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Bold initiatives, direct tax rationalisation needed for Union Budget 2020

With  the industry witnessing stagnant growth and given the global challenges, the Central government should undertake structural and fiscal reforms in the upcoming Union Budget to steer India towards a $5 trillion economy.

Taxpayers expect the government to announce bold policy initiatives and further rationalise the direct tax structure that will leave more money in consumers’ hands. Moreover, Indian companies are required to pay 21.17 per cent Dividend Distribution Tax (DDT) on declaration of payment of dividends under the current tax regime.

This is a dual tax collected from the firm over and above the corporate income tax of 25.17 per cent (including surcharge and cess). Together, it works out to 41 per cent in case a firm announces 100 per cent dividend payment ratio. Hence, DDT may be abolished or may be substituted by TDS at a lower rate.

Likewise, government may consider increasing the minimum holding period requirement for qualifying as a longterm capital asset from the current one year to three years to ensure that funds remain in the system for a relatively longer time. Currently, capital gains tax stands at 10 per cent on sale of long-term (held for more than one year) listed equity shares and equity-oriented mutual funds if the gains exceeded Rs 1 lakh.

Agriculture remains a significant contributor to GDP as well as a principal employment provider. So measures like inclusion of agri-warehousing under priority sector lending, subsidy schemes, availability of easy credit for farmers, and tax sops may be taken up.

Similarly, the SEZ benefit, which expires in March may be extended further to prop up Make in India initiative. Consumer appliances industry sought a waiver of import duty inputs used to make components locally and a stimulus package will be helpful.

Importantly, budget 2021 should provide incentives for manufactures to produce energy- efficient products such as refrigerators and air conditioners to increase adoption of sustainable appliances. As for housing, with the government’s goal for Housing for All by 2022, the affordable housing is expected to flourish next fiscal.

But, in line with market prices in metros, there’s a need for raising the limit of affordable housing to Rs 1 crore from the current Rs 45 lakh. Similar initiatives should also be taken in urban and semi urban areas to spur demand.

Meanwhile, of the total expenditure incurred by Centre, 85-90 per cent comprises revenue expenditure, and such high spending is often blamed for low income growth.

Hence, there’s a need for reasonable hike in the capital expenditure in the budget to boost growth. Lastly, Indian companies should be allowed to list overseas, which will provide additional funds for business expansion.