The Central Budget & The Attendant Hoopla & Hubris..

I have been following the Budget exercises for donkey’s years. One should admit that this exercise has over the years transformed itself from a mundane event to a grand celebration of sort. However, it now deserves simply to be a non-event, particularly after the introduction of GST. In the Budget exercise secrecy may matter, but the underlying substantive nature of issues has become somewhat consistent over the years. In the olden days there were reasons for the Budgets to be feared and sometimes celebrated depending on what you get against what you had expected. The commercial negotiations between the state and the corporates for favourable treatment in Excise Duties and other financial benefits from the Budgets were open secrets. But no more. However, the rigours and the rituals associated with the Budget continues to this day. Not without reason. In fact, it has come to dominate the mind space so much that it can compete with our other national ritual called cricket. It is a kind of self-indulgence of the intellectual kind (I am avoiding the appropriate word for fear of it being dubbed as an unparliamentary one while talking about the most celebrated parliamentary proceeding) with the objective of impressing both your friends and enemies alike. With plenty of crafty politicians becoming Finance Ministers they could always spin a story or two with effortless ease about the state affairs of our economy. They could do this exercise convincingly with the connivance of pliable bureaucrats with no ideological background to speak of. With our penchant for keeping traditions intact, the Budget exercise starts with a halwa ceremony and ends with the usual convoluted logic session behind the Budget proposals. A long build-up thus comes to an end every year rather abruptly after the presentation of the Budget in the Lok Sabha. However, this exercise does not even end there. Many important proposals and detailing are either concealed in fine print or hidden from the Budget altogether. They are the so-called off-Budget items.  With this the credibility and sanctity of the Budget had already become a subject of derision especially since these documents are supposed to become refence points for investors from abroad and also for those who comment on the state of the economy for whatever it is worth. One welcoming feature is that this situation has changed of late. The Budgeting process may be a secret as before, but the Budget today is transparent without the usual fudging of figures. The present FM who took over the reins of the ministry during the Covid times also deserves praise for making a difficult job look simple. Be that as it may, let me now go over the proposals made by Madam Finance Minister Nirmala Sitharaman for the financial year 2023-24. The reason for her confidence may have emanated from the compliments that her boss paid her for her imaginative Budget even before it was presented! The detailed analysis of the Budget is available elsewhere in this issue of Bizsol Update. Permit me to highlight a few salient features of the Budget here.

A. The Background:

It is normal to brand a Budget by experts. There are, therefore, election Budgets, pandemic Budgets, wartime Budget, et al. Experts seem to have forgotten that for this government there should be a separate category of Budgets focused on our ethnicity. The Finance Minister’s speech was littered with Hindi and Sanskrit words. Credit to her that she could pronounce all those words despite being a South Indian. One look at the Budget presented by Madam Sitharaman would reveal what I mean. You have the usual Vasudaiva Kutumbakam and some new ones like Amrit Kaal, Jan Bhagidari, Vishwakarma Kaushal Samman, Ekalavya and the list goes on. Believe me, the list is quite long. This Budget also has plenty of schemes and initiatives with Sanskrit names in honour of our saints of yore.  The FM started the Budget invoking the spirits of our “Saptarishis” guiding us through our Amrit Kaal. These priorities in the name of our saints were: (1) Inclusive Development, (2) Reaching the Last Mile (3) Infrastructure and Investment, (4) Unleashing the Potential (5) Green Growth (6) Youth Power and (7) Financial Sector. With this, we are taking a march to the future with our saints for company. Be that as it may, with the general elections coming up in 2024 it was generally expected that this year’s Budget, being the last full one before that, would be populist in substance. However, credit goes to the PM and FM that they did not indulge themselves with populist schemes and wasteful expenditures all in the names of those who neither come to know anything about such Schemes nor do they seldom get to enjoy the money spent in their names. This Budget had a stated purpose and an objective. Full marks to those who drafted the document. With this macro picture as the background, let us move on with the salient features of the Budget for the coming year.

B. The Taxes and Us:

The FM projected a revised estimate of Fiscal Deficit for 2021-22 at 6.4% as estimated in the previous Budget proposals. The fiscal deficit for 2022-23 is estimated to be 5.8%. With this the FM is confident of achieving the target of 4.5% by 2025-26. This year’s deficit is expected to be met by borrowings estimated at Rs. 15.4 crores. The proposals made by the Finance Minister are as follows:

1.Customs Duties: The FM has fiddled with the Customs Duties on some of the items with the aim of promoting exports, boosting domestic manufacturing, enhancing domestic value addition, encouraging green energy and mobility. The changes are largely cosmetic though perhaps essential. She, however, did not forget tax the favourite whipping horse of all FMs that sin goods, viz., cigarettes.

