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  • Writer's pictureTeam Mindbaux

Highlights of the Union Budget 2023-24

Updated: Feb 1, 2023

The Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman presented the Union Budget 2023-24 in Parliament today.

Budget 2023-24, the last full budget by the current government before the 2024 general elections, was presented amidst the continued risk of a slowdown in key developed countries – thereby justifying its focus on capex, manufacturing, and industry. Although the capital investment outlay of the budget was increased by 33.4% from the previous budget to INR 10 lakh crore (3.3% of the GDP), it was able to delicately balance capex programmes to support economic growth with fiscal consolidation and prudence. Additionally, the government also focused on simplifying the tax regime, boosting the rural economy, meeting its green goals, improving ease of doing business and expanding digitization efforts while lending support to urban infrastructure, education and upskilling.


Below are the key initiatives announced by the government:

  • The outlay for PM Awas Yojana was increased by 66% to over INR 79,000 crore in a bid to boost housing.

  • Provision of INR 35,000 crore for capital investments towards energy transition, net zero objectives, and energy security.

  • A capital outlay of 2.40 lakh crore has been provided for the Railways. This is the highest-ever outlay and is about 9 times the outlay made in 2013-14.

  • A National Data Governance Policy will be brought out to unleash innovation and research by start-ups and academia.

  • The digital ecosystem for skilling will be further expanded with the launch of a unified Skill India Digital platform. To skill youth for international opportunities, 30 Skill India International Centres will be set up across different States.

  • Revamping of the credit guarantee scheme for MSMEs from 1st April 2023 with an infusion of INR 9,000 crore in the corpus

  • New co-operatives that commence manufacturing activities till 31st March 2024, shall get the benefit of a lower tax rate of 15%.

  • In a move towards diversifying revenue streams of the government, cities will be incentivized to improve their credit worthiness for municipal bonds.

GREEN GOALS

  • The National Green Hydrogen Mission, launched recently with an outlay of INR 19,700 crore, would target reaching an annual production of 5 MMT by 2030. The aim is to facilitate transition to a low-carbon intensity economy, reduce dependence on imported fossil fuels imports, and become a dominant name in this sunrise sector globally.

  • INR 35,000 crore allocated as priority capital investments for energy transition and net zero objectives and energy security under the aegis of the Ministry of Petroleum & Natural Gas.

  • The government would launch a Green Credit Programme under the Environment (Protection) Act to incentivize environmentally sustainable and responsive measures taken by companies, individuals and local bodies.

  • Customs duty exemption has been extended to the import of capital goods and machinery required to manufacture lithium-ion cells for batteries used in electric vehicles.

  • Replacing old polluting vehicles is an important part of greening the economy. In furtherance of the vehicle scrapping policy mentioned in Budget 2021-22, funds have been allocated to scrap old vehicles of the Central Government. States will also be supported in replacing old vehicles and ambulances.

INFRASTRUCTURE

  • An Urban Infrastructure Development Fund (UIDF) would be established under the National Housing Bank with an outlay of INR 10,000 crore per annum. It will fund urban infrastructure creation by public agencies in Tier 2 and Tier 3 cities.

  • The government has extended the 50-year interest-free loans to state governments for one more year to spur investment in infrastructure, with an enhanced outlay of INR 1.3 lakh crore.

  • Railways have been allocated a capital outlay of INR 2.40 lakh crore, which is the highest-ever received by this sector so far.

  • The government has identified 100 critical transport infrastructure projects for first- and last-mile connectivity for ports, coal, steel, fertilizers, and food grain sectors which would be taken up on priority. They would receive an investment of INR 75,000 crore, including INR 15,000 crore from private sources.

  • The government will also revive 50 additional airports, heliports, water aerodromes and advance landing grounds for enhancing air connectivity.

  • Coastal shipping will be promoted as AN energy-efficient and lower cost mode of transport, both for passengers and freight, through PPP mode with viability gap funding.

  • The Infrastructure Finance Secretariat, established recently, would assist stakeholders to garner private investment in infrastructure, including railways, roads, etc., which is currently predominantly dependent on the public sector.

  • An expert committee would take a relook at the Harmonized Master List of Infrastructure with an aim to reform its classification and financing framework.

  • The government would undertake property tax governance reforms and ring-fence user charges on urban infrastructure; further, the government plans to launch municipal bonds which would provide incentives to cities for improving their credit worthiness.

TOURISM & HOSPITALITY

  • With an integrated and innovative approach, at least 50 destinations will be selected through challenge mode. These destinations would be selected on the basis of aspects such as physical connectivity, virtual connectivity, tourist guides, and tourists security. All these aspects would be made available on an app to enhance tourist experience.

  • Sector-specific skilling and entrepreneurship development will be dovetailed to achieve the objectives of the ‘Dekho Apna Desh’ initiative. Under the “Vibrant Villages Programme”, tourism infrastructure and amenities will also be facilitated in border villages.

  • States will be encouraged to set up a Unity Mall in their state capital or most prominent tourism centre/ the financial capital for promotion and sale of their own ODOPs (one district, one product) and other handicraft products, and for providing space for such products of all other States.

EDUCATION & SKILLING

  • The government has announced the formation of the National Education Policy, focused on skilling, adopted economic policies that facilitate job creation at scale, and have supported business opportunities.

