Govt unlikely to cut income tax rates in the General Budget 2020

The salaried class have little reasons to cheer. Finance Minister Nirmala Sitharaman is unlikely to announce any big tax breaks for the 5.5 crore people who pay income tax. Instead, in the upcoming Union Budget on 1st February the government is expected to bring in a big booster dose for the rural sector, including the farmers. “The focus will be on the rural sector….we have to see how we can increase rural consumer demand and ways by which people in the rural areas can increase their spending,” a person with knowledge on the upcoming General Budget said.

The Narendra Modi-led government is currently staring at an approximate Rs 2 lakh crore shortfall in direct and indirect taxes. In the last two decades, this will be the first time when the government will miss its direct tax collection target.

Besides, the over ambitious disinvestment exercise for the current fiscal year too has failed to take off.

In September, last year, the government slashed corporate tax rates from 30% to about 25% to boost the economy. However, despite this, consumer demand has remained weak. Economists and think tanks have been prescribing a cut in personal income tax rate to leave more money in the hands of people. “Slashing corporate tax rate has added to the woes..direct tax collection is set to fall short of target and the move did not even spur consumer demand..instead of reducing corporate tax the government should have cut personal income tax..however, now with such huge shortfall in tax collection, there is almost no room for further reduction in personal income tax,” the official said. 

The government had set the disinvestment target at Rs 1.05 lakh crore for the current financial year. However, the government is set to miss the target by about Rs 50,000 crore with failure to find takers for national carrier Air India, Bharat Petroleum Corporation (BPCL), and Container Corporation of India (CONCOR) by March end.

While growth rate for the second quarter of the current financial year slowed to 4.5%, the pace of job generation clocked a dismal 2.8% in 2018-19, according to Care Ratings. The International Monetary Fund has predicted a 4.8% growth rate for the full financial year.

Policy uncertainty has risen significantly with the recent unrest and protests against the government over the Citizenship Amendment Act (CAA) and the status in Jammu and Kashmir. The Narendra Modi government has to realise that it needs to offer political and social stability in order to boost investments.

The immediate focus of the government should be to boost economic growth of the country and revive Brand India for investors.

Mahua Venkatesh
Mahua Venkatesh
Mahua Venkatesh has over 20 years of experience as a business journalist. Over these years she has been writing on economy, business and finance. She has been in senior editorial roles at Hindustan Times, The Financial Express and ThePrint among several other leading media organisations of India.

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