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The Union Budget 2023-24 is set to release by the Finance Minister on 1st February 2023. It is hailed as a pro-growth budget that is set to boost the country’s economic activity. It is likely to focus on creating a resilient and self-reliant India through investment in infrastructure, health care, and education. There might be increased allocation towards digitalization of all government departments to promote transparency in governance.

What are union budget 2023 expectations?

Union Budget 2023 Expectations:

More incentives for manufacturing

The upcoming 2023-24 budget must include two key provisions.

Tax credit for capital or operating expenses related to the growth, capacity utilization, and use of cutting-edge technology applications such as Internet of Things (IoT), artificial intelligence (AI), and machine learning (ML).

The second is to reduce the interest on late GST from the current 18% to the proposed 12%.

The recent proposal by ASSOCHAM (Associated Chambers of Commerce and Industry of India) does a lot to level the playing field.

Improving Labor Relations Law

This is crucial for over 50 million workers in India’s unorganized sector. India’s 29 outdated labor laws will be replaced by four new laws governing labor and industrial relations. More than 90% of 50 million workforce in India are employed in the unorganized sector.

These are Minimum Wage Law, Social Security Law, Industrial Relations, and Health and Working Conditions Law. They aim to protect the rights of industrial workers, guarantee a decent minimum wage, regulate health and safety standards, and gradually improve industrial relations.

Tax incentives to promote solar energy

India is the world’s third-largest producer of renewable energy. Despite significant government push, solar installations in India have not gained the desired momentum.

Several countries are experimenting with innovative tax exemptions to encourage investment in solar energy around the world. To meet the goals of the 2030 Solar Mission, the government must provide tax breaks and subsidies to companies installing solar panels and taxpayers installing solar panels on rooftops.

Favorable Tax System for Corporations/LLPs

Partnerships and Limited Liability Partnerships (LLPs) are taxable at a flat rate of 30%. The government provided concessional/alternative tax regimes for domestic corporations, individuals, Hindu undivided families (HUFs), and cooperatives. Governments are encouraged to introduce tax incentives for partnerships and LLPs.

Expectations of the common people

India’s middle and lower classes are arguably the hardest hit during the Covid pandemic. The expectation of these layers of society is tax relief.

The tax rate of 30% should be reduced to around 25%. And the threshold of the highest tax rate should be raised from INR 10,000 to INR 20,000. The budget should also reconsider raising Section 80C limits.

Investing heavily in health insurance should give you better tax exemptions. Better financial planning, like investing in mutual funds and stocks, should also be rewarded with bigger tax cuts.

Expectations for Indian companies

In the current scenario, tax rates will vary by sector. For India to survive as a hub for both manufacturing and service industries, businesses expect introduction of harmonization of tax rates.

With the introduction of 15% corporate tax rate, India will have one of the most competitive corporate tax rates in the world. This not only strengthens the industrial/manufacturing sector but also paves the way for growth and excellence in the service sector.

Changes in the National Pension System (NPS)

Section 36(1)(iv) stipulates that the employer’s contributions to the NPS are deductible provided they do not exceed 10% of the employee’s salary. As the central government’s contribution to NPS has increased from 10% to 14%, relevant changes should be made to section 36 to bring consistency between the two sections.

More incentives for clean energy

As climate change remains a major concern globally, expectation is that there will be a need to increase incentives to invest in clean energy and renewable resources. India’s clean energy industry, the world’s fourth largest by volume, has long pushed for economic stimulus. This budget seems to be fulfilling a longtime vision.

Expectations for improved education and qualifications

India is the country with the youngest population in the world. For this reason, the country requires significant investment in education and skill gap training. The budget has touched on this issue in the past, but a significant boost in this area is expected from the 2023-24 federal budget.

General Expectations

Various sectors of the economy and the public have high hopes for this budget, but below are some of the general expectations that this budget will bring.

  • Further emphasis on export promotion
  •  Focus on import substitution and building OEM manufacturing
  •  Extension of universal health care, best health insurance regulation
  • Women’s literacy and women’s empowerment
  •  Increase investment in rural education
  •  Massive public health expansion
  •  Rural development and medical care

What are budget 2023 expectations for salaried employees?