  • Pradhan Mantri Kaushal Vikas Yojana (4.0) will be launched to skill the youth within the next three years. The scheme will cover new age courses such as coding, AI, robotics, mechatronics, IOT, 3D printing, etc. To skill the youth for international opportunities, 30 Skill India International Centres will be set up across different States.

  • The digital ecosystem for skilling will be further expanded with the launch of a unified Skill India Digital platform for enabling demand-based formal skilling, linking with employers including MSMEs and facilitating access to entrepreneurship schemes.

  • For realizing the vision of “Make AI in India and Make AI work for India”, three centres of excellence for Artificial Intelligence will be set-up in top educational institutions. Leading industry players will partner in conducting interdisciplinary research and provide scalable problem solutions in the areas of agriculture, health, and sustainable cities.

START-UPS

  • The condition of continuity of at least 51% shareholding for setting off of carried forward losses has been relaxed for an eligible start-up, if all the shareholders of the company continue to hold those shares. At present, this relaxation applies for losses incurred during the period of 7 years from incorporation of such start-up, which has now been increased to 10 years.

  • Certain start-ups are eligible for some tax benefit if they are incorporated before 1st April, 2023. The period of incorporation of such eligible start-ups has been extended to on or before 1st April, 2024.

MANUFACTURING AND DUTIES

  • New co-operatives that commence manufacturing activities till 31st March 2024, shall get the benefit of a lower tax rate of 15%.

  • To further deepen domestic value addition in manufacturing, relief in customs duty on products across segments such as agriculture, minerals, electronics, chemical goods etc. was provided, while continuing with the concessional duty on lithium-ion cells for batteries till 2024.

  • At the same time, to ensure the competitiveness of the Indian manufacturing sector, the duty structure for various goods such as automobiles (semi knocked down and completely built units), including EVs has been revised upwards.

  • To facilitate availability of raw materials for the steel sector, exemption from basic customs duty (BCD) on raw materials for manufacturing CRGO Steel, ferrous scrap and nickel cathode has been continued.

  • The concessional BCD of 2.5% on copper scrap has also been continued to ensure the availability of raw materials for secondary copper producers.

TAXATION

  • To ensure that tax concessions reach their targeted audience, the government has capped deductions from capital gains on investment in residential houses under Sections 54 and 54F to INR 10 crore. The intention is to deter tax exemption for extremely high-value transactions in the residential space.

  • The government has increased the income tax rebate limit from INR 5 lakh currently to INR 7 lakh in the new tax regime. Therefore, persons with an income of up to INR 7 lakh would not be required to pay income tax.

  • The slabs under the new personal income tax regime, too have been reduced from six to five. The tax net previously started from INR 2.5 lakh but has now been increased to INR 3 lakh.

    1. The income tax liability is zero for the INR 0-3 lakh bracket.

    2. For the INR 3-6 lakh bracket (previously INR 2.5-5 lahks), the taxation rate has been fixed at 5%.

    3. For the INR 6-9 lakh category (previously INR 5-7.5 lahks), the taxation rate stands at 10%. Under the new regime and the new slabs, those with an annual income of INR 9 lakh would see their tax liability reduced by about 25%.

    4. For the INR 9-12 lakh category (previously INR 7.5-10 lahks), the taxation rate is 15%. Those with an annual income of INR 11 lakh (without claiming any tax deductions) would see their tax liability fall by about 20%.

    5. For the INR 12-15 lakh category (previously INR 10-12.5 lahks), the taxation rate stands at 20%. Those earning INR 15 lakh would also see their tax liability reduced by about 20%.

    6. Income levels beyond INR 15 lakh would be taxed at 30%. The additional category of 25% taxation on INR 12.5-15 lakh has been removed.

  • The standard deduction benefit has been extended to the new regime as well for the salaried class as well as pensioners.

  • The highest surcharge rate has been reduced from 37% to 25% in the new tax regime. This would result in the reduction of the maximum tax rate to 39% from nearly 43% now.

  • The limit of INR 3 lakh for tax exemption on leave encashment on the retirement of non-government salaried employees has been increased to INR 25 lakh.

OUR THOUGHTS


In line with the previous years, the focus of the government remained on manufacturing, ease of doing business, a green economy and social development. The increased outlay for both railways and the PMAY scheme are welcome moves for the real estate sector, although key recommendations on reviving affordable housing schemes such as the Credit Linked Subsidy Scheme (CLSS) and tax holidays for developers could have been instrumental in achieving the government’s vision of housing for all. The rationalization of GST for key construction materials such as cement and steel due to rising building costs could also have been crucial in cushioning high capital values, especially in a scenario of rising mortgage costs and global headwinds.


The continued emphasis on enhancing urban infrastructure in tier II and III cities would go a long way in making them high-growth nodes, while the customs duty relief on components across sectors would give impetus to the manufacturing sector. Furthermore, the infusion of INR 9,000 crore in the credit guarantee scheme for MSMEs and enhancing their taxation limits from INR 2 crore to INR 3 crore would reinvigorate the sector as it was significantly impacted due to the COVID-19 pandemic.


Further, fiscal deficit targets of 6.4% and 5.9% of the GDP for FY 2022-23 and FY 2023-24, respectively, and the reiteration of the government’s intention to reduce it to 4.5% of the GDP is a reaffirmation of India’s health macro-economic fundamentals. Although the pressure to lower the fiscal deficit will be higher in the next two years, we believe this target is achievable due to India’s continued attractiveness as an investment destination.

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