Budget 2023-24 Expectation: Increase exemption limits under Section 80C from Rs 1.5 lakh to Rs 2.5 lakh

After two years of COVID-led uncertainty, India is optimistic. With a GDP growth rate of 9.7 percent in H1, the country is among the fastest-growing economies in the world. Retail inflation is below 6 percent and food prices are under control. The Union Budget 2023 will be presented amidst this period of recovery. The Budget for 2023 should support growth and advancement while acting as a roadmap for attaining India’s ambition of building an economy worth $5 trillion.

Booster shot for manufacturing

From a macroeconomic perspective, a direct boost to the manufacturing sector can attract foreign investments and boost exports. The production-linked incentive (PLI) scheme is one such initiative. Expansion of PLI into defence, renewables, railways, and infrastructure can uplift manufacturing activities.

Consumption-led growth needed

India is a consumption-led economy with a population of over 1.4 billion. Budget 2023 can boost this further by giving more cash into the hands of people. While the country’s consumption pattern is back to pre-COVID levels, budget announcements will propel the economy even further.

To enable this, increasing the basic exemption limit can be beneficial. Raising the basic tax exemption limit from the current Rs 2.5 lakh to at least Rs 5 lakh can put more money in the hands of people. More cash in the hands of the people will mean more funds available to spend on investments and recreational activities.  This, in turn, can bring additional income to the economy in the form of indirect taxes.

Investment-led growth

Budget 2023 has the potential to deepen the penetration of savings and investment products through tax incentives. Just like our country’s vision of Make-In-India, from a broker’s perspective, the budget should also focus on Trade-In-India. To enable this, there will be two comprehensive reform areas:

Incentivising Indians to save: Increasing exemption limits under Section 80C from the present Rs 1.5 lakh to Rs 2.5 lakh can galvanise higher investments in insurance and equity-linked savings schemes.

Stimulating stock market investments: A vibrant equity market is a sign of a vibrant economy. Conducive tax proposals can encourage individuals to invest in stocks.  One such step is to give the status of business income to day-trading income, which is currently classified as speculative income. Another area that can encourage equity participation is Short term capital gains (STCG). Currently, short-term capital gains are taxed at 15 percent plus a surcharge in addition to the securities transaction tax (STT). In such cases, it will be beneficial to have an STCG exemption ceiling of at least Rs 1 lakh.

It is also time to remove the 10 percent long-term capital gains tax (LTCG) on equities. This will motivate investors to make an entry into the stock markets. In addition, reducing STT rates in the cash segment can be another catalyst.  From a direct tax standpoint, it will be desirable to do away with the taxation on dividend income. This will increase the quantum of funds in customers’ pockets.

As more Indians discover new avenues to invest, awareness creation at an early stage is a vital tool to promote financial literacy. To this effect, a structured financial curriculum as envisaged in the National Education Policy will be essential. Learning about how financial products such as stocks work can motivate more people to invest. The money thus invested will be used for the growth of the economy and corporates. This in turn will help the masses grow their wealth. A simple step to improve financial knowledge can ultimately transform into an investment flywheel.

A platform to prosper

India’s resilience amidst global upheaval has forced the world to take notice. A sharp drop in the current account deficit coupled with higher FDI inflows helped expand the country’s total reserves. Budgetary reforms will provide an added fillip to growth and turbocharge the economy.

Budgetary support to save, invest, and grow one’s wealth will set into motion the final leg of the journey toward a $5 trillion economy. Onward and upward from here!

The writer is Co-Founder and CEO, Upstox. He tweets @upstox. Views expressed are personal.

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