By: Tavaga Research
Every institution on this planet uses a budget to estimate the revenue and expenditure for a specific period.
The central government is required by Article 112 of the Indian Constitution to deliver an annual financial statement to Parliament. It is a statement of the Government of India’s estimated receipts and expenditures for each financial year, which runs from April 1 to March 31.
The Union budget for 2021 focused on increased capital expenditure (CAPEX), disinvestments, and tax compliance ease following the Covid-19 pandemic-induced recession.
The Union Budget of 2022 will be critical in determining the Indian economy’s path ahead in the face of the ongoing third wave of the Covid contagion. According to some market observers, the government’s focus would be on economic resuscitation through increased spending, with need-based capital investment being the key imperative.
The finance ministry faces a difficult task in managing and delivering a pragmatic budget on February 1, 2022, given the government’s desire to become a $5 trillion economy by 2025 and at the same time keeping a check on rising fiscal deficit.
Finance Minister Nirmala Sitharaman begins her fourth Union Budget preparations at a time when the Indian economy is on the path to recovery: GDP expanded 8.4% in the second quarter of FY2022, after rising 20.1 percent in the first quarter. So, in the face of newer Covid variations, different institutions and individual bodies are throwing coins into the wishing well with the following wishes, expectations, and fears:
Expectations from Union Budget 2022
In the aftermath of the Covid Pandemic, the Union budget will play a pivotal role in putting India on the growth trajectory with aim of achieving a $5 Trillion Economy by 2025. Investments in infrastructures, railways, agriculture, and disinvestment programs are expected to be part of the Union Budget 2022 keeping a high fiscal expenditure.
Under the National Monetization Pipeline, the government may declare asset monetization of public sector companies (NMP). It can also use REITs for monetizing the real estate it owns.
The high food and fertilizer subsidy burden of FY21-22 will quite certainly be reduced in FY23, albeit it will still be twice as high as pre-Covid levels.
The budget may also focus on enhancing the Pharma and Healthcare Sectors, attention to social safety measures such as MGNREGA, and emphasis on capital expenditure.
The government’s ‘Atmanirbhar Bharat’ (Make in India) manufacturing push might be bolstered by the budget, which could increase subsidy disbursements.
In the textile sector, because the price of raw cotton has been steadily rising, the sector is urging the government to repeal the 5% import tariff and impose an export duty. Cotton prices in the domestic market will be stabilized as a result of this.
Increasing the Excise Tax, certain businesses in the tobacco and cigarette industries may suffer as a result of the increased duty on cigarettes and tobacco products.
Taxation
The forthcoming budget is expected to provide relief to both corporations and taxpayers in the form of direct and indirect tax refunds. There might also be a pleasant surprise in the shape of an easing of GST regulations and assistance for industries that have suffered relatively poorly as a result of the epidemic.
As per the data provided by the Income Tax Department, approximately 42,800 people have declared a taxable income of above Rs. 1 crore annually whereas only 8,600 individuals have revealed their annual income is above Rs. 5 crores. In an economy with a tax-paying base of around 1.5 crore people, 4 lakh people with income over Rs. 20 lakh, accounting for 1% of the tax base, account for 63 percent of the income taxes received from individuals. As a result, 99 percent of India’s tax-paying citizens are forced to fill out ITRs while paying a paltry tax on some rationale or another. People that pay up are generally from the salaried class because they can’t avoid paying taxes. After all, TDS is deducted.
Only 2,200 doctors, chartered accountants, attorneys, and other professionals have declared yearly earnings of moreover Rs 1 crore. Wealthy agriculturists don’t have to pay much in taxes. Political parties also make sure they don’t have to pay taxes. Only 1.46 crore people, or less than 1% of the population, are required to pay income tax, according to Prime Minister Narendra Modi during a summit in February 2020.
Individuals expect the Union Budget 2022 to be savings-centric, i.e. increasing exemption limits and deductions to inculcate more savings of post-tax disposable incomes which in turn will fuel investments. Individuals wish for reduced effective taxes for middle- and low-income households, either through lower rates or a higher standard deduction.
The implementation of the expenditure tax is envisaged. The expenditure tax is similar to the income tax, except that the tax base is one’s expenditure rather than one’s income. Rates of expenditure tax can be made highly progressive to substantially tax the wealthy. Because most of the spending by the rich is done with capital, which is often exempt from income tax, one would be better off. The move from an income-based to an expenditure-based income tax would not only alleviate the negative effects and injustices of a non-inclusive income tax, but it will also curb wasteful spending and stimulate savings to a far greater extent than the current system promises. Another substantial benefit will be the imposition of a portion of personal taxation on a family basis rather than putting large marginal costs on working spouses’ salaries.
