How has the importance of the Union Budget changed

The #UnionBudget2023 is the most important media event in India of every year. There are TV shows built around the expectations from the Centre’s budget, reams of newspaper ink spent on what industry and the common woman wants the incumbent finance minister to do, and much more.

The #Budget2023 also sets the political agenda for the year for the incumbent party in government, starting from the President’s address to a joint sitting of parliament. This first session of parliament of the year is also called the #BudgetSession.

Budget has become concise

If you look at the run time of the finance minister’s budget speech, you might wonder how the budget has become shorter. But it has. Till 2017, there used to be a separate budget presented for the Ministry of Railways. It was merged into the general budget in 2017. The railways budget used to be a way of announcing new trains, lower fares, special services, and then some.

Then, after the rollout of the goods and services tax (#GST) in July 2017, central excise duty and service tax announcements were taken out of the budget. These taxes were subsumed into the GST, which is governed by the Goods and Services Tax Council, manned by the union finance minister and the state finance ministers. The changes in excise duties and service tax rates, full or partial exemptions, or changes in rules were usually announced through the Union Budget till 2017.

Last year, #FinanceMinister Nirmala Sitharaman presented a paper-less budget for the first time in parliament. This is a far cry from the copious amounts of documents that were part of the Budget documents presented in parliament.

Eye on spends and income taxes

Now, the Union Budget speech only contains the income tax changes the government plans to roll out (if any), and also the spending plan of the government. The latter is shown in the allocations for each ministry. The ones that the government of the day considers the most important are the ones that are announced during the finance minister’s speech. For industries that need a little government spend to juice up growth in revenues, this is a very important part of the budget speech. It’s usually in the first part of the finance minister's speech.

But there is a whole set of people who parse through each and every line and number of the budget documents after it is presented in the #LokSabha at 11 AM on February 1st each year. There are so many expectations that are piled on to the budget announcement that most of the time, people are left disappointed with no income tax breaks or increase of exemptions on personal income taxes. Three years ago, the corporate world got a break as the centre cut the peak corporate tax rate to around 25% based on certain conditions. There was also a similar rejig of personal income tax rates based on certain conditions.

Both of these income tax rejigs were based on people foregoing exemptions and deductions. However, recent reports suggest that the personal income tax change, also called the ‘new regime’, hasn’t gained any traction. Even the conditional corporate tax rate cut hasn’t found as many takers as initially expected.

This is what the Centre is battling with on the income tax front. Many industries got a growth boost by leveraging the extensive income tax exemptions and deductions individuals get on life insurance and health insurance premium payments, mutual fund investments, capital gains taxation exemptions on reinvestment of proceeds, and much more.

The Centre can’t remove these deductions and exemptions that proliferate the entire #IncomeTaxAct, as it would hamper the business models of many businesses in the financial services space. But at the same time it wants to give taxpayers a simpler tax paying and filing experience because the ‘old regime’ of personal taxation is very complex. This is the balancing act that Finance Minister Nirmala Sitharaman is grappling with as we countdown to February 1.

Why should you care about the Budget

If you are an investor (either through mutual funds or directly through shares or bonds), there might be something in it for you. There have been murmurs about a revamp of capital gains tax, you can read more about it here. There are also expectations that the EV industry might get another boost by the Centre extending its flagship EV promotion scheme FAME.

These are just a few that we mention here, as there are so many expectations floating around in the media space.

Will you be keeping a close eye on the #Budget2023 on Wednesday like us? Do write in and let us know what are your expectations from the Budget.

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