KENDRIYE BUDGET EXPECTATIONS 2023-24
Budget 2023-24, the upcoming Union Budget of the Modi government before the 2024 polls, we can expect the budget to be taxpayer friendly focusing on the maximum benefit which could be provided to a taxpayer. However, keeping in mind that the Indian economy has started to recover from the scars of the outburst of Covid-19 pandemic fiscally, the government will fully ensure to align its goal of preparing a budget that boosts economic growth in conjunction with the thrust on expectations of taxpayers.
- PERSONAL TAXES
- On personal tax front a salaried individual can expect Enhancement of Standard deduction under section 16 for salaried employees from Rs.50,000/- to Rs. 1,00,000/- as it has not changed since Finance Act,2019 given the increasing effect of inflation. The present amount of standard deduction is significantly low given the periodic cost of inflation over the years and the living expenditure of salaried individuals. There is a dire need to enhance such deduction limit in order to help lower income group salaried individual to come out of tax net. The standard deduction for salaried employees should be reinstated to at least Rs.1,00,000/- to ease the tax burden of the employees and keeping in mind the rate of inflation and purchasing power of the salaried individual which is dependent on salary available for disbursement. The Income Tax slabs had not been raised in a meaningful manner over the years and are not linked to inflation unlike in case of taxation of gains from certain asset classes. As a result, over the years salaried individuals net income and hence the purchasing power had reduced despite the cost of living having gone significantly.
- We expect an enhancement in the basic exemption limit of Rs.2.5 lacs to further incentivize the individuals as it will in turn increase the investment capacity of individuals. Therefore, considering the impact of inflation and in turn benefitting the individuals with lower income group, it is anticipated from the coming budget to enhance the basic exemption limit so that it can assist the taxpayers who are middle-class to decrease their liability to some extent.
- It is expected that the Government will enhance the limit of deduction given on tax saving investments under section 80C of the Income Tax Act,1961(herein referred to as the Act) from Rs.1,50,000/- to Rs.2,50,000 and simultaneously u/s 80D of the Act from Rs.50,000/- to Rs.75,000/-. Also, under section 80D of the Act, it is expected that full deduction for health insurance premium paid u/s 80D may be allowed and not to tag it with a deduction for medical expense. Apart from the deduction for health insurance premium, a separate deduction for medical expenses should be made available which will be apart from preventive health check-up.
- Key expectation of stakeholder from the budget is regarding Tax rate on dividend income earned by residents and non-residents. There is a considerable difference in effective tax rate on dividend earned by resident and non-resident. Through this budget, it is expected to reduce the difference in effective tax rates. After abolition of dividend distribution tax in year 2020, dividend is now being taxed in the hands of recipient on which effective tax rate could go high as 35.88%. As per provisions of section 115A of the act, dividend is taxed @20% in case of non-residents. And, Non-residents can also claim DTAA benefits which will result in further reduction in effective tax rate.
- The Lok Sabha recently passed a bill replacing an ordinance for bringing into effect reduction of corporate tax rates. With introduction of new tax regime u/s 115BAA and 115BAB of the Act, for domestic manufacturing units, the base corporate tax rates has been brought down from 30% to 22% and from 25% to 15% established after October 1,2019. Whereas corporate tax rates for foreign company are 40% respectively. Therefore, currently there are different tax rates for different types of companies. To bring parity and encourage global investors, a tax rate of 15% should be considered for all companies. Presently, the 15% tax rate is being offered as an incentive only to companies investing into new manufacturing facilities. If India introduces corporate tax rate of 15% for all the companies-operating in all the sectors, then it will have one of the most competitive corporate taxes in the world.
- Minimum Alternate tax (MAT) is a measure by which Government tends to cover every company in income tax loop. However, it is expected that the Government will incentivize technology and other IT enabled startups by reducing the rate of MAT from 15%(earlier) to 9% as this will reduce blockage of working capital of the new startup with cash crunch in the initial days.
- SUNRISE INDUSTRIES EXPECTATIONS
- Sunrise industries is a sector that is developing and poised for a rapid growth. Acknowledging the immense potential of sunrise sectors, the Union Budget 2023-24 is expected to bring liberal policies. Eying primarily on energy industry which inter alia includes petrol and diesel industries and other such items under provisions of article 279(A)(5), it is expected that GST council will give some recommendation to bring such items under the purview of GST.
- Further, in last year’s Budget, Hon’ble Finance Minister included Genomics and Pharmaceuticals in the list of ‘sunrise sectors’. Further, on wake of outburst of Covid-19 pandemic, the Government was to medical to be a priority area for productivity enhancement and investment.
- Lastly, in order to support the mission of Aatmanirbhar Bharat, Government is expected to extend tax benefits for industries in the renewable or solar power sector. The Government is expected to allocate a handsome amount for product linked incentives to boost manufacturing of high-efficiency modules, prioritising fully integrating manufacturing units into solar modules.
- It is also anticipated that the forthcoming budget is expected to bring impressive steps towards clean energy facilities which will reduce pollution levels and place reliance on becoming self-sustainable.
- We further expect that the GOI will bring tax incentives u/s 80IAC of the Act by extending the benefit to upcoming years.
- Also, it is anticipated that GOI will tend to incentivize defense R&D by giving special tax benefits for industries wishing to set up in this sector. We overall conclude now that economy is looking set to grow fast, one can hope the Government will improve upon last year’s tax-related announcements. The key expectation is to maintain the growth path while keeping fiscal deficit and inflation in check.
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