Balanced and prudent budget with no negative surprises

 

By Vivek Goel, Joint Managing Director, Tailwind Financial Services

The union budget 2023announced byfinance minister Nirmala Sitharaman is a balanced budget with no negative surprises, prudently maintaining fiscal deficit target at 5.9% while delivering an INR 10L crores capex & rationalising personal income tax.

In a difficult global macro-economic backdrop,continuing impetus on capital expenditure the FM announced a significant jump in planned capex to INR 10 lakh crores. It should help further improve India’s prospects of continuing to be outshining with strong GDP growth numbers with 10.5% FY24 nominal GDP estimates set out. This is further help in job creation across infrastructure, railways, power and among others.

Along with this, a fiscal deficit target at 5.9% for FY24 while retaining 6.4% for FY23 is a strong message from a fiscal perspective. This additionally included the FM maintaining her originally set out glide path of bringing the fiscal deficit down to 4.5% by FY26 which is a strong reaffirmation to maintaining fiscal discipline. It should bring cheers in the bond markets with government’s efforts in consolidating fiscal deficit.

In terms on taxation and savings related announcements from the budget there were multiple areas to look out. On expected lines, reforms to strengthen adoption of new tax regime for individual tax payers introduced in 2020 were made. This increases benefits focusing on middle income segment by reducing tax burden by 20-25% for 9-15L income slabs along with increase basic income limit to 3 lakhs and taking the rebate upto 7 lakhs. Further, standard deduction introduction of 52,500/- is another add on. Overall, this should help higher shift towards the new regime.

Increment of limit for senior citizen savings scheme from ₹15 lakhs to ₹30 lakhs is an important announcement to help senior citizens and retired investors to plan their investments in safer areas better.

Further, importantly, no change in capital gains comes as a big relief for the markets. As per initial worries, there were in terms of rationalising benefits on listed equity in the form of holding period and lower slabs. As seen in 2018 with introduction of LTCG on listed equity, any move to tweak it would have been a negative.

For the ultra high net worth segment, there were mixed announcements where on the one hand maximum marginal tax slab has been brought down by reducing highest tax surcharge slab from 37% to 25% for taxable income over INR 5 crore. However, on the tax exemption front, there was a negative in terms on putting in a ceiling of INR 10 crores as limit from capital gains exemption when investing in a house property under section 54.

Announcement to simplify KYC process is a much-needed reform to ease KYC related requirements. It will help improve efficiency of financial transaction with faster account opening and setups. This along with tweaking gold related conversion in terms of physical to digital and vice versa as a non taxable event from capital gains is another important simplification in the tax regime.

Overall, there are multiple positives across segments to be taken away from the budget and it goes a long way to improve India’s macro-economic picture from a growth and fiscal discipline perspective.