Union Budget 2024 Expectations: Tax Changes Anticipated by Businesses and Individuals

Introduction

As the anticipation builds for the Union Budget 2024, stakeholders across various sectors are closely monitoring this crucial financial event. While the Union Budget encompasses a wide array of economic aspects, one of the key focal points for businesses and individuals alike revolves around the anticipated tax changes. In this comprehensive exploration, we delve into the multifaceted Union Budget 2024 expectations, with a primary focus on income tax budget expectations, while also addressing other crucial aspects that could shape the economic landscape.

Review of the 2023 Budget

Before delving into the Union Budget 2024 expectations, it’s essential to take a brief look back at the fiscal policies of the previous year. The Union Budget 2023, named Amritkaal, was presented by Finance Minister Nirmala Sitharaman. It aimed to address several economic challenges, helping the youth and fostering sustainable growth. Some key highlights from the 2023 budget, that set the stage for the current Union Budget 2024 expectations, included :

• Firstly, the 2023 budget focused on fiscal consolidation, aiming to gradually reduce the deficit.
• Additionally, there was significant allocation of funds to infrastructure development for economic growth.
• Tax processes for businesses were simplified to enhance ease of doing business.
• Also, incentives were provided for key sectors like manufacturing, renewable energy, and technology.
• The budget emphasized sustainability and included gender-inclusive policies.
• Moreover, the government proposed many measures to boost digital commerce investments and enhance digital public infrastructure.

Overview of Budget 2024 Expectations

Scheduled for February 1, 2024, Union Finance Minister Nirmala Sitharaman will present the interim Budget for the fiscal year 2024-25. This interim Budget is very significant as it precedes the general elections. This means that it will likely set the tone for the economic policies of the upcoming government. Typically, interim Budgets presented before elections are cautious in introducing major tax proposals, but they play a crucial role in seeking parliamentary approval for government expenses for the initial months of the fiscal year. This budget will only be effective from the start of the upcoming financial year to July 2024 until after the results of the Lok Sabha elections come in. It’s important to note that the Financial minister has said that since it’s an interim budget, it will not have any major changes.

Historical Trends and Precedents

Historical trends suggest that interim Budgets often serve as a precursor to the full Budget that follows the formation of the new government post-election. These budgets also tend to address immediate economic challenges and seek approval for essential expenditures. Experts believe that the government may use the interim Budget to introduce measures aimed at addressing immediate economic problems that cannot wait for the full budget announcement. This includes steps to stimulate consumption, support the rural economy, and also control inflation.

Key Tax Changes Expected

1. Income Tax Budget Expectations:

Tax Slabs and Deductions:

• Businesses and individuals are keenly awaiting changes in income tax slabs and deductions. Speculations suggest that the government might consider adjusting tax slabs to provide relief to various income groups. There is an expectation for an increase in the standard deduction or a revision of income tax brackets to align with the changing economic landscape. Specifically, individuals with higher income tax slabs are expecting certain exemptions and deductions to reduce their tax load of Income tax Return filing.
• Expectations include harmonizing TDS and TCS provisions for the purchase of goods. Stakeholders have suggested shifting primary liability to buyers for deducting TDS, easing hardship on sellers. This aims to streamline taxation, eliminating the need for sellers to collect TCS when buyers do not comply. 
• There is also an expectation for a credit option for the time period from when TDS is cut till it can be claimed at the end of the fiscal year.
• Anticipated reforms in personal tax involve discontinuing TCS on overseas remittance for stock options and rationalizing withholding tax for e-commerce. Stakeholders suggest changes like applying withholding tax only on incremental amounts in multi-operator transactions and clarifying scenarios involving multiple platforms. 

Corporate Tax Rates:

• The corporate sector is anticipating reforms in corporate tax rates. The government may explore measures to encourage investments as well as economic growth by considering changes in corporate tax structures.
• An extension of the concessional 15% income tax rate for new manufacturing units might be on the table to incentivize private investments.

Ease of Paying Taxes:

• The government is expected to continue its focus on ease of paying taxes. Such as, last year the government introduced the ability to pay income tax via credit card, this significantly improved ease of paying taxes and now people can pay their taxes using credit. This involves streamlining tax processes and reducing the burden on businesses and individuals.
• Legislative reforms are anticipated to be a work in progress, with potential improvements to make the tax system more efficient.

Goods and Services Tax (GST) Indirect Tax Expectations:

• The Interim Budget is expected to focus on streamlining Customs law compliance over GST law, typically addressed in GST Council meetings. There are also anticipations for potential changes in GST rates, with businesses seeking a reduction in GST on essential and aspirational appliances. Additionally, many expect to see a streamlining of GST processes and further incentives for businesses to enhance compliance.
• A Revised Annual GST Return Form is expected to be introduced, allowing the rectification of errors in the GSTR-9 form, especially for B2B transactions.
• Many are expecting a new reverse charge-based mechanism for better GST compliance. Large taxpayers could directly pay GST dues for turnovers exceeding Rs.100 crore or Rs.500 crore, easing compliance for small vendors as well as facilitating smoother transactions for large enterprises.
• The upcoming Union Budget expectations also include addressing challenges faced by e-commerce operators. Currently, a 1% GST TCS on net taxable supplies is required, even for zero-rated supplies, causing cash flow issues for exporters. Stakeholders anticipate amendments to exempt GST TCS for e-commerce operators on zero-rated supplies, easing compliance.

