In the Modi government’s last full Budget before general elections, Finance Minister Nirmala Sitharaman on Wednesday unveiled tax rebates and saving plans to woo the middle class, women and pensioners, and announced massive spending on housing and infrastructure as she walked the tightrope between staying fiscally prudent and meeting public expectations.
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 per cent from 42.7 per cent after a reduction in the highest surcharge to 25 per cent from 37 per cent.
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 per cent interest rate on deposits of up to Rs 2 lakh for a tenure of two years, has also been announced.
But the Budget has capped tax exemption on maturity amount for policies exceeding Rs 5 lakh annual premium.
Maturity proceeds of all life insurance policies (other than unit-linked insurance policies or ULIPs) that are issued after April 1, 2023, and have an annual premium of more than Rs 5 lakh, will now be taxable.
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, the capital investment outlay has been increased steeply for the third year in a row by 33 per cent to Rs 10 lakh crore, which would be 3.3 per cent of the GDP. This will be almost three times the outlay in 2019-20. Also, the outlay for affordable housing has been increased by a massive 66 per cent to Rs 79,000 crore.
“This is a Budget which has beautifully balanced both growth considerations because the capital investment has never before seen double digit investment announcements of Rs 10 lakh crore which includes Rs 1.3 lakh crore being given to states,” Sitharaman said at a post-Budget press conference.
Since coming to power in 2014, the 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 India@100,” Sitharaman said in her Budget speech in Lok Sabha.
The Indian economy, she said, is a “bright star” with the current 7 per cent GDP growth being the highest among all major economies.
Sitharaman said that despite a global slowdown because of the Covid-19 pandemic and the Russia-Ukraine war, the Indian economy is “on the right track”.
Total expenditure is seen rising 7.4 per cent to Rs 45 lakh crore. The government would target a budget deficit of 5.9 per cent of GDP in 2023-24, down from 6.4 per cent 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 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, and 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 per cent 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 mean a 25 per cent 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.
Similarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10 per cent of his or her income as tax, a reduction of 20 per cent from the existing liability of Rs 1,87,500, Sitharaman said.
“The personal income tax has had substantial changes (in the Budget) which will benefit the middle class,” Sitharaman said at the post-Budget press conference. “The ultimate interest is to make the simpler (new) regime more attractive.”
Revenue Secretary Sanjay Malhotra said the majority of individual taxpayers would find it more attractive to shift to the new regime but did not give details on the number of taxpayers who have migrated to the new tax regime since 2020-21.
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.
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