2023 Budget expectations for salaried employees:

  1. Salaried employees can expect an improvement in the standard salaried Section 16 deduction from Rs 50,000 to Rs. 1,00,000/-. The standard deduction for employees should be reintroduced at a minimum of Rs 1,00,000 to reduce the tax burden on employees and take into account the inflation rate that depends on the payable salary and the purchasing power of employees.

Income taxes have not increased significantly in recent years and are not indexed to inflation, unlike the taxation of income from certain asset classes. As a result, net incomes, and thus the purchasing power of working people, have fallen year after year, even though the cost of living has fallen significantly.

  1. The Rs 2.5 lakh base allowance increase is expected to provide further incentives to individuals as they increase their investment capacity.

Therefore, given the impact of inflation and its attendant benefits to low-income earners, the next budget may increase the basic allowance, which may relieve some of the burdens on middle-income taxpayers.

  1. Government is expected to increase the tax-saving investment credit limit under section 80C of the Income Tax Act, 1961 (the Act) from Rs.1,50,000 to Rs.2,50,000. u/s 80D in action from Rs.50,000/- to Rs.75,000/-.
  1. Section 80D of the Act is expected to allow full deductions for 80D health insurance premiums paid and not provide deductions for medical expenses.

In addition to health insurance premium deductions, a separate health insurance premium deduction must also be available, but this is ignored in preventive health checks.

  1. There is a significant difference in the effective tax rate on dividends earned by residents and non-residents. This budget aims to close the gap in effective tax rates.

After the dividend distribution tax is abolished in 2020, dividends will be taxable at the hands of the recipient, with an effective tax rate that could reach 35.88%.

  1. A 20% tax rate applies to non-resident dividends under the provisions of Section 115A of the Act. Non-residents can also benefit from the DTAA, further reducing the effective tax rate.

What is Budget date?

Finance Minister Nirmala Sitharaman will present the Union Budget for the financial year 2023-24 on February 1.

In which house budget is introduced?

A budget speech highlights the main points of the entire budget, which can span thousands of pages. A copy of the budget is placed in the Rajya Sabha immediately after it is submitted to the Lok Sabha.

How many types of budget are there in India?

It is estimated that India has three types of budgets: surplus, balanced and deficit.

Balanced Budget

A balanced budget is one in which the government’s projected spending is greater than or equal to its projected revenue for a given financial year. A balanced budget requires the government to attempt to spend only within the income/income within the budget for the year.

This type of budget aims to live or spend within means and is commonly referred to by economists as an ideal budget. But economic fluctuations, inflation, and other unprecedented external or internal factors can make it nearly impossible, or at least difficult, to maintain a balanced budget. Planning for this budget is feasible in theory but difficult to implement in practice.

Total Budgeted Receipt = Total Budgeted Expenditure

Surplus Budget

A budget surplus occurs when a government’s estimated revenues or receipts exceed its estimated expenditures for a given financial year. Simply put, governments make more money each year than they spend on public works and other projects, mostly thanks to taxes, import and export duties, fees, and other sources of income.

With more cash available, the government can pay off overdue bills and reduce the amount of debt and interest on outstanding loans. Deflation and changes in consumer behavior are possible side effects of deleveraging. Taxes make up the majority of consumer spending and reduce consumer spending. Reducing spending can negatively affect business and investments, slowing the economy.

Total Budgeted Receipts > Total Budgeted Expenditure

Deficit Budget

A budget deficit is a budget in which the government’s expected expenditure is greater than or equal to its expected revenue or income for the financial year. When there is a budget deficit, government spending exceeds revenue. So you can have more debt and credit. To fill the fiscal gap, governments can use excess reserves or raise tax rates.

If the deficit stays within reasonable limits, deficit budgets can have beneficial effects on developing countries like India. For example, government spending on public projects in infrastructure, health care, pensions, and other areas are the first signs of budget deficits. It can also lower taxes and create more jobs during recessions. When governments take steps to increase employment opportunities, it indirectly increases aggregate demand for goods and services.

Total Budgeted Receipts < Total Budgeted Expenditure

Wrapping Up

With the renewed focus on economic growth, the budget is expected to take a range of steps. In addition to the usual allocations to various sectors, the budget should also include provisions for new tax reforms and targeted incentives for industries. It is a budget that determines the direction of the future economic recovery.

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