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Union Budget 2023-24: FM unveils income tax relief, small saving sops a year before elections

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Silver bars, imported cars, bicycles and toys to be costlier; TV sets, mobile phones cheaper; Direct, indirect taxes comprise 58 paise of every rupee in govt coffer

New Delhi: Finance Minister Nirmala Sitharaman on Wednesday raised the personal income tax rebate limit, doled out sops on small savings, and announced one of the biggest hikes in capital spending in the past decade as she did a tightrope walk in the Budget between staying fiscally prudent and meeting public expectations in the year before general elections.

The personal income tax rebate limit has been increased to Rs 7 lakh from the fiscal year starting April 1 under the new tax regime from the previous Rs 5 lakh. Tax slabs have been cut to five from seven earlier. Also, the maximum income tax rate has been reduced to about 39 percent from 42.7 percent after a reduction in the highest surcharge to 25 percent from 37 percent.

Besides, the deposit limit for senior citizen savings schemes has been doubled to Rs 30 lakh and for Monthly Income Account Scheme to Rs 9 lakh. A new small savings scheme for women, offering 7.5 percent interest rate on deposits of up to Rs 2 lakh for a tenor of 2 years, has been announced.

Sitharaman’s fifth straight budget comes at a time when the economy is slowing due to global headwinds and there is a need for increased spending on social sectors as well as ramping up incentives for local manufacturing.

She also announced customs duty relief on mobile phone components, as well as on capital goods for lithium batteries and other such items to boost green energy and exports.

This is the final full budget before the general elections in April/May next year. An interim budget, called vote on account, is to be presented in February next year and the new government will present the full budget sometime in July 2024.

For 2023-24, capital investment outlay has been increased steeply for the third year in a row by 33 percent to Rs 10 lakh crore, which would be 3.3 percent of the GDP. This will be almost three times the outlay in 2019-20.

Since coming to power in 2014, Prime Minister Narendra Modi-led government has ramped up capital spending, including on roads and energy, while wooing investors through lower tax rates and labour reforms, and offering subsidies to poor households to clinch their political support.

“This Budget hopes to build on the foundation laid in the previous Budget, and the blueprint drawn for [email protected],” Sitharaman said in her budget speech in Lok Sabha.

The Indian economy, she said, is a “bright star” with the current 7 percent GDP growth being the highest among all the major economies.

Sitharaman said that despite a global slowdown because of the COVID-19 pandemic and the Russia-Ukraine war, the Indian economy was “on the right track”.

Total expenditure is seen rising 7.4 percent to Rs 45 lakh crore. The government would target a budget deficit of 5.9 percent of GDP in 2023-24, down from 6.4 percent for the current year. That would entail a gross borrowing of Rs 15.43 lakh crore.

Sitharaman said the Budget for 2023-24 (April 2023 to March 2024), adopts seven priorities — inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power and financial sector.

While the agriculture credit target has been increased to Rs 20 lakh crore with focus on animal husbandry, dairy and fisheries, the increased investment in infrastructure and productive capacity is aimed at having a multiplier impact on growth and employment.

Additional Rs 9,000 crore has been provided toward credit guarantee for medium and small enterprises

Railways has been provided a capital outlay of Rs 2.40 lakh crore — the highest ever and about 9 times the outlay made in 2013-14.

An Urban Infrastructure Development Fund (UIDF) will be established for the creation of urban infrastructure in Tier 2 and Tier 3 cities.

The Budget has also provided Rs 35,000 crore for energy transition and net zero objectives.

Battery Energy Storage Systems with capacity of 4,000 MwH will be supported with viability gap funding, Rs 20,700 crore will be spent in building a transmission system to evacuate 13 GW renewable energy from Ladakh.

The outlay for the affordable housing scheme, PM Awas Yojana, has been increased 66 percent to Rs 79,000 crore.

Other highlights of the budget include reviving 50 additional airports, heliports and water aerodromes, and establishing a National Digital Library to make available quality books across languages, geographies and genres.

The income tax relief provided for individual taxpayers would be a 25 percent reduction in tax outgo of an individual with an annual income of Rs 9 lakh as he or she would be required to pay only Rs 45,000 as against Rs 60,000 crore.

Similarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10 percent of his or her income, a reduction of 20 percent from the existing liability of Rs 1,87,500, Sitharaman said.

“This will provide major relief to all taxpayers in the new regime,” she said.

Also, the Rs 50,000 standard deduction provided in the old tax regime has now been extended to the new tax regime.

The limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees will be increased to Rs 25 lakh.

The total revenue foregone from the reduction in direct and indirect taxes after accounting for a small gain from additional mobilisation will be Rs 35,000 crore annually.

“The narrower deficit forecast in the Union government budget for 2023-24 underscores the government’s commitment to longer-term fiscal sustainability and supports the economy amid high inflation and a challenging global environment,” Moody’s Investor Service said in its initial comments on the Budget.

