Expectations from taxpayers & corporates from the Union Budget 2023-24

It is the start of a new calendar year and the first major event to watch out for is the announcement of Budget 2023 for FY 2023-24. This budget will be announced on February 1st, 2023 by our Honourable Finance Minister Mrs. Nirmala Sitharaman. As with any budget, many expectations and assumptions are being made about the announcements and reforms in this budget too. More so as this will be the last full-year budget of the Modi Government in their second term. Therefore, many experts are expecting major announcements to attract voters and make a strong case for re-election. 

Given here are the major reforms expected in different areas and sectors from the upcoming Budget of 2023.

Expectations of amendments in Income Tax

For an average Indian, the verdict of a budget being a hit or a miss depends on the income tax reforms announced by the government, especially for the middle class or the salaried class. 

Revision of income tax slabs

One of the major tax reforms expected from this budget is the revision of the tax slabs and an increase in the deduction limit of the core section 80C which is the go-to section for any individual taxpayers. 

The tax slabs for direct tax have been constant for the past many years and need revision to bring it to par with the increasing cost of living. 

• One of the many expectations from this budget is to increase the basic income tax exemption limit to Rs. 5,00,000 from the existing Rs. 2,50,000.
• Moreover, the blanket deduction under Section 80C does not allow taxpayers to get the full benefit of their tax-saving investments. Experts believe this section needs to provide a deduction of up to Rs. 2,00,000 or Rs. 2,50,000 to make it more effective.

The Budget of 2020 had brought the optional new tax regime that was aimed at decluttering the ITR and reducing taxes for taxpayers. However, there have been few takers of the new tax regime over the years. This is on account of the excess tax slabs that are more confusing rather than easy for the average taxpayer. Furthermore, the usual deductions and exemptions like 80C, HRA, tax benefits on home loans, etc. are not available under the new tax regime making it more complex and less attractive especially for taxpayers who have already planned for such investments to get tax benefits. Therefore, The budget 2023 should aim to bridge this gap to make the new tax regime more appealing if it wants more takers for the same. 

Increase in Standard Deduction & Health Insurance premium under Section 80D

Additional reforms are also warranted in sections providing deductions like section 80D for health insurance, especially the limit available for senior citizens, which should be increased along with the standard deduction under Section 16 of the Income Tax Act of Rs. 50,000 available to all salaried employees. The increase is expected to keep in line with the increased cost of healthcare and rising inflation. 

Expectations of amendments in Corporate Tax

The current tax rate on corporates in India is still considered to be among the highest as compared to many other developing or developed nations across the globe. The Modi Government has stressed from the very start on providing ease of doing business in the country to attract domestic and foreign investments and increase the corporate base. Tax incentives in the form of corporate tax cuts will further act as a boost to the industries directly benefiting their bottom lines and attracting huge investments in the country. However, we have also seen the perils of huge and uncalculated tax breaks in the Sri Lankan economy. Therefore, experts believe a balanced approach with a corporate tax rate of around 15%, expected by the corporates in the country, will provide them with a global competitive advantage and will also contribute to the development of the economy. 

Tax cuts for interest on home loans

Providing affordable housing to all is one of the many agendas of the current government and it has also initiated many schemes to work towards this aim. However, with the rising cost of real estate, this dream is still distant for many taxpayers. Therefore, one of the many expectations from this budget will definitely include an increase in the deduction for interest paid on home loans under section 24 of the Act from Rs. 2,00,000 currently to Rs. 5,00,000. This will help in boosting the demand for affordable to mid-level housing and provide the taxpayers with much-needed relief from the cost of owning a house property. 

Additional boost to the manufacturing sector under PLI

One of the many visions of the government in the post-pandemic pathway for the growth of the country is the vision of an ‘Atmanirbhar Bharat’. While many efforts are made to realise this dream in the form of schemes like the PLI scheme, this budget is also expected to provide certain tax breaks or tax holidays to the manufacturing sector, and MSME sector to strengthen the overall industrial growth in the country and reorientation of the supply chains that were heavily damaged on a global scale during the pandemic as well as during the ongoing war between Russia and Ukraine. 

These measures can include a higher allocation to the existing PLI Scheme, including more sectors in the scope of the scheme like IT hardware and electronic manufacturing and other sectors including leather and footwear, toys, cotton-based textiles, electrolysers, coalbed methane, coal gasification, bicycles, furniture, shipping containers, chemicals for paint, and fertilisers. This will help in giving the Indian industries a competitive advantage and bring them to par with the global market in the long run. 

Rationalisation of capital gains structure

Like every budget, taxpayers expect a relief in the capital gains tax this year too to make it simpler. It is a long-standing demand from the government to reduce the disparity in the levy of capital gains on different assets as well as on different tenures within the same asset class.

The Revenue Secretary Mr. Tarun Bajaj had recently commented that the capital gains tax regime is complicated and cleanup has been long overdue.

Currently, there are different tax rates ranging from 10% to 30% and different holding periods (12 months, 24 months, and 36 months) for the calculation of capital gains tax. Industry experts expect simplification in this area with only a single tax rate and single holding period for ease of computing capital gains tax. Furthermore, there also needs to be a revision in consideration of the base year for the calculation of indexation for long-term capital gains to make it more relevant as the last revision for the same was in 2017 when the base year was updated to 2001.

Reduction in Fiscal Deficit

Reducing the fiscal deficit has been a long-term target of the government and a consistent effort in this regard is being made over the years. The focus of the government’s expenditure policy in the financial year is asset creation and revenue rationalization. In line with these aims, the government has maintained that it will take suitable actions to stick to its target of bringing the fiscal deficit to 6.4% of the GDP from 6.9% of the GDP.

Similarly, according to a report by Goldman Sachs, India is expected to cut its fiscal deficit by further 50 basis points and bring it to 5.9% of the GDP in the new fiscal year.

Other reforms expected from Union Budget 2023-24

Apart from the key reforms mentioned above, there are many other reforms expected in this budget. Some of such key reforms or measures expected from Budget 2023 include

• Concessional tax reforms for the partnership firms and LLPs in line with the reduction in corporate taxes.
• Amendment in section 36(1) of the Income Tax Act to allow a deduction to the employer for contribution to NPS up to 14% of the employee salary (in line with the increase in Central Government contribution to NPS from 10% to 14%).
• Tax benefits and subsidies for the installation of solar planes and added tax benefits for EV buyers to drive its commitment towards the use of clean energy.
• Increase in the deduction limit under section 80TTA for interest savings account from Rs. 10,000 to Rs. 30,000 and including interest on term deposits within the ambit of the section.
• Lowering of GST rate on medical insurance
• Revising the PPF contribution limit from the existing Rs. 1,50,00 to Rs. 3,00,000 to increase domestic savings in terms of GDP percentage and have an anti-inflationary impact of the same.
• The focus of the government is expected to be more on the infrastructure push, especially this being the last full-year budget of the government before the election year, to spur the overall growth of the economy in the long run.

Conclusion

The Union Budget is watched with keen eyes not only by the taxpayers but also by industry experts, trade analysts, opposition, and global investors that have a watchful eye on the growth trajectory of the country. The Finance Minister has had many rounds of discussions with experts from various avenues to identify the core issues that need immediate attention. What actually will be implemented is yet to be seen. 

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