2. Industry-Specific Union Budget Expectations:

Manufacturing and Exports:

• Businesses in the manufacturing sector are looking forward to the extension of the sunset date for commencing manufacturing. This extension is expected to encourage investments and exports.
• The government might consider measures to promote ease of doing business and also provide tax incentives to stimulate the manufacturing sector.

FMCG Sector:

• The Fast-Moving Consumer Goods (FMCG) sector expresses optimism, expecting transformative measures from the budget.
• Focus on rural demand, agricultural growth, and measures to safeguard oilseed farmers’ interests are highlighted as key Union Budget 2024 expectations.

Logistics Sector:

• The logistics sector advocates for strategic allocation towards infrastructure development and emphasizes digitization to enhance efficiency.
• Expansion of airports, digital advancement in customs clearance, as well as supportive budgetary emphasis, is crucial for sustainable manufacturing and trade.

Oil and Gas Sector:

• The oil and gas industry is seeking reallocation of expenditures to enhance green and sustainable energy. Many oil PSUs are actively working toward net-zero goals, and are expecting incentives for renewable energy sources.
• Import duty relaxations on essential machinery and incentives for sustainable mining technologies could be on the agenda.

Mining Industry:

• The mining industry views the budget as an opportunity for sustainable growth, further emphasizing the need for exploration facilitation.
• Proposals include incentives for modernizing mining infrastructure, exploring beyond mining leases, as well as leveraging mine tailings for resource efficiency.

Education Sector:

• Stakeholders in the education sector call for prioritizing AI integration in education, aligning with the National Education Policy (NEP) 2020.
• They are also expecting an emphasis on strategic funding for AI-driven educational models as well as digital infrastructure for inclusive and effective learning.

Consumer Durables Industry:

• The consumer durables industry expects a reduction in GST, reinforced support for PLI schemes, and tax breaks for raw materials.
• Infrastructure development, innovation, substantial funds for R&D, and regulatory streamlining are crucial for sustainable practices as well as global competitiveness.

Equity Markets:

Overall Expectations:

• Sustain and accelerate government capex, especially in futuristic industries.
• Maintain fiscal prudence with a 4.5% fiscal deficit target by FY26.
• Restructure divestment, emphasizing the National Monetization Plan.

Business Expectations:

• Provide incentives for merchandise exporters, addressing the impact of the Red Sea crisis.
• Extend Production Linked Incentives (PLI) to more sectors, emphasizing import substitution.
• Enhance ease of doing business, attracting global investors and ensuring timely decision-making.
• Support emerging sectors such as AI, ML, IOT, and green technologies.

Taxation Expectations:

• Consider reduction in long-term capital gains tax, that is making holdings beyond three years tax-free.
• Reform dividend tax, exempting mutual fund dividends from peak tax and providing concessional rates.
• Retain a lower limit in the new tax regime to incentivize wealth creation.

Consumer Demand Expectations:

• Indirectly boost rural demand through measures like gainful employment schemes and higher MSP.
• Potential GST tweaks on essential items to offset inflation impact.
• Explore tax exemptions and rate reductions to stimulate consumer spending.
• Consider a housing push, making home loans more accessible and lowering costs.

3. Fiscal Deficit and Economic Policies:

Fiscal Deficit Targets:

• Analysts predict that Finance Minister Nirmala Sitharaman might target a fiscal deficit of 5.3% of GDP in the upcoming budget for FY25.
• Despite potential poll pressures, a further reduction in fiscal deficit is anticipated, reflecting the government’s commitment to fiscal consolidation.

Measures to Boost Consumption:

• To stimulate consumption, one strategy involves injecting more money into the hands of people. This could be achieved by reducing the tax burden through adjustments in tax slabs or an increase in the standard deduction.
• Experts anticipate additional SOPs for women and marginalized communities to boost consumption ahead of the general elections.

4. Incentives for Green Hydrogen and Power Sector:

• The power sector is seeking more finance and incentives, particularly for the National Green Hydrogen Mission (NGHM).
• Proposals include increasing funding for infrastructure development, improving efficiency, as well as advancing renewable energy projects.

5. Digital Commerce and Infrastructure:

• Union Budget 2024 Expectations for Digital Commerce and Infrastructure include a focus on bolstering investments in the Open Network for Digital Commerce (ONDC) and digital public infrastructure.
• This aligns with the evolving consumer behavior and also aims to keep the industry ahead in the digital age.

6. Focus on Women-Led Development:

• Experts emphasize the need for government policies to boost women-led development. This includes providing finance to women as an engine of growth and also addressing gender-specific challenges.
• The budget may witness initiatives to integrate a gender lens into energy policies, ensuring clean fuel as well as improved living conditions for women.

Conclusion

In conclusion, the Union Budget 2024 holds immense significance for businesses and individuals, with a keen focus on income tax budget expectations. While stakeholders eagerly await adjustments income tax slabs, GST Return, corporate tax rates, and other fiscal policies, the government is also expected to address immediate economic challenges, stimulate consumption, and promote inclusive development. The intersection of various industry-specific Union Budget 2024 expectations and broader economic policies will shape the trajectory of India’s fiscal landscape in the coming years. As we await the Finance Minister’s presentation on February 1, 2024, the nation watches with bated breath for the unveiling of policies that could define the economic narrative for the year and beyond.