BUSINESS
03/02/2020 3:45 PM IST

Nirmala Sitharaman's Clarifications Show Modi Govt Is Also Confused About Budget 2020

A day after announcing the budget, Sitharaman said in an interview that the proposed new tax regime "lacks clarity".

Mint via Getty Images
Union Finance Minister Nirmala Sitharaman addresses a press conference after presenting the Union Budget 2020-21.

If Budget 2020 left you confused about whether you’re better off or worse, take heart. You’re not alone. If the clarifications since Saturday are anything to go by, even the finance ministry seems to be scratching its head over several announcements made by Nirmala Sitharaman in India’s longest ever budget speech.

A day after the budget, Sitharaman said in an interview to Deccan Herald’s Annapurna Singh that her ministry will issue clarifications on the new personal tax regime. 

For most salaried employees, direct taxes are the most important part of the budget. Two of the biggest talking points of Sitharaman’s budget were a proposed new tax structure for income tax and the announcement that NRIs who don’t pay taxes in other countries would be taxed in India. 

Even as people remained confused by what the new tax regime means, Mint explained that most tax payers won’t benefit from shifting.The report said that calculation of tax payable under the new and old tax rates for two income levels — ₹10 lakh and ₹65 lakh — shows that people will pay more taxes under the new regime.

This, the report said, was because to avail the new tax rates, taxpayers will have to give up standard deductions such as the ₹1.5 lakh deduction under the Section 80C basket.

This confusion, Sitharaman said in the interview with Singh, may be because of the finance ministry. Deccan Herald quoted her as saying, “There is definitely a lack of clarity. That is why we have started issuing clarifications... The ministry is doing the calculations. Once the due explanations are offered, it will be for everyone to see that the new tax regime is better off because the tax cuts are deeper. And, also we have not taken away all exemptions. There are certain exemptions, which are allowed even in the new system.” 

She said the idea behind the new tax regime was to move to a system where rates are “significantly lower”, so that more people who complied with it. 

Taxing NRIs?

The clarifications were not just restricted to the new tax regime, they were also related to the announcement on taxing NRI income. After this created an uproar—Kerala CM Pinarayi Vijayan  wrote to PM Narendra Modi expressing concerns about this and another amendment related to the classification of NRIs—the finance ministry issued a clarification on Sunday that “those Indian citizens who are bonafide workers in other countries” will not be included in this tax net. 

Sitharaman also said in a post-budget interaction with the media that the government had no intention of taxing the global income of NRIs. 

“If you have a property here and you have a rent out of it, but because you are living there, you carry this rent into your income there and pay no tax there, pay no tax here ... since the property is in India, I have got a sovereign right to tax,” she said.

“I am not taxing what you’re earning in Dubai but that property which is giving you a rent here, you may be an NRI, you may be living there but that is revenue being generated here for you. So that’s the issue,” she added.

While many had assumed that NRIs working in countries without taxes such as UAE and Bahrain would have to pay taxes in India, a clarification was issued by Revenue Secretary Ajay Bhushan Pandey.

Pandey told The Print’s Remya Nair that the government would make changes in the law to clarify this. 

More pressers ahead?

After the first full-term budget after Modi came back to power in 2019, Sitharaman had to issue a clarification on the applicability of increased surcharge on foreign portfolio investors (FPIs). As economic data brought more and more bad news, she also took to holding a series of press conferences, usually on Friday evening, to roll back budget proposals and make new announcements. 

In one of these, last September, she announced a cut in corporate tax rates for domestic companies, a move praised by many business papers. At that time, Bloomberg columnist Andy Mukherjee had called it a “fiscal gamble”, and asked how this tax cut would be financed. 

To be sure, other finance ministers have also clarified some of their budget announcements after presenting their vision statement, including the Congress’s P. Chidambaram and BJP’s Piyush Goyal. But with the economy in such a dire state, analysts were expecting some indication that the government was aware of the problem and working on a solution. As Rohan Venkataramakrishnan wrote for Scroll.in, “if you were hoping to get an indication that the government will spend the year putting all its efforts into fixing the economy, you will walk away disappointed”.

Experts not impressed

This time around, most newspapers had muted reactions to the budget, in reaction to the hyperbole that usually describes the headlines on the day after the budget. 

Experts weren’t happy either. Yamini Aiyar, who heads the Centre for Policy Research, wrote in Hindustan Times that not only did the budget not have any bold ideas, it also made “baffling” choices. “The government has got both the diagnosis and the prescription of the current slowdown, completely wrong,” she wrote.

Andy Mukherjee wrote for Bloomberg that Modi’s budget did “precious little” for most Indians. 

“Yet the government’s bargain with its own 1.3 billion people is far from fair. Desperate job seekers, firms and farmers are all paying a price for the fiscal deficit, which is closer to 5% than the 3.8% New Delhi is acknowledging for this year and a far cry from the 3.5% projected for next. The fudge comes at a cost: With the government cornering household savings, the cost of capital can’t fall, even with the central bank furiously cutting its policy rate and buying longer-dated bonds.” 

As the economic slowdown continues, many are worried that this budget is not likely to fix it. Pratab Bhanu Mehta said in a piece in The Indian Expressthat the lack of boldness in the budget showed that the government has accepted defeat. 

“Given the dire straits we are in, an expansionary policy is attractive. But how do you do it in a context where the de facto fiscal policy, if you combine the deficits of the states, is already expansionary, as Subhash Garg and many others have pointed out? There is rightly a call to address the slump in rural demand? But how do you do that when you have spent half a decade trashing mechanisms like the MGNREGA and the administrative machinery associated with it?”