significant changes w.r.t. taxation of NRIs. It could impactseafarers. (more on it below)Finance ministry officials said the restructuring of rates was the firstmove, and may over a period of time, replace the existing regime whereexemptions on housing loans, provident funds, life and health insurance,leave travel concessions, house rent allowance, and standard deduction areallowed.The Budget sent the Sensex dropping almost 2.5 per cent or 988 points, thebiggest fall ever on Budget day since Pranab Mukherjee presented the firstBudget of UPA-2 in July 2009.While low growth estimates for 2020-21 forced the Finance Minister's handsin rasing tax receipts, she turned to disinvestments, including a publiclisting of state-owned insurance behemoth LIC. LIC alone is estimated torake in Rs 90,000 crore in the total disinvestment receipts of Rs 2,10,000crore, the highest-ever target set in any Budget. Raising such huge sumsfrom the market carries a substantial execution risk. The chequered historyin achieving stake sale targets is a further dampener for the markets.Similarly, Sitharaman has estimated a one-time windfall from telecom sector,and hoped to realise Rs 1,33,027 crore next year, a 126 per cent increasefrom 2019-20.Her estimates on tax receipts for the next year also raise questions even ifthey were way off the mark in 2019-20. The estimates for corporate taxcollection growth at 11.5 per cent look ambitious, more so when it haddipped by 8 per cent in 2019-20. Corporate tax accounts for roughly 18 percent of all receipts.In line with protectionist tendencies across major world economies andgiving in to domestic industry demands, Sitharaman raised import duty onmore than 20 products ranging from toys, footwear, furniture, solar panelsto electrical appliances. The highest increase in duty is on walnuts (30 percent to 100 per cent), surprising given that the government is setting thestage for a trade deal with the United States.Some measures that Sitharaman announced to attract equity flows include taxexemptions on foreign sovereign wealth fund investments in infrastructure, ahike in FPI limits for corporate bonds to 15 per cent of outstanding (from 9per cent) and the opening of certain specified categories of governmentsecurities to non-resident investors.The budget has proposed to hike the bank deposit insurance in scheduledcommercial banks to Rs 5 lakh per depositor from the current Rs 1 lakh.BIG TAX IMPACT FOR SEAFARERS, CLARIFICATIONS AWAITEDUnion Budget 2020 drew sharp reactions after two significant changes in theIncome Tax Act affecting NRIs were proposed yesterday. (This is how best wehave understood it. We'll keep you posted as any clarifications areavailable. - News Access India)One - Earlier, an Indian needed to stay at least 182 days abroad to becategorised as an NRI which has now been increased to 240 days. This clauseis not applicable to seafearers - they will remain non-resident on theirstay of 182 days out of India.Two - In another significant change, an NRI who is a citizen of India anddoes not pay tax anywhere (would include most Indian seafarers) will now betaxed in India.The second clause could be a killer. This clause could mean that mostseafarers could end up paying Income Tax on their global income, at ratessame as those for resident Indians.It is expected that Seafarers unions will take up the issue with the govtand clarifications on this count are awaited.One can however be resident not ordinary if one has been non resident for atleast 7 out of 10 prior years. If a person is resident not ordinary thenhis foreign source income does not get taxed in India.By way of an explanation, tax officials say that we are just following whatis currently being discussed in G20 and OECD as to how to stop non taxationof income anywhere. US has already done it. We are now doing it. Othercountries are likely to follow.Revenue Secretary Ajay Bhushan Pandey said while addressing a pressconference that some people stay in different countries for a certain numberof days but are not residents of any one of those. "So if any Indian citizenis not a resident of any country in the world, he will be deemed to be aresident of India and his worldwide income will be taxed," said Pandey.This particular