Union Budget 2023-24: Govt to announce a slew of changes to boost economy

Capital market is expecting increase in tax exemption income limit of Rs 1 lakh to Rs 3 lakh for LTCG

Feroze Azeez January 29, 2023 08:50:17 IST
Union Budget 2023-24: Govt to announce a slew of changes to boost economy

Representational Image. Moneycontrol

The Union Budget of India for the financial year 2023 is set to be presented by the finance minister in Parliament on February 2023.

The Budget will outline the government’s revenue and expenditure plans for the next fiscal year and will have a significant impact on the country’s economy. It will also reflect the government’s priorities and policies for various sectors like manufacturing, infrastructure, and social welfare.

Key expectations from Union Budget are:

Expectations for the Indian Economy

Boost capital expenditure

The government is still expected to focus on capital expenditure for pumping the growth in the economy. It is expected to boost capital expenditure up to 3.5 percent of GDP from the current 2.9 percent.

Capital Expenditure (FY21-22)- 6.02 lakh crore (expected)

Capital Expenditure (FY 21-22)- 5.93 lakh crore (Actual as per Controller General of Accounts)

Capital Expenditure (FY 22-23)- 7.5 lakh crore (expected)

Production-Linked Incentive (PLI) scheme

It is also expected that government will focus on the manufacturing sector by giving it a boost in the form of the PLI scheme. The manufacturing sector is a labour-intensive business which in turn helps the government to decrease the unemployment rate in the country.

Increase in DBT / Subsidies

This gives the money into the hands of people. It will help boost consumption and therefore drive growth.

Budgeted Subsidies for FY 22-23 – Rs 3.2 lakh crore (however for FY 22-23, this is expected to rise above Rs 5 lakh crore on account of additional subsidies to food and fertilisers)

Budgeted Subsidies for FY 21-22 – Rs 4.3 crore

Actual Subsidies for FY 21-22 – Rs 4.5 crore

Expectation of startup eco-system

Parity in the LTCG tax rate for both listed and unlisted shares can boost investment in the startup ecosystem. The government should consider the parity of long-term and short-term for all types of investment to simplify taxation.

Expectation of individual taxpayers

Reduce tax burden of retail taxpayers: Rationalisation of personal income tax rates for individuals will help in lifting demand.

Tax rates have not been revised since FY 2017-18. Although the new tax regime was announced, it was not adopted by a major chunk of the population due to unviability of the new tax regime. The government may consider increasing the threshold for the highest tax slab from Rs 10 lakh to Rs 20 lakh and reducing the highest tax rate from 30 percent to 25 percent.

The salaried class will also expect a raise in deduction available under section 80C to Rs 2-Rs 2.5 lakh. It will also develop a habit of savings and make for an investment-driven economy. An increase in the standard deduction from Rs 50,000 to Rs 1 lakh is also expected.

Keeping in mind the medical inflation, the deduction under section 80D also needs to be increased. Also, the government should consider increasing the limit of allowances allowed under salary head such as children’s education allowance, and hostel expenditure allowances considering the current market scenario. This limit has not been revised in the last 20 years.

Expectations from a capital market perspective

It is expected that the LTCG on listed equity shares or units of equity-oriented fund schemes will be exempted from Capital Gains Tax if the equity shares / Mutual Funds Units are held for at least three years by suitable amendments to section 112A as an exception.

The market is expecting an increase in tax exemption income limit of Rs 1 lakh to Rs 3 lakh for long-term capital gains. This will give a major boost to the market and help outperform other developed and emerging economies.

In respect of switching units within the same scheme of a Mutual Fund from Growth Option to Dividend Option or from Direct to regular mode and vice versa for respective cases, there is no realised gain. The investment remains within the same mutual fund scheme and the underlying securities/ portfolio remains unchanged. We are expecting the capital gain from inter-scheme switching to be exempted as there are no actual gains made in such scenarios.

Debt-oriented mutual funds have a holding period of 36 months to qualify as Long-Term Capital Assets. Investments in listed securities such as bonds/debentures, government securities, derivatives, etc. are listed on a recognised stock exchange in India and Zero-Coupon Bonds (listed or unlisted) the holding period to qualify as Long-Term Capital assets is only 12 months. We are expecting this to be brought at par for all debt categories just like equity.

Introduction of Debt Linked Savings Scheme (DLSS) on the lines of Equity Linked Savings Scheme (ELSS) is expected. This will channelise long-term savings of retail investors into higher credit-rated debt instruments with appropriate tax benefits which will help in deepening the Indian Bond Market.

These changes will boost the capital market and enhance the shape of the financial market.

Conclusion

These are some of the major expectations from the Union Budget 2023 to boost the economy of India as a whole.

The writer is Deputy CEO, Anand Rathi Wealth Limited (@ARWealth)

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