Decoding Budget 2023
Fiscal prudence, clarity in the path for fiscal consolidation, colossal capital expenditure of ₹10 lakh crores, relief to income taxpayers, credible growth, and tax projections for FY24 makes the budget 2023 market-friendly.
Here’s our take on the Budget 2023-24 for the investor community.
The Capex booster
One of the critical highlights of budget 2023-24 is a 33% increase in capital expenditure by the govt. The market didn’t see the whopping 10 lakh crore spending coming; this covers railways, road construction, and green initiatives. It is primarily believed that these categories have significant multiplier effects on the economy and should help improve India’s long-term growth potential.
The fiscal deficit for 2023-24 is expected to be under check at 5.9 percent of the gross domestic product (GDP), which is lower than the target of 6.4 percent of the GDP in 2022-23.
Relief for Personal Income Tax Payers
While announcing the Budget 2023, the Finance Minister said that the new personal tax regime (NPTR) will now be the default tax regime. However, taxpayers can avail of the deduction and exemption benefits of the old tax regime too. Tax-exemption limit has been hiked, with individuals earning up to 7 lakhs will not be required to pay any Income Tax now under NPTR. Tax relief was also provided under the old tax regime (with exemptions).
The government has reduced the highest surcharge rate from 37 percent to 25 percent in the new personal tax regime.
LTCG Tax Unchanged - No bad news is good news
In the run-up to the budget every year, the investor community is constantly chattering about tinkering with the long-term capital gains tax (LTCG) or securities transaction tax (STT).
FM leaving the long-term capital gains tax (LTCG) on equities unchanged augurs well for the markets. There were earlier expectations that the FM could tweak the LTCG tax rate or the holding period for stock investments to be considered long-term. LTCG applies to equity investments on a holding of one year or above. For debt mutual funds, that holding period is three years or above; for property, the holding period is two years or above.
Traditional Insurance Plans have been made less attractive.
In the FY24 Budget, the government announced that income earned from all life insurance policies, excluding unit-linked insurance plans (ULIPs), with a premium of above ₹5 lakhs, will be taxable. This applies to new guidelines issued post-April and not to the existing ones.
This proposal has made traditional life insurance schemes less appealing as a tax-saving instrument, prompting individuals to shift to the new tax regime, which does not favor tax exemptions from investments in insurance schemes.
Incentives for Senior Citizens
FM announced the doubling of the maximum limit under the Senior Citizen Savings Scheme (SCSS) to ₹30 lahks from ₹15 lakh. The scheme offers an assured interest of 8 percent per annum. The interest is paid quarterly.
Additionally, the investment limit under the popular Post Office Monthly Income Scheme (POMIS) has been raised to ₹9 lahks from ₹4.5 lakh. In the case of joint accounts held in POMIS, the investment limit has been hiked to ₹15 lahks from ₹9 lahks. The scheme pays monthly interest at the rate of 7.1 percent per annum.
Tax hiked on liberalized remittance scheme (LRS)
The Union Budget 2023 proposed to hike the Tax Collection at Source (TCS) to 20 percent with no upper or lower threshold, compared to 5% over funds sent over 7 lakhs earlier. There is no charge for TCS rates for funds sent abroad for education & medical purpose, in any case. This will broadly impact funds used for overseas travel, investing abroad, or any issue other than education & medical purpose.
The amendments will come into effect from July 1, 2023, & will make investing in overseas stocks particularly unattractive.
Market-Linked Debentures
The Union Budget for 2023-24 announced that the capital gains on market-linked debentures (MLDs) will now be taxed as short-term capital gains. They are currently being taxed as a long-term capital gain at 10 percent without indexation.
This amendment will take effect from April 1, 2024.