NEW DELHI: Amrit Mahotsav for the middle class. A pro-farmer Budget. A welfare Budget for the poor. Major tax relief for the rich. Each person perceives Budget 2023-24 in his or her way. The truth is the penultimate Budget before the 2024 Lok Sabha polls presented by Finance Minister Nirmala Sitharaman on February 1 will continue to be remembered as a historic one, a Budget which extends the Modi Government’s philosophy of Sabka Saath. Sabka Vikas to Sabka Budget.
Middle class matters
The smart macroeconomics undergirding the Budget has revealed itself in a radically altered personal income tax collection. The key change is on personal taxes. The new tax regime (earlier introduced in 2020 and optional until 2022) has become the default regime for taxpayers.
The changes in the personal tax regime effectively mean that anybody with a taxable income below Rs 7 lakh per annum would now have to pay no income- tax. The earlier threshold was income below Rs 5 lakh. However, the new tax regime has no place for exemptions. For those earning Rs 15 lakh (Rs 1.25 lakh per month), the tax burden has been reduced from Rs 1,87,500 to Rs 1.5 lakh. This is likely to provide relief to young entrants in the job market with lower salaries.
The number of slabs has been reduced from six to five. The tax exemption limit has increased from Rs 2.5 lakh to Rs 3 lakh. The highest tax rate in personal income tax, which currently stands at 42.74 per cent, has now been reduced to 39 per cent.
The tax burden under the new scheme has been rationalised by revising slabs and introducing standard deductions. “Salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500,” concluded Sitharaman in her Budget speech.
Higher deductions on housing loans (when the real estate sector shows growth potential) and healthcare expenses under the old tax regime. The net result of these structural changes – which is bound to free up the money among the lower strata of the middle classes hardest hit by the pandemic
and the slow-down — is likely to push economic growth in the future. Approximately half the Indian population (almost 47 per cent) is estimated to become middle class by 2030. In other words, the future growth trajectory of the Indian economy is likely to depend on the rising prosperity of the Indian middle class.
Tax relief for upper class
The Budget also exuded political confidence combined with prudence. Defying conventional wisdom, especially, 14 months before scheduled Lok Sabha election in 2024, Sitharaman did not resort to unsustainable spending to gain electoral traction and ended up successfully lowering the effective income tax rate for the rich. For example, for the upper classes, the super-rich whose annual income is above Rs 5 crore, a massive cut in income tax surcharge will reduce from 37 per cent to 25 per cent under the new tax regime. In other words, the effective rate at which they pay tax on their income above Rs 5 crore will be estimated at 39 per cent instead of 42.74 per cent.
Agriculture has received a major impetus through several policy initiatives benefitting the dairy industry, the fisheries and animal husbandry. The Budget emphasises making India a hub for millets (ragi, bajra, ramdana and others) and the new emphasis is on increasing comparative advantage in cotton. The agriculture credit target has been pledged at Rs 20 lakh crore.
A fine balance
Given the headwinds of global recession, continuing pandemic in countries like China, Japan and Europe and a year-long war in Europe between Ukraine supported by NATO powers and Russia, the FM has managed to achieve a fine balance in the Budget between the demands of boosting economic growth and continuing on a path of fiscal consolidation. Despite global inflationary pressures worldwide, India has managed to control and contain high inflationary pressures.
As compared to the 6.4 per cent fiscal deficit in 2022-23, the FM in her Budget targets a fiscal deficit of 5.9 per cent of the GDP for 2023-24. With such a fine balance and such strong potential drivers of growth, the Rs 45-trillion Budget is likely to boost economic growth (nominal growth rate projected at 10.5 per cent), and help India become the third-largest economy in the world.
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