Union Budget 2023-24: Key things to Watch Out for in this Budget

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All eyes and ears will be on India’s Finance Minister’s Budget Speech on 1st February 2023 (i.e. on Wednesday). The expectations from the Budget will be so high at this juncture as we have moved a little ahead from the pandemic compared to other nations.

Before going to what are the key things to watch out for in this budget 2023-24, we need to understand the budget, its importance, about Union budget, its classification and components, nodal agencies for producing budget.

What is Budget?

Budget is an estimation of both Revenue and Expenditure for a specified future period of time. Normally for a year. In other words, it is a financial plan for the upcoming year. It is estimated on the basis of future income as well as expenses.

This budget can be used at any level, like an Individual, Organisation, Government etc…

Why it is important?

A budget helps one to keep eye on their spending as well as income along with savings for the future. 

What is Union Budget?

The term Union came in India’s budget, as it is a Union of States. So, the Union Budget is usually defined as the Budget for All States in India.

As per Article 112 of the Constitution of India, the Budget is termed as an Annual Financial Statement. It is a statement of the estimated receipts and expenditures of the Government of India for that year.  

How is Union Budget Classified?

Union Budget is classified into two parts. Revenue Budget and Capital Budget. Revenue Budget shows the revenue receipts of the Government of India as well as expenditure met from the revenue.  Capital Budget shows capital receipts and payments of the Government of India. 

What are the Components of the Revenue Budget and Capital Budget?

The revenue Budget has two components, namely Tax Revenue and Non-tax Revenue. Tax revenue shows the revenues earned through taxes, and other levied duties by the Government of India. Non-tax revnues consists of interest & dividend on investment made by the Central Government of India along with the fees and other services rendered by the Government of India. 

Capital Budget has two components, namely Capital Receipts and Payments of the Government. Loans from RBI, foreign Governments and the public are all part of Capital Receipts. Whereas Payments of the government are popularly known as Capital Expenditure, they are expenditures on the development of machinery, equipment, building, health facilities, education etc.

Which is the Nodal body for producing the Budget and in what form it is presented?

As many will be aware that the Ministry of Finance is responsible for the Budget, but only a few will be aware of the Nodal body. The Budget Division in the Department of Economic Affairs (DEA) under the Ministry of Finance is responsible for producing the Budget. The budget is presented in the form of the Expenditure, Finance and Appropriation Bill. It has to be passed by the Lok Sabha before 1st April, that is before the start of the Next Financial Year. India’s Financial Year/Fiscal Year (FY) is from 1st April to 31st March of next year.

Now let us examine what are the key things to watch out for in this budget 2023-24

Key Things to Watch Out for in this Budget 2023-24

  1. Fiscal Deficit:

One of the key things to watch in any economy’s Budget. In the present budget (i.e. 2022-23) the Fiscal Deficit is budgeted at 6.4 per cent. However, Government has promised in its 2021-22 budget that the Government would continue on its path of fiscal consolidation, as per Fiscal Responsibility Management Act, 2003, to attain a fiscal deficit to a GDP level below 4.5 per cent by FY 2025-26 through a fairly steady decline over this period.

Therefore, in this Budget, it is important to keep the Budgeted Fiscal Deficit to be somewhere between 5 to less than 6 per cent. So, that India can opt for 4.5 per cent in FY 2025-26, as promised in the 2021-22 budget.

  1. Capital Expenditure (CapEx)

For any economy, CapEx is an important expenditure as it is mostly for development purposes. Many expect that in this budget there could be a big increase in CapEx this year, especially for crowding in private investments. Though there are expectations that the Central Government may continue with its plan to ramp up capital expenditure in the upcoming budget (i.e. 2023-24), stressing more on the State Government to spend on capital assets, it is still unclear whether it will take place in the present budget.

  1. Disinvestment Target

For the past four years in a row, the central government has missed the Disinvestment target. But, this year is a little different from the past four years. There are many news paper and researchers claimed that in the current financial year 2022-23, the budgeted disinvestment target is Rs. 65000 crores. However, there is no mention about disinvestment target in the budget speech or documents. In the current financial year (i.e. 2022-23), the total receipts so far are Rs. 67,941.98 crore (as of 30.01.2023, figures are taken from the DIPAM website). Out of which Rs. 31,106.64 Crore are from Disinvestment Receipts and Rs. 36,835.34 Crore are from Dividend Receipts. This fiscal year India has witnessed a mega IPO of the LIC of India. There is one general insurance company and two state-owned banks are still in the pipeline of disinvestment.

  1. Capital Gains Tax

According to Income Tax Act, Profits or gains arising from the transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”. These charges depend upon the period of holding an asset, either Short-term or Long-term Capital Gains tax will be levied.

At present, these capital gains tax rates differ within the same type of assets or asset class. For instance, Short-term Capital Gains (STCG) tax on equity mutual funds, and stocks are 15 per cent; whereas for bond fund and bonds (irrespective of whether listed or unlisted), the tax may go up to 30 per cent depending on taxes on their income-tax slab rates.

When it comes to Long-term Capital Gains (LTCG) tax, there is a need for simplification in the holding periods – as all capital assets have different holding periods – and at present, there are different tax rates. For instance, an immovable property held for more than 2 years is treated as an LTC asset whereas listed shares are treated as an LTC asset when it is held for over a year. Investors expect Government to increase the exemption limit (which is Rs.. 1 Lakh at present) for LTCG considering the inflation as well as to encourage more investors to invest in equity share markets.

Many investors and firms have requested the Government to simplify both STCG and LTCG. Therefore, many expect there will be some modification or announcement on the same in the Budget.

 

  1. Individual income tax

Income tax has not been changed since 2020, there are expectations that this time there will be some increase in tax slabs. All the peoples’ eye will be on this one thing specifically.

  1. Interest Payments

The Interest payments and Subsidies together constitutes one fourth of the total budget. The remaining three fourth of the Budget resources will be used for country’s defence, development programmes and grants/ transfer to states. Naturally, this will restrict Government’s expenditure on Development programmes.

  1. Fertiliser Subsidy

Feritliser Subsidy is increasing over the years and it is adding as a burden to the Central Government Budget.  Even with the inflation factor taken into the account still it is expected or say likely to increase even in this budget as globally the prices of fertilisers are high.