On February 1, 2023, Finance Minister Nirmala Sitharaman presented the Union Budget 2023-24 to Parliament.
Last year was filled with unpredictable and tumultuous global events whose adverse effects percolated right down to the individual level. The Union Budget of 2023-24 was projected to include a relief for the middle and lower income class as well as push for infrastructure and job growth. The Budget has delivered on most of these expectations. The current government has done a splendid job of ticking all checkboxes by providing benefits to almost everyone be it the rural poor, youth, an average middle class man, senior citizens, corporates as well as startups.
Let us look at some of the hits and misses of this budget.
- Benefits for the common man: The most awaited part of the budget -Direct Taxes- did not disappoint. The middle class happily welcomed the proposal of hiking rebate under section 87A from Rs. 5 lakh to Rs. 7 lakh in the new tax regime. Under the new tax slabs, individuals enjoy the benefits of lower taxes. For example, an individual with an annual income of Rs. 9 lakh will have to pay only Rs. 45,000 as opposed to Rs. 60,000 currently. Even the ultra rich benefit from the proposal to reduce the highest surcharge rate from 37% to 25%.
- Saving schemes: Deposit limit for senior citizens’ savings scheme doubled from Rs. 15 lakh currently to Rs. 30 lakh. One type saving scheme for women introduced for deposit upto Rs.2 lakh at 7.5% interest rate.
- Huge infrastructure push: The expected capital expenditure will be Rs. 10 lakh crore, up 33% year over year. Effective government capital expenditures will total Rs. 13.7 lakh crore, or 4.5% of GDP, which is favorable for the capital goods and infrastructure sectors.
- Fiscal deficit target maintained: Government has maintained prudence and set the deficit target for the current fiscal year to be 5.9%, a reduction of 50 basis points from this year’s target of 6.4%.
- Focus on rural sector: There was a major focus on rural development in this budget as the Union Finance Minister announced that the agricultural credit target will be increased to Rs. 20 lakh crore with a focus on animal husbandry, dairy, and fisheries. Allocation for PM Awas Yojna increased by a whopping 66% to over ₹ 79,000 crore which will enable the required infrastructure push as well as job creation.
- MSME support: While it was expected that the credit guarantee schemes brought in during the pandemic will be phased out, a revamp of the schemes has been proposed in this budget. With an investment of Rs.9000 crore, a revised credit guarantee scheme for MSMEs would go into effect on April 1, 2023. This will allow for an additional Rs. 2 lakh crore in collateral-free credit guarantees, which will allow for a 1% reduction in the cost of borrowing. For MSMEs that are still recuperating from the effects of the epidemic, this is wonderful news.
- For enhancing ease of doing business, more than 39,000 compliances have been reduced, over 3,400 legal provisions decriminalized. Green Growth was one of the seven focus areas of the Budget. Rs. 35,000 crore capital investment was provided towards energy transition and net zero objective.
- No bad news is good news: No change in long term capital tax gain which was expected to increase.
- No change in deductions: A few expectations which were missed in the Budget were increase in Standard Deductions by salaried individuals and increase in deduction level under 80C. As the government is pushing to make the New Tax Regime as the default regime, the old tax regime did not see any significant upgrades.
- Big blow for insurance companies: This is a big negative for insurance companies as the incentive of getting deductions on insurance premiums will no longer look attractive. Insurance policies are often bought for tax planning which will reduce in future. Plus curbs on exemptions involving high-value insurance policies announced in this budget will also impact large ticket policy sales. The exemption benefit has been a major factor in the insurance industry’s growth in India. Huge chunks of policies are still sold during the tax planning season of January to March.
- Boost for PLI scheme missing: No new sectors were introduced as part of production linked incentives to boost manufacturing which was widely anticipated.
Let us now look into the details of announcements under broad categories.
Personal Income Tax
The New Tax Regime is now the default Tax Regime. However, citizens can continue to use the old one too.
The Proposed Slab is as below:
- Exemption Rebate increased to Rs. 7 lakh from Rs. 5 Lakh i.e. there is no tax on income up to Rs. 7 Lakh
- Individuals with income of Rs. 15.5 lakh and above are eligible for standard deduction of Rs. 52,500 in the new tax regime as opposed to Rs. 50,000 in the old regime.
