Key expectations of relief and reforms from almost every sector have been high since the pre-budget consultations took off. Therefore, the budget is crucial as it will be the Modi Government’s final budget before the upcoming Lok Sabha elections in early 2024.
Overview of Union Budget
Budget expectations for taxpayers, from corporations to the common man, are high as the Union Budget is set to be tabled on February 1st, 2023. Budget 2023-24 is critical because of the fear that a global recession will stymie India’s growth momentum.
Finance Minister Nirmala Sitaraman kicked off pre-budget consultations on November 21st, holding meetings with various industry heads and infrastructure experts about their Budget expectations on Income Tax. But, before we push ahead, let us look at the Union Budget and how it affects taxpayers’ lives.
Simply put, the Union Budget is our country’s annual financial statement, presented before the fiscal year’s start, from April 1st to March 31st. The Union Budget is a necessity to improve the economic and social framework. It comprises of-
Capital Budget- Includes capital income and expenditure.
Revenue Budget– Comprises revenue receipts and expenditures.
Implications of Tax Changes in Union Budget on Taxpayers and Economic Growth
The Government uses the power of income tax to gain control over its revenue generation. Higher taxes on individuals affect the households’ level of disposable income as it takes money out of the households. Likewise, a decrease in personal income tax increases the purchasing power of the individual by leaving higher disposable income in the hands of the consumer.
On the other hand, income tax changes for businesses affect the supply chain and overall cost of production of goods and services. Lower tax rates can boost economic growth as it implies more disposable cash for individuals, businesses, and corporates. This surplus cash can be reinvested in existing businesses or a new venture. Restructuring the income tax system can improve our tax-to-GDP ratio, which is a critical component of economic growth.
Recommendations of CII regarding budget expectations for Taxpayers
In its pre-budget proposal, the Confederation of Indian Industry (CII) laid down the following key recommendations –
- Reducing personal income tax rates to increase disposable income, thereby reviving the diminishing consumer demand.
- Reduce the present 28% GST rate on selected consumer durables, facilitating better market penetration.
- Step up rural infrastructure projects to facilitate employment generation.
- Raise capital spending to 3-3.4% of GDP from the present rate of 2.9%, then increase it to 3.8 -3.9 by FY25.
Increasing capital spending can help to improve production facilities and operational efficiency, thereby increasing per capita GDP and income. Deloitte India recently surveyed taxpayers’ pre-budget expectations. The results indicated that most industry leaders are optimistic about India’s growth trajectory, with BFSI and Chemical Industries leading the way.
Expectations of Salaried Class
Pre-budget expectations of the salaried class include the following-
- Revising tax-free slabs from Rs. 2.5 lacs to at least 5 lacs in the wake of gripping inflation and the onset of a global recession.
- On the personal tax front, the salaried class anticipates an increase in the standard deduction from Rs. 50,000 to Rs. 1, 00,000/- to offset the effect of inflation.
- Each asset class has its Capital Gain structure. If a uniform capital gains tax is implemented, taxpayers will have more disposable income to contribute to wealth creation.
Expectations of Corporate
The COVID-19 pandemic has affected global production, consumer demand, and profit margins. Budget expectations for taxpayers in the corporate sector include-
- Budgetary increases for healthcare, agriculture, digital payments, and e-commerce.
- A significant reduction or exemption from GST on services would pave the way for improved operational efficiencies.
- Fiscal reforms to close loopholes, simplify the tax structure to avoid income tax cascading, and improve the ease of business.
- Dropping corporate tax rates and eliminating the Minimum Alternate Tax (MAT) will aid corporate capital formation and drive economic recovery.
Expectations in Real Estate Sector
Budget expectations for taxpayers in the Real Estate Sector include-
- Single window clearance and industry status are among the most recurrent and yet-to-be-addressed demands.
- Need for more tax sops for homebuyers and investors. Hiking the present income tax rebate on housing loan interest from 2lacs to 5 lacs can bring back the lost momentum in the real estate sector.
- To meet the Government’s criteria for affordable housing, the current price bandwidth of Rs. 45 Lacs must be revised. Homebuyers in cities such as Mumbai, where the average house cost is Rs. 60-65 Lacs, are rendered ineligible for government subsidies and other benefits.
Expectations of Pensioners
Budget expectations for taxpayers in the category of Pensioners include-
- Demand for raising the tax-free income slab from 3 lakhs to at least Rs. 5 Lacs tops the pensioner’s wish list.
- Increasing the limit of tax deductions permissible under Sec 80 C of IT Act’1961 and an additional deduction of Rs. 50,000.
- Increasing the threshold limit for Sec 80 TTB that allows an interest deduction of up to Rs. 50,000 on deposits in a given fiscal year. Pensioners are also demanding the inclusion of NSC interest in Sec 80 TTB.
Expectations of Firms/LLPs
Budget expectations from taxpayers in the Partnership and Limited Liability Partnership categories include
- Providing a concessional/special tax regime aligned with their specific business needs.
- Reducing the income tax levy on LLPs from 30% to 22% brings LLPs on par with corporates.
Global Expectations from Budget
Global budget expectations for taxpayers include the following-
- Creating physical, digital, and skill infrastructure to facilitate the establishment of Global Capability Centres.
- Significantly decrease the income tax on Global Capability Centres’ service exports.
- Integrate safe harbor and uniform tax rules to enable international trade in the face of geopolitical uncertainties.
The upcoming budget will lay out a strategy to steer the economy to the $5 trillion target. The need of the hour is to revise the tax-free income slabs to keep up with the country’s rising living, medical, and educational costs.
Who will present the Union Budget?
The Union Finance Minister Nirmala Sitaraman will present the Budget 2023-24 on February 1st 2023.
Which sectors will be in focus in the upcoming Budget 2023?
According to the latest business news, infrastructure, green energy, and logistic companies may get support from the upcoming budget.