Although the gradual fiscal consolidation trend is intact and will help to stabilise the government’s debt burden relative to nominal GDP, the high debt burden and weak debt affordability are constraints that offset India’s fundamental strengths, including its high growth potential and deep domestic capital markets, it said.

Meanwhile, mobile phones and TV sets manufactured in India would become cheaper with Finance Minister Nirmala Sitharaman announcing cuts in Basic Customs Duty (BCD) on import of their components but smokers would have to pay more as the government has increased taxes.

Imported cars, including electric vehicles, and those assembled in India with imported parts will also become costlier with increased customs duty.

Sitharaman in her Budget speech on Wednesday proposed an increase in BCD on several items to “promote exports, boost domestic manufacturing, enhance domestic value addition, encourage green energy and mobility”.

Customs duty on vehicles in completely built units (CBUs) costing less than USD 40,000 or with engine capacity less than 3,000 cc for petrol-run vehicles and less than 2,500 cc for diesel-run vehicles has been raised from 60 percent to 70 percent, as per the Budget document.

Similarly, customs duty on electrically operated vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than USD 40,000, has also been raised to 70 percent from 60 percent.

Besides, BCD on import of bicycles is also being increased from 30 percent to 35 percent. BCD for toys and its parts is also hiked from 60 percent to 70 percent.

“The BCD is being increased on styrene, vinyl chloride monomer, toys and parts of toys (other than parts of electronic toys), bicycles, automobiles in SKD and CBU form, silver bar, silver dore and naphtha,” said the budget notification.

The government has also decided to increase Agriculture Infrastructure and Development Cess (AIDC) on silver bar from the existing 2.5 percent to 5 percent and 2.5 percent to 4.35 percent on silver dore.

However, the government has provided a customs duty exemption to import of specified capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles as available for the manufacture of lithium-ion cells for batteries used in mobile handsets.

“To further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles,” said Sitharaman in her budget speech.

In order to deepen domestic value addition in the manufacture of mobile phones, the government has proposed exempting BCD on the camera lens for the camera module, and input/sub-parts for lens of the camera module of mobile phone is being reduced from 2.5 percent.

It has also proposed to reduce BCD on parts for the manufacture of open cells of TV panels from 5 percent to 2.5 percent.

“Similarly, to promote value addition in the manufacture of televisions, I propose to reduce the basic customs duty on parts of open cells of TV panels to 2.5 percent,” said Sitharaman.

Moreover, to encourage the manufacturing of electric kitchen chimneys, the basic customs duty on electric kitchen chimneys is proposed to increase from the existing 7.5 percent to 15 percent.

Besides, BCD on denatured ethyl alcohol, used in the chemical industry, has been proposed to be exempt from the present 5 percent.

“This will also support the Ethanol Blending Programme and facilitate our endeavour for the energy transition. BCD is also being reduced on acid-grade fluorspar from 5 percent to 2.5 percent to make the domestic fluorochemicals industry competitive. Further, BCD on crude glycerin for use in the manufacture of epicholorhydrin is proposed to be reduced from 7.5 percent to 2.5 percent,” the finance minister said.

The government has also increased National Calamity Contingent Duty (NCCD) on specified cigarettes, which were last revised three years ago.

“This is proposed to be revised upwards by about 16 percent,” she said.

To encourage marine product exports and help farmers from coastal states, it has been proposed to reduce duty on certain ingredients/inputs such as fish meal, krill meal, fish lipid oil, Algal Prime – used in the manufacture of aquatic feed.

It has also exempted 30 percent BCD on import of warm blood horses by sports persons of outstanding eminence for training purposes.

These changes will be effective from February 2, 2023, said a notification.

According to the Budget documents for 2023-24, for every rupee in the government coffer, 58 paise will come from direct and indirect taxes, 34 paise from borrowings and other liabilities, 6 paise from non-tax revenue like disinvestment and 2 paise from non-debt capital receipts.

As per the Union Budget presented in Parliament by Finance Minister Nirmala Sitharaman on Wednesday, Goods and Services Tax (GST) will contribute 17 paise in every rupee of revenue, while corporation tax will account for 15 paise.

The government is also looking to earn 7 paise out of every rupee from excise duty and 4 paise from customs duty. Income tax will yield 15 paise.

The collection from ‘borrowings and other liabilities’ will be 34 paise, according to the Budget 2023-24.

On the expenditure side, the biggest outlay is interest payments at 20 paise for every rupee, followed by the states’ share of taxes and duties at 18 paise.

Allocation for defence stands at 8 paise.

Expenditure on central sector schemes will be 17 paise out of every rupee, while the allocation for centrally-sponsored schemes is 9 paise.

The expenditure on ‘Finance Commission and other transfers’ is pegged at 9 paise. Subsidies and pension will account for 9 paise and 4 paise, respectively.

The government will spend 8 paise out of every rupee on ‘other expenditures’.

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