provision would impact those Indian citizens living intax-free countries like the UAE, Saudi Arabia, and many other Middle-Eastcountries. This is a big jolt for many Indian citizens living on thesejurisdictions.CHANGES IN PERSONAL INCOME TAXMoving to reform personal income tax, the government Saturday announced anew tax regime for individuals, offering lower tax rates to taxpayerswilling to forego all deductions and exemptions including those currentlyavailable on EPF contribution, PPF, LIC investments, tuition fee payment,principal and interest outgo on home loans, standard deduction of Rs 50,000and medical insurance premium among others.This scheme will co-exist with the existing tax structure and will beoptional. While the existing tax system has four tax slabs, the new one hasseven tax slabs and offers lower tax rates.In an interview to CNBC-TV18 news channel, Sitharaman said eventually, ifnot today, she would want to see the government removing all exemptions.Saying she has taken the first step towards complete removal of exemptionsand deductions, she indicated that the existing tax plan will go, indicatinga timeline of five years.Once an individual opts for the new tax plan, there's no returning to theexisting plan that offers deductions and exemptions. For now, it has beenleft to individuals to decide whether they want to opt for the existingsystem of tax calculation or go for the new one. Rough calculations showthat Salaried taxpayers, and those with substantial home loan repayments,would be better off sticking to the existing tax slabs.While the Finance Minister said there would be a revenue loss of Rs 40,000crore if all taxpayers shifted to the new regime, the Budget has estimatedpersonal income tax collections to grow 14 per cent.Exiting Tax Slabs:Upto Rs. 2.5 Lakhs - Nil Tax2.5 lakhs to 5 lakhs - 5%5 lakhs to to 10 lakhs - 20%Above 10 lakhs - 30%New Tax Slabs:Upto Rs. 2.5 Lakhs - Nil Tax2.5 lakhs to 5 lakhs - 5%5 lakhs to 7.5 lakhs - 10%7.5 lakhs to 10 lakhs - 15%10 lakhs to 12.5 lakhs - 20%12.5 lakhs to 15 lakhs - 25%Above 15 lakhs - 30%WHAT YOU WILL LOSE IF YOU OPT FOR THE NEW LOWER INCOME TAX RATE REGIMEIndividuals opting to pay tax under the new lower personal income tax regimewill have to forgo almost all tax breaks they were claiming in the currenttax structure. The important tax breaks that will not be available under thenew regime include Section 80C (Investments in PF, NPS, Life insurancepremium), Section 80D (medical insurance premium), tax breaks on HRA and oninterest paid on housing loan. Tax breaks for the disabled and forcharitable donations also go.Standard deduction of Rs 50,000 currently available to salaried tax payerswill also be unavialble under the new regime.However, deduction under sub-section (2) of section 80CCD (employercontribution on account of employee in notified pension scheme-mostly NPS)and section 80JJAA (for new employment) can still be claimedOPPN SLAM THE BUDGETWhile PM Narendra Modi was joined by top BJP leaders in hailing the Budget,the Opposition slammed Finance Minister Nirmala Sitharaman's announcementsas "insipid and all talk".Unimpressed, Congress leader Rahul Gandhi said it offered no strategic ideaand left the issue of unemployment unaddressed. He was talking to the mediaoutside Parliament.At the Congress press conference, former Finance Minister PC Chidambaramsaid the government's claim of 6-6.5 per cent growth next year was"astonishing and irresponsible". Asked to rate the Budget on a 1-10 scale,he took a dig, saying "10 has got a 1 and 0, you can pick either. I am okaywith it."TMC chief Mamata Banerjee called the proposal to sell a part of governmentshare in LIC a plan to "ambush" the legacy of public institutions.CPI(M) gen secy Sitaram Yechury said the Budget had no plan to alleviate"people's miseries".PALESTINIANS HAVE CUT SECURITY TIES WITH U.S. AND ISRAEL: ABBASThe Palestinian Authority has cut all ties with the U.S. and Israel,including security relations after rejecting a West Asia peace planpresented this week by U.S. President Donald Trump, Palestinian PresidentMahmoud Abbas said on Saturday.At a meeting of Arab Foreign Ministers in Cairo, Mr. Abbas reiterated his"complete" rejection of Mr. Trump's peace plan, which calls for