Budget 2023: Making way for empowered and inclusive India@100
4 min read . Updated: 01 Feb 2023, 05:56 PM IST
Premium- With fiscal prudence and focus on growth levers at the heart of the Budget, one can say that it lays the foundation for the Indian economy continuing its growth trajectory
On 1 February, finance minister Nirmala Sitharaman presented the last full Budget of this government before the general elections slated for next year. Coming out the pandemic, the need to be fiscally prudent given fiscal deficit, while keeping in mind people's expectations has been a delicate balancing act. The Budget proposals deliver on these fronts, with its stated ambition to create sustained and inclusive economic growth, through the finance minister’s aptly coined ‘Saptarishi’, or the seven priorities - inclusive growth, last-mile delivery, infrastructure and investment, green growth, youth power, financial sector, and unleashing the potential of the countrymen.
The Economic Survey has projected that India will remain the fastest-growing major economy globally, with a slightly lower growth rate next fiscal, given the likely slowdown in the world economy.
In a good news, though, there is tax buoyancy: direct tax collections are up by 21.1% year-on-year (April to November data) and gross GST collections have risen 24.8% YoY (April to December data).
Coming to Budget proposals, the middle class will have some cheer on the personal tax front albeit with some conditions. New tax regime announced in 2020 has been made the default tax regime. While taxpayers can opt for the old regime, the government’s resolve of greater adoption of the new regime is clear with new slabs rates, increase in rebate thresholds and lowering of surcharge for high net-worth individuals (HNIs), available only under the new regime. Standard deduction and deduction for family pension have now been extended to the new regime; however medical deductions stay out. To balance the loss in revenue on this account to some extent, certain high value transactions will now come under the tax net. For instance, tax exemption on account of reinvestment of capital gains into residential property will now be capped at ₹10 crore and income from traditional insurances where the premium (newer policies) is over ₹5 lakh will not be tax exempt.
The finance minister in her speech extolled the virtues of entrepreneurship, especially the startup eco-system which has been a focus area of the government. The period of incorporation of eligible start ups to claim tax deduction has been extended by a year to 1 April 2024. Furthermore, while there has always been a relaxation of rules for such startups to carry forward losses in case of change in shareholding vis-a-vis regular companies, period for carry forward has also been extended to 10 years from 7 years.
One of the items that was expected given the India plus strategy, was on extending concessional tax regime for new manufacturing set-ups; hopefully this will still be extended.
GIFT IFSC (International Financial Services Centre) is a key focus area with policy announcements made in this Budget as well. The proposal for setting up a single window IT system for registration and approval from IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI will go a long way in promoting ease of doing business from GIFT IFSC.
To promote issuance of derivative contracts by IFSC banking units, the Bill proposes to amend Securities Contract Regulation Act to provide that offshore derivative Instrument (ODI) contract issued by a FPI in the IFSC shall also be legal and valid. In addition to the income of non-residents on transfer of ODI entered into with IFSC Banking unit which is exempt from tax, it is now proposed that similar exemption be provided to any income distributed on the ODI entered into with an IFSC bank, which fulfils prescribed conditions, thereby avoiding double taxation at IBU and investor level.
There was anticipation that there would be amendments to the capital gains tax regime, found to be complicated due to differing rules of taxation and holding period for varied asset classes. The government has opted in this Budget to maintain status quo and avoid any major overhaul. However, certain specific steps such as income from market linked debentures which have hitherto been taxed as long-term capital gains at 10% are proposed to be taxed as short-term capital gains.
Ease of compliance and trust-based governance are oft repeated themes to reduce burden on taxpayers and tax administration alike. Presumptive taxation threshold for eligible businesses and professionals have been increased from ₹2 crore to ₹3 crore and from ₹50 lakh to ₹75 lakh, respectively, which will benefit small and medium enterprises.
Policy measures like introduction of Green Credit Programme under Environment Protection Act, exemption from excise duty on GST-paid compressed bio gas, changes in customs duty rates for auto sector and lithium ion cell manufacturing, would help create the required ecosystem while simultaneously incentivising companies and social entrepreneurs venturing into the domain.
Budget FY23 gives confidence that the roadmap for India@100 remains intact. With fiscal prudence and focus on growth levers at the heart of the Budget, one can say that it lays the foundation for the Indian economy continuing its growth trajectory.
Sameer Gupta is national tax leader at EY India.
