Budget 2023- Simple, inclusive and consistent

Nirmala Sitharaman’s multi-year approach to the Indian budget is like a kid’s approach to solving a 2000-piece puzzle. For the kid, the final goal is clear in his head: the picture when the puzzle is complete. At first, the puzzle looks scattered with its pieces everywhere but with continuous effort in joining piece after piece, the picture becomes clearer and clearer. Likewise, for the past three years, Nirmala Sitharaman’s budget has had a single-pointed focus on inclusive growth. What stands out for me more than the budget is the consistency in approach and the overall theme of the budget year-on-year. This approach is possible only with an ultra-long-term vision for the country and I laud the govt for such clear thinking.

Coming to the budget 2023, I enjoyed reading how this govt included a little for everyone including the always neglected middle class!

Some of the points that stand out for me in this budget are:

For MSMEs, a 1% reduction in the cost of borrowing under the credit guarantee scheme has been extended for a year. 81 lakh rural women SHGs will be enabled under various schemes. Manufacturing units set up till 31^st March 2024 can avail of the benefit of a lower tax rate of 15%.

National Calamity Contingent Duty (NCCD) on specified cigarettes has been revised upwards by about 16 per cent. According to ICICIdirect, the net tax on cigarettes would increase by 0.07-0.12% a stick, which would require a 1-3% hike in the prices of cigarettes across different categories.

As with the theme for the past 3 years, the budget focuses heavily on capital expenditure. This year’s capital expenditure has been increased by 33% to 10 lakh crore which is around 3.3% of GDP. Govt capex has a multiplier effect on the economy leading to job creation and GDP growth. Out of this 10 lakh crore, 2.4lakh crore is allocated to railways which is 9 times the outlay for railways in 2013-14.

With so much focus on capex, questions around fiscal deficits turn into concerns for market experts. Simply put, the question is how much short are you on cash to fund all these grand plans? In FY 23 fiscal deficit stood at 6.4%. Adhering to the path of fiscal consolidation, FY24 fiscal deficit is targeted at 5.9% and the FM has assured that the fiscal deficit will be brought down to 4.5% by 2025-26. The gross debt borrowings which was a concern for the market have also been kept at market expectations at around 15.4 lakh crores.

This year’s budget also heavily focuses on green and renewable energy ranging from green hydrogen to an Inter-state transmission system for evacuation and grid integration of 13 GW renewable energy from Ladakh.

Coming to the big announcement in the personal taxation front. The intent of the government is loud and clear: they want to nudge the taxpayers to move to the new taxation regime. The initiatives in this budget regarding personal taxation are as follows:

1. The new tax regime has been made the default taxation option in the income tax portal for all individuals. Old tax regime needs to be specifically selected if used.
2. ONLY IN NEW TAX REGIME: Earlier, an income tax rebate was given if the total income was 5 lakhs. It has been increased to 7 lakhs. This means if your total income is less than 7 lakhs then your tax is 0.
3. ONLY IN NEW TAX REGIME (FOR INCOME GREATER THAN 7 LAKHS): The much-requested tax slabs have been revised making the new tax regime a lucrative alternative to the old tax regime. 

   0-3lakh	Nil
   3-6 lakh	5%
   6-9 lakh	10%
   9-12 lakhs	15%
   12-15 lakhs	20%
   >15 lakhs	30%

   
   
4. ONLY IN NEW TAX REGIME: Standard deduction increased to Rs. 52500 for any salaried individual/pensioner.
5. ONLY IN NEW TAX REGIME: highest surcharge rate is reduced from 37% to 25% bringing down the maximum tax rate to 39% from the current 42.74%. This affects only UHNIs. While the government has decreased direct personal tax for UHNIs by reducing the surcharge, they have also curtailed several tax loopholes available to such individuals. Some of the measures taken include the removal of tax exemption of premiums paid in excess of 5 lakhs per annum (other than ULIPs). This doesn’t include the life insurance sum assured received on the death of an individual. Another example is the avoidance of capital gains tax by investing in real estate has been capped at Rs. 10 Crores.

Moving to the new tax regime simplifies your tax computation process and time, and with reduced tax rates, it now can also be monetarily beneficial to most individuals except if you already have a home loan or an education loan. Additionally, you do not have to block your money on instruments with 5-15 year lock-in periods just for the sake of saving money on taxes. This will definitely lead to consumption-led growth. But the flip side to this is that the country which boasts of its savings rate might lose its right to boast in the long term. Whether you spend or save, the country will benefit. But, the shift to the new tax regime will be beneficial to you only if you don’t spend that 1.5 lakh 80c savings you would have done for tax saving. Instead, invest it in instruments suited to your risk appetite and investment horizon to get better returns on your investment.

The budget gives you three additional instruments to save apart from those already available.

• Mahila Samman Savings Certificate will be made available for a two-year period up to March 2025. This will offer a deposit facility up to Rs 2 lakh in the name of women or girls for a tenor of 2 years at a fixed interest rate of 7.5 per cent with a partial withdrawal option.
• The maximum deposit limit for Senior Citizen Savings Scheme will be enhanced from Rs. 15 lakhs to Rs. 30 lakhs.
• The maximum deposit limit for Monthly Income Account Scheme will be enhanced from Rs. 4.5 lakh to Rs. 9 lakhs for a single account and from Rs. 9 lakhs to Rs. 15 lakhs for a joint account.

Gone are the days when your investments are decided based on how much tax can be saved! Let’s start the trend of investing our surplus where the best risk-adjusted returns are made.