creating ademilitarised Palestinian state with borders drawn to meet Israeli securityneeds."We've informed the Israeli side... that there will be no relations at allwith them and the U.S. including security ties," Mr. Abbas told the one-dayextraordinary session to discuss Mr. Trump's plan.Mr. Abbas also said he had refused to discuss with Mr. Trump his plan byphone or to receive even a copy of it to study it.The Trump plan, unveiled on Tuesday, also calls for U.S. recognition ofIsraeli settlements on occupied West Bank land and of Jerusalem as Israel'sindivisible capital.Meanwhile, Israeli warplanes hit the Gaza Strip's Islamist rulers Hamas onSaturday after cross-border mortar fire by Palestinian militants, theIsraeli Army said.MAN FIRES TWO ROUNDS INTO AIR AT SHAHEEN BAGH, IN POLICE CUSTODYA man on Saturday fired two rounds in air in the Shaheen Bagh area in JamiaNagar, where an anti-CAA protest is on, following which he was taken intocustody by police, eyewitnesses said.No one was injured in the incident which occurred at around 5 pm. This isthe second time this week that an armed man has entered the site where theprotest against the CAA has been going on since over a month.According to eyewitnesses, the man, who identified himself as Kapil Gujjar,opened fire close to the police barricades, nearly 250 m behind the stage.He was overpowered by police personnel and taken into custody. "Only Hinduswill get to call the shots in our country and nobody else," the man shoutedwhile he was being taken into custody.LONGEST-EVER BUDGET SPEECHFinance Minister Nirmala Sitharaman on Saturday delivered the longest-everBudget speech for two hours and 40 minutes, breaking her own record of atwo-hour-17-minute speech in the last Budget."Everything that we do here, everything that we speak through the Budget andeverything that this government does, with the guidance and leadership ofthe Prime Minister, is for this 'pyara watan'," she said in her speech,which contained quotes from Sanskrit, Tamil and Kashmiri poems.Sitharaman had two pages of her speech left to be read when she appeareduneasy and was seen wiping her forehead.Soon, her ministerial colleague Harsimrat Kaur Badal rushed to her seat andoffered candies. TMC Member Kakoli Ghosh Dastidar, a doctor by profession,also rushed towards the front row. As a few more women members moved towardsSitharaman, Speaker Om Birla asked them to remain seated. Later, Sitharamanopted to discontinue the speech, asking the Speaker to consider theremaining part of her speech as read.MARKETS RECORDED SHARPEST BUDGET-DAY DIP IN 11 YEARSAs Union Finance Minister Nirmala Sitharaman unveiled Part B of her Budgetspeech where she announced the new taxation system for individuals, shiftingof dividend distribution tax from companies to individuals, and no relief onlong-term capital gains tax on equity investments, the benchmark Sensex atthe BSE fell sharply by 2.4 per cent - the biggest Budget day fall sincePranab Mukherjee's Budget in July 2009.The benchmark Sensex fell 1092 points intra-day and closed 988 points downat 39,735.53. The broader Nifty at the National Stock Exchange fell 2.5 percent to close at 11,661."Since the budget was being presented at a time when there was generalacknowledgement by the government that there has been a slowdown, there wasexpectation that they would come out with strong steps to revive growth.However, that is missing and hence the market has reacted negatively," saidCJ George, MD, Geojit Financial Services.He further said that the announcement on dividend distribution tax will leadto an overall reduction in dividend announcement by companies. "Privatesector companies in India are run by promoters and most of them getdividends that fall in the highest tax bracket. While tax outgo on dividendtill now was 10 per cent, it will now shoot to around 43 per cent and thiswill lead to a scenario where companies will not announce dividends," saidGeorge.Analysts say this might change the dividend culture of many companies,impacting the private sector investment which has been very sluggish for thelast few years.There are others who also feel that dividend distribution tax at the handsof individuals is a big negative. Nirmal Jain, Founder & chairman of IIF,said: "DDT has been abolished and, therefore, obviously foreign investorswill benefit but then it becomes fully taxable in the hands of shareholderswhich is not the right way of doing it because shareholders are also ownersand as owners of the company they pay tax on profits and it gets taxedagain."Another factor that has dented market sentiment is the government's move tooffer a new tax system where the deduction under Section 80C has beenwithdrawn. It's felt that domestic institutions will find it tough to poolinvestment by investors and this could dent inflow into the stock markets.Markets were eagerly hoping for a correction in the Long Term Capital GainsTax (LTCG) which the FM silently ignored. LTCG on returns in equity mutualfunds are treated as long term capital gains and taxed at 10 per cent ongains of over Rs 1 lakh in a financial year. Mutual funds were lobbying forthe removal of LTCG on equity, which was introduced by Arun Jaitley in 2016.The hike in deposit insurance cover also led to selling in bank stocks.EMPLOYER'S ANNUAL SHARE TO PF, NPS OVER RS 7.5 LAKH WILL BE TAXEDFrom the next financial year, high-income earners will have to pay incometax for their contribution to the provident fund, superannuation fund andNational Pension Scheme (NPS). The Union Budget for 2020-21 has proposed acombined cap of Rs 7.5 lakh for the employer's contribution to these threecategories of payouts, with the amount over and above this to be taxed inthe hands of the employees.The government in the Budget documents reasoned that those with highersalaries are able to design their salary package in a manner where a largepart of their salary is paid by the employer in these three funds, while anemployee with low salary income is not able to let the employer contribute alarge part of his salary to all these three funds.KUNAL KAMRA SENDS LEGAL NOTICE TO INDIGO, SEEKS RS 25 LAKH IN DAMAGESStand-up comedian Kunal Kamra, who was slapped with a six-month ban byIndiGo for heckling journalist Arnab Goswami on board its flight, has sent alegal notice to the airline, demanding revocation of the ban and acompensation of Rs 25 lakh.The notice sent by Kamra's counsel Prashant Sivarajan to the CEO ofInterglobe Aviation Limited calls for the revocation of the six-month flyingsuspension from immediate effect. It also seeks an apology from the airline."Pay compensation towards my client in sum of Rs 25,00,000/- on account ofthe mental pain and agony suffered by my client as well as losses incurredon account of cancellation of his scheduled shows and programmes in India aswell as abroad on account of adoption of a totally illegal, arbitrary andhigh-handed procedure which is against the extant DGCA CAR on the subjectmatter," the notice states.On Thursday, the pilot in charge of the IndiGo aircraft in which Kamra andGoswami were travelling wrote to the airline, objecting to the ban on Kamra.Questioning the process followed to ban the comedian from flying, thepilot-in-command conveyed to the airline that he was "disheartened to learnthat my airline has taken action in this case solely on the basis of socialmedia posts, with no consultation whatsoever with the Pilot-in-Command".In his e-mail, the pilot-in-command described the incident in detail andpointed out that while Kamra's behaviour was "unacceptable and verballyabusive", he complied with the crew's instructions and the offence "cannotbe classified" even in the Level 1 category.A STAR IS BORN: AMERICAN KENIN STUNS MUGURUZA TO CLAIM FIRST MAJOR TITLEAmerica's Sofia Kenin stunned two-time Major champion Garbine Muguruza towin the Australian Open yesterday, completing a surprise run where she hascome from nowhere to win her first Grand Slam title.Despite making her debut in a Major final Kenin, 21, showed all hertrademark aggression as she fought back from a set down to win 4-6 6-2 6-2in 2 hours, 3 minutes against the shell-shocked Spaniard.The 14th seed, who will now jump as high as seventh in the world and usurpSerena Williams as America's No. 1, was in tears at the end and headedstraight for her father Alexander. It was the final twist in a tournament ofupsets, after Williams went out in the third round and Kenin upsetAustralia's world No. 1 Ashleigh Barty in the semifinals.