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Budget 2020: Tax Incentives To Individuals Could Help Boost Investment In A Slowing Economy

By Staff

The upcoming budget is of significance to the government as it is posed with a task of reviving the country's economy that is growing at the slowest pace in 11 years.

While individual taxpayers always look at the Union Budget presentation with hopes of favourable direct tax policies, the Finance Ministry has to strike a balance between revenue and exemptions to not breach the fiscal deficit target.

Tax Incentives To Individuals Could Help Boost Investment In A Slowing Economy

In recent months we have already seen how corporate tax rate cuts and rationalisation of the Goods and Services Tax (GST) was well received by the industry and foreign investors.

Experts suggest the similar tax favours to individual taxpayers could prove to be beneficial to the economy as well.

To start with, the government may benefit from providing tax benefits on investment-linked schemes. The exemption limit of Rs 1.5 lakh under section 80C has remained unchanged since 2014.

The Association of Mutual Funds of India (Amfi) suggested that if schemes like those that are debt-linked would be encouraged under the section, it would increase the participation of small investors in the debt market. Increased participation will lower costs, lower risk on investment and up the liquidity in secondary market.

Moreover, large borrowers, including the government, will be able to raise funds from the market towards various projects (like infrastructure development).

Further, tax on long-term capital gains (LTCG) from listed equities and equity-linked mutual funds, that were imposed in the Union Budget 2018 have had their negative implications. Apart from discouraging domestic investors to stay invested in stocks longer, the tax also makes large investments a tough sell to foreign investors as most developed nations that India competes with for capital do not impose it.

In fact, several FPIs (Foreign Portfolio Investors) have already reached out to the government seeking the removal of the tax.

Such tax-friendly changes in investment vehicles will encourage more capital flow into the economy.

As for more direct benefits, a rejig in tax slabs or introducing standard deduction in a progressive manner as per income levels, would allow more 'cash-in-hand' to the salaried class of taxpayers. Higher disposable income will encourage individuals to spend more, thus pushing consumption and demand of produce in the economy.

Read more about: budget 2020 income tax economy
Story first published: Friday, January 17, 2020, 15:30 [IST]
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