Let’s start with the big question that affects all...
“ZERO tax if you earn up to Rs 7 Lakh annually” You read it Right ! but let’s understand this.
Since 2020, Indian Personal Income Tax has been under 2 Tax Regimes - New & Old. However there were only a few takers for the new regime as Tax outgo was higher in new regime. Government has thus made changes to the NEW tax regime to make it more attractive than before.
In the old regime, you could claim tax exemptions and deductions — you got a standard deduction of Rs 50,000. You could deduct a part of your house rent under House Rent Allowance and then pay tax on what’s left of your income. You could deduct Rs 1.5 lakhs under 80C for Tax-saving Mutual funds, PF, PPF,tuiton fee for kids, LI premiums etc and Rs 25,000 under 80D for your medical insurance and another 25K for parents Medical Insurance etc.
In the new tax regime, you don’t get any exemptions. You pay tax on whatever income you make. No 80C, 80D nothing. This was not much attractive because most people still paid less taxes with the old regime.
So, now under the New Regime you won’t have to pay any tax if you earn upto Rs. 7 lacs, but if you stick to the old regime and claim your exemptions and deductions, nothing changes for you.
Usually we all Pay for Tuition Fee, Term Insurance Premiums, Medical Insurances, PF (for salaried) and Home Loan Interest in most cases and thus Old Regime will suit more for Individuals in Higher Income Bracket.
New Regime may be beneficial for Individuals with less disposable Income. This will also lead to more spending by Millenials instead of Forced Savings earlier.
One has to do his/her own maths in choosing the Regime. However Salaried folks can switch between both regimes multiple times but Self-employed Cannot!
So choose wisely ..
Individuals making more than Rs. 5 Cr annually will now have to pay a reduced surcharge of 25% instead of 37% earlier. Good Move, but wait!
A Cap of INR 10 Crores has been put on Capital Gains on which deduction will be available. Say, if you sell a house with a gain of Rs. 15 Crores, maximum benefit will be allowed on Rs 10 crore if invested in another property and you have to pay taxes on the balance Rs. 5 Crore.
So no more luxury Residential Properties - the only breather here is that this is effective April 2024 onwards.
The government plans to spend a lot of money, over Rs. 10 lakh Cr this year in 2023-24, which is 33% higher than the outlay we planned for this year.
The Good Part is that it will be spent on Capital assets, which will yield Income, like Railways, Roads, Bridges, etc. In addition to creating jobs this will have a multiplier effect too. Every Rupee spent as Capital Expenditure will create a multiplier effect of 2.45 Rupees!
This holds importance when Private Capital Expenditure is slow. This will help boosting the economy forward. In fact, Fiscal deficit is expected to be 5.9% of GDP in FY24 a drop from 6.4% in FY23 and a projected 4.5% of GDP by 2026.
Subsidies on Food, Fertilizer & petroleum are the second highest after Interest payment on Government borrowings and they are being trimmed a bit. These are Non-Capital Expenditure and thus there’s no Multiplier effect. Government has raised subsidies on fertilizer during Ukraine war and now it is prudent to dial back .
Green Energy is a focus area – As per the FM “We are implementing many programmes for green fuel, green energy, green farming, green mobility, green buildings, and green equipment, and policies for efficient use of energy across various economic sectors.” Government is serious about Net Zero sooner and many GREEN Initiatives..Greener the Better.
Affordable Housing: They are also doubling down on affordable housing. So they’ve increased the budget under the PM Awas Yojana by 66% to INR 79,000 crore.
This is a trigger for all round growth as housing has multi-sector linkages. Stakeholders include Labour, Housing Finance Companies, Banks, Cement Industry, Electrical, lighting Companies, Real Estate Developers, Plywood and paint Manufacturers, Furniture, Tiles, Sanitary ware, Steel, Switchgear and many more directly and Indirectly.
Skilled Manpower : Then there’s an important commitment of establishing 157 new nursing colleges in co-location with 157 medical colleges opened since 2014. This was much needed because we have an acute shortage of skilled medical professionals.
PM Kaushal Vikas Yojna 4 will also be providing on-job trainings, Industry Partnership and alignment of Courses for youth in next 3 years to make them employable.
MSME Credit : MSMEs The Growth Engine of New India will get benefited from Credit Guarantee Scheme at 1% lower credit cost and infusion of 9000 crores in corpus which will enable collateral free loans of INR 2 lakh crore, This again will have a multiplier effect and boost growth.
National Digital Library : There’s a big plan to establish a National Digital Library for children and adolescents. States will be encouraged to set up physical libraries and provide access to digital library through these centres. There are whispers of financial literacy material for children too, Much Needed. Isn’t it?
Great news if this can get kids to look away from their phone screens frequently.
Benefits for Senior Citizens: Then there’s some good news for senior citizens. Investors who are 60 years and above can invest up to Rs.30 lakh in senior citizen savings scheme(up from existing 15 lac limit). This will fetch them 8% Annual Interest guaranteed. Much needed when Cost of living is getting higher day-by-day and especially for a segment dependent solely on Interest Income.
Overall a good GROWTH budget, fiscally prudent and without any populist measures that many were concerned about given upcoming general elections. It had something for everyone.
Article written by Saurabh Agarwal an exprienced Banker who now offers Wealth Advisory and Private equity consultation. Founder of www.niveshgurus.com & www.preipotips.com. He can be reached out at firstname.lastname@example.org or contacted at 8007455999.
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