- Currently, the highest rate is 42.74% income tax under the new regime. The Budget has proposed to reduce the highest surcharge from 37% to 25% in the new tax regime, thereby reducing the rate to maximum of 39%.
- Limit on tax exemption for leave encashment is increased from 3,00,000 to 25,00,000
Other major changes
- Basic customs duty rates to be reduced from 21% to 13%
- Taxes on cigarettes hiked by 16%
- Basic import duty on compounded rubber increased to 25% from 10%.
- Customs duty on kitchen electric chimney increased to 15% from 7.5%
- The Budget proposes to increase the limit for presumptive taxation for MSMEs and certain professionals to ₹ 3 crore and ₹ 75 lakh, respectively.
- New cooperatives that commence manufacturing activity till March 2024 to attract lower tax rate of 15%
- Senior Citizen Savings Scheme: Maximum investment limit increased from Rs. 15 lakh to Rs. 30 lakh.
- Mahila Samman Bachat Patra: One-time small savings scheme announced for women which accepts a maximum ₹2 lakh deposit for two-year period with fixed interest of 7.5%.
- The capital account expenditure is estimated to be Rs. 10 lakh crore forming 3.3% of GDP, an increase of 33% YoY
- The outlay for Pradhan Mantri Awas Yojana is being increased by 66% to over Rs. 79,000 crore.
- 50 additional airports, heliports, water aerodromes, and advanced landing zones are proposed to be revitalized.
- 100 critical transport infrastructure projects for steel, ports, fertilizer, coal, foodgrain sectors have been identified with an investment of Rs. 75,000 crore (Rs. 15,000 crore from private sources)
- Railway outlay budgeted at ₹2.40 Lakh Crore which is the highest ever. It is over 9x times that of FY14.
- Eklavaya Model Residential Schools: In the next three years, the Centre will recruit 38,800 teachers and support staff for 740 schools serving 3.5 lakh tribal students
- A National Digital Library for children and adolescents will be set up for facilitating the availability of quality books across geographies, languages, genres and levels and device-agnostic accessibility.
- 100 labs for developing apps using 5G services will be set up in Engineering institutions. Labs will cover, among other things, applications like Smart Classrooms, Precision Farming, Intelligent Transports Systems, and Healthcare in order to realize the new range of options, business models, and job potential.
- In top educational institutions, 3 centers of excellence for AI will be established with the objectives of “Making AI in India” and “Making AI Work For India.”
Clean Energy & Electric Vehicles
- This budget provides for Rs. 35,000 crore capital investment towards energy transition and net zero objective and energy security.
- Rs. 19,700 crore was allocated to the National Hydrogen Mission. The objective is to reach hydrogen production capacity of 5 metric million tonnes by 2030.
Healthcare and other Welfare Schemes
- From Jan. 1, 2023, PM Garib Kalyan Ann Yojana is being implemented to supply free food grain to all Antyodaya and priority households for one year.
- Health spending has been given an allocation of Rs. 88,956 crores, an increase of 2.7% or Rs. 2,350 crores from FY23’s allocation of Rs. 86,606 crores.
- The budget allocates Rs. 7,200 crores to the Ayushman Bharat– Pradhan Mantri Jan Arogya Yojna (PMJAY), an increase of Rs. 743 crores or 11.5% from FY23 when it received Rs. 6,457 crores.
- The Pradhan Mantri Poshan Shakti Nirman (PM POSHAN) has received Rs. 11,600 crores in funding, an increase of Rs. 1,366 crores or 13.4% from the Rs. 10,234 crores provided in FY23.
- Alongside the 157 medical colleges that have already been operating since 2014, 157 additional nursing colleges will open.
The current government has chosen an inclusive approach while presenting its last Union Budget before the general elections. The focus of the budget was on stabilizing macroeconomic factors and providing a strong impetus to growth and job creation. With a strong emphasis on infrastructure, health, agriculture, and green initiatives, the budget has made bold and forward-looking promises. If executed well, India is unquestionably set up for significant growth and stability, with benefits for all citizens.
Disclaimer: Above piece is only for information purposes. Please consult a SEBI Registered Investment advisor before taking any investment decision.
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