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Union Budget 2022: Hits & Misses

by Tavaga Invest
Union Budget 2022

By: Tavaga Research


On February 1, 2022, Finance Minister Nirmala Sitharaman presented the Union Budget 2022-23 to Parliament.

The capital account expenditure is estimated to be Rs 7.5 lakh crore. The budget deficit target for the current fiscal year has been lowered to 6.9%. 51.5 percent of overall tax revenue would come from corporate and household income taxes.

Taxation Front

  • No change in personal income tax slabs. Status quo.
  • Surcharge on long-term capital gains for all assets will now be 15%. 
  • Virtual digital assets, that is, Cryptocurrencies and other digital assets to be taxed at 30%

Infrastructure

  • PM Gatishakti programme: Network of roads, railways, airports, ports, mass transport, waterways, logistics infrastructure to be expanded
  • National Highways network to be expanded by 25,000 km in FY23
  • Introduction of energy efficient trains
  • Manufacturing of high-efficiency module for polysilicon to boost solar capacity – Outlay of Rs. 19,500 crore

Education

  • One Class One TV Channel To counter the loss of learning due to the pandemic
  • Digital University to be launched
  • Agriculture University syllabus to be tweaked to include modern day organic farming

Clean Energy & Electric Vehicles

  • Battery swapping Policy & inter-operability policy
  • Higher spending on charging infrastructure
  • Clean public transport

Fintech and Blockchain Technology

  • RBI to indroduce India’s own Central Bank Digital Currency by integrating blockchain and other related technologies
  • Scheduled commercial banks will set up 75 digital banking units in 75 districts
  • 1.5 lakh post offices will be connected to core banking

Healthcare and other Welfare Schemes

  • National Tele Mental Health Programme will be launched for quality counselling
  • Har Ghar, Nal Se Jal: 3.8 crore households to be covered in 2022-23
  • PM Awas Yojana: 80 Lakh houses to be completed in 2022-23
  • Development of villages on the northern border

Hits and Misses

The Union budget played a critical part in getting India back on track during the Covid epidemic and looming recession, intending to create a $5 trillion economy by 2025. The Union Budget 2022 was projected to include infrastructure, railroads, agricultural, and disinvestment projects while maintaining high fiscal spending. However, the focus was solely on infrastructure, trains, and agriculture, with no mention of the disinvestment plan.

The budget placed a strong emphasis on improving the pharmaceutical and healthcare sectors, as well as capital spending, as projected. Capital spending would be increased to Rs 7.5 lakh crore. Capex spending would increase by 35% to 7.05 lakh crore in FY23. In 2022-23, the Central Government’s effective capital expenditure is expected to be 10.68 lakh crores or around 4.1 percent of GDP.

The government’s ‘Atmanirbhar Bharat’ (Make in India) manufacturing initiative has been reinforced by the budget, as expected.

Individuals expected the Union Budget 2022 to be centered on saves, with higher exemption limits and deductions to encourage increased post-tax disposable income savings, which would then boost investments. People wanted lower effective taxes for middle- and low-income families, either through lower rates or a bigger standard deduction. The budget, on the other hand, did not grant such requests and kept the income tax bracket rates the same. The application of the spending tax was discussed in the budget, but it was not included.

The government was anticipated to expand the scope of Section 80D of the Internal Revenue Code to allow persons of all ages to deduct costs for Covid-19 medical treatment for themselves or family members. Health insurance became increasingly important as a result of the Pandemic. Taxpayers believed that the Section 80C deduction limit of Rs 1.5 lakh would be enhanced to Rs 2.50 lakh, providing incentives for individuals to get fully insured. Such expectations were not met by the budget. 

The budget met the goal of providing a tax incentive for start-ups by extending by one year the existing tax benefits for startups that were awarded tax redemption for three years in a row.

Until Arun Jaitley reintroduced long-term capital gains tax on stocks in 2018, LTCG (on equity-oriented securities) and STT never coexisted. When the UPA administration was in power, former Finance Minister P Chidambaram abolished the LTCG and replaced it with the STT. In this case, the government is levying a higher STT while also requiring long-term investors to pay a tax on their gains.

Transportation, the digital economy, self-reliance, infrastructure, agriculture, telecom, start-ups, and urban and rural development were all highlighted in the budget. The tax breaks provided by the budget fell short of expectations. The Capex spend was increased by 35%, which was a significant development. The massive capital investment will also have a multiplier effect on the economy since it will produce not just assets but also large-scale job possibilities, as well as increased demand for manufactured goods by both large and small businesses. The decision to impose a 30% tax on earnings from digital asset transactions, such as cryptocurrencies and non-fungible tokens, may delay a blanket ban on such tokens for the time being, but it will make trading in them less profitable.

Ending Note

The government has chosen a cautious approach, refusing to pursue any specific populist policies/freebies and restraining any enthusiasm about revenue projections. Given the probable solid GDP bounce already underway, there are few concerns of fiscal slippage for next year.

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