The Union Budget 2022 is projected to provide tax relief to individual taxpayers, especially with major state elections round the corner. The majority of respondents in a recent KPMG pre-budget study stated they expected an increase in the basic income tax exemption ceiling of Rs 2.5 lakh.
The government has made several initiatives to strengthen the economy in the previous year, but there has been no clear focus on increasing spending, so the market will be looking for some substantial announcements for the salaried class. Individuals anticipate a rise in the standard deduction for salaried employees from Rs 50,000 to Rs 1,00,000. It is also expected, for salaried individuals, perquisites keeping in mind work from home arrangement, that tax-free allowances/ will be provided.
Because of the epidemic, health insurance and other insurance products have become increasingly crucial. The government may also consider giving additional tax incentives to encourage people to get appropriate health insurance. It is predicted that a separate bucket for life insurance investment for tax rebates under section 80C would be created. Tax-payers hope that the deduction limit of Rs 1.5 lakh in Section 80C of the Income Tax Act to be increased to Rs.2.50 lakh.
The government may broaden the scope of Section 80D of the Income Tax Act to allow people of all ages to deduct expenses for Covid-19 medical treatment for themselves or family members.
The taxpayers also fear that there might be a fee ranging from Rs. 500 to Rs. 1,000 for filing income tax returns.
The government should enhance the tax benefits for home loans, which have remained nearly unchanged for many years. There may be income tax deduction on housing loan interest to increase from Rs 2 Lc to Rs 3 Lc, as well as the extension of the Pradhan Mantri Awas Yojana’s Credit Linked Subsidy Scheme (CLSS) for middle-income groups. From the current limits of Rs 2 lakh and Rs 1.5 lakh, the tax benefit on home loans should be extended by Rs 50,000 for both interest and principal repayment respectively.
The markets expect reduction or eliminations in capital gains tax or securities transaction tax. There may be announcements to bring in uniformity in capital gains tax on gains from insurance company ULIPs and units of equity MF.
Individuals also hope that the forthcoming Budget emphasizes growth and encourages expenditure by eliminating the previously postponed GST on textiles and apparel. Consumers anticipate a drop in GST rates on consumer durables such as televisions and air conditioners from 28% to 18%.
The people wish for a well-calibrated decrease in income tax slabs since this will assist taxpayers in saving money, which may then be used to drive additional spending and economic development, aiding the overall recovery of the economy.
Banks, NBFCs and FinTechs
Industry groups have proposed creating a permanent refinancing window for NBFCs and classifying non-banking financial firms as a priority sector for banks to lend to.
The inclusion of Indian bonds in global bond indexes is expected to be clarified.
Due to project delays caused by the pandemic, for housing finance, the government may prolong the PMAY-CLSS program to meet the government’s aim of providing Housing for All by 2022.
The finance minister is anticipated to provide tax relief, streamline investment, and provide further incentives to MSMEs for the MSME sector.
The financial institutions expect government spending for infrastructure development and measures to increase ECLGS eligible industries.
To boost business grew exponentially, the government might implement fiscal policy initiatives to help MSMEs and firms create a robust digital infrastructure.
The public stands to benefit from start-ups and the FinTech business. Those that have grasped the accelerating requirements of both the unbanked and under-banked populations have the strongest prospects in the FinTech business. People should be able to rely on simple, safe, and one-stop-solution services as a result of FinTech businesses’ efforts. FinTech is a technology and innovation-driven sector. Tax breaks on IT infrastructure and labor are anticipated as a result of these large expenditures.
The government should concentrate on growing its digital footprint to facilitate access to financial services. It will assist if systemic financial institutions, such as FinTech NBFCs, can support small enterprises through lower-cost financing programs, the expansion of the Credit Guarantee Fund Trust for Micro and Small Enterprises’ coverage, and appealing priority sector lending standards. A dedicated Fintech Hub for the Fintech ecosystem should boost the sector’s visibility and growth. Accepting Niti Aayog’s recommendations for obtaining Digital Business Bank licenses would also be a game-changer. Allowing FinTechs to have seamless consumer compliance throughout lending would also improve the ecosystem’s sustainability.
Fintechs that specialize in microcredit and lending invest in technology and other tools to reach out to unbanked or under-banked people who aren’t served by traditional NBFCs and banks. They are striving toward the goal of financial inclusion. A framework for providing tax incentives and quick access to cash would be a positive move.
Because the supply of these input raw materials is relatively limited, the Indian Steel Association (ISA) wants the basic customs tax on coking coal, stainless steel scrap, and nickel cut to nil from the existing 1 percent + 1.5 percent agriculture cess.
While India is home to over 17% of the world’s population, 65 percent of whom are under the age of 35, the country’s financial literacy rate is only 24%. Personal finance should be taught in schools so that citizens may channel their savings into investments and build wealth for themselves and the economy. A policy directive in that direction in the future budget would be a positive move in the right direction.