2. Direct Taxes:  After indulging in some self-congratulations in the area of processing of Income Tax Returns, she has promised to improve the grievance redressal mechanisms. As far as MSMEs are concerned, she has enhanced limits of 3 crore and 75 lakh respectively for those dealing in goods and services respectively under presumptive taxation scheme. She promised to extend concessions targeted at the Cooperative sector and Startups. There are a few rationalising proposals. It is in the area of Personal Income Tax the FM had the most important announcements to make. Ever since the introduction of the new Direct Taxes regime with no exemptions, it had been tough for her to find sufficient takers for the new system mainly because people were not sufficiently enthusiastic to shift to the new system in the absence of any tangible incentives to do so. By extending a higher rebate, restructuring the tax slabs and allowing standard deductions she has got the middle classes drooling for the new system. Thus, the no exemption scheme is sought to be sold to people through an exemption! The fourth proposal the FM announced was a drastic reduction in income tax for the “rich” gentry. She did so by reducing the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This would result in reduction of the maximum tax rate to 39 per cent (for the rich). There were some goodies for the salaried class too in the form of raise in the ceiling for taxation of leave encashment. In case you had a doubt about which scheme you should choose, the FM has clarified that she has made the new scheme would be the default scheme. She proposed to increase the rebate limit to 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to 7 lakhs will not have to pay any tax. That is big for the middle class.

3.Goods and Services Tax: The Department seems to have heard the difficulties expressed by the assessees. The proposals made by the Finance Minister was largely to redress these difficulties especially now when GST collections are showing a healthy growth. One of the important conditions for taking input tax credit is that if payment is not made to the supplier within period of 180 days from the date of invoice, then the tax liability has to be discharged along with interest as applicable. It will ease the difficulties faced by the taxpayers in the calculation of interest and payments through electronic credit ledger.

C. The Hits and Misses:

1.There was a sense of relief in many quarters after the Budget. It was widely speculated that the Budget would tamper with the taxation of capital gains on sale of assets. With successive Finance Ministers the scope and substance of taxation of capital gains have already become not only complex but questionably illogical. A measure such as this, though justified, would have roiled the markets. There was relief all round though in my opinion it should have been done and the taxation structure should have been made more logical.

2.The Finance Minister proposed to limit deductions from capital gains on investment in residential houses under Sections 54 and 54F to Rs 10 crore. This was a great dampener. This will have a negative impact on the demand for ultra-luxury homes particularly in big cities.

D. The Talking Points:

1.The FM had another debatable proposal. Income from traditional insurance policies where the premium is over Rs 5 lakh will no more be exempt from taxes, Finance Minister announced in her Budget speech. This will not affect the tax exemption provided to the amount received on the death of the person insured. It will also not affect insurance policies issued till March 31, 2023,” the finance minister said.

2.Those who thought that the Budget would be a political one came quickly to the conclusion that it was not so. Think again. There is a proposal in the Budget with a justification statement like “It has been observed that there are only three funds based on names of the persons in the said section. it is proposed to omit sub-clauses (ii), (iiic) and (iiid) of clause (a) of sub-section (2) of section 80G of the Act”. In the first reading the proposal appears to be innocuous. But it is not so. The names of the people mentioned here are Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi. I personally welcome this step whatever be the provocation. Our need to deify people should stop somewhere.

3.Roads, both urban and rural, had been a priority area under infrastructure for successive BJP governments. In this Budget the allocation proposed for Railways is an impressive 2.40 lakh crores compared to 1.40 lakh crores in the previous fiscal. This is the highest ever allocation that the Railways have received. This augurs well for improving the infrastructural facilities in the country.

4.The Finance Minister raised allocation on capital expenditure (capex) by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy. The capex in the previous year was pegged at Rs 5.5 lakh crore. This is a prudent and commendable proposal in the Budget. This will have a huge multiplier effect on the economy.

5.Up to 50 new tourist destinations will be developed; an information-driven app will be created for tourists; and ‘’Unity Malls” will be set up in State capitals to showcase handicrafts and products with geographical indication (GI) status. These are among the slew of measures announced in the Union Budget for promotion of tourism that will go into “mission mode”, said Finance Minister. Tourism has remained a neglected subject for such a long time.

6. The budget for the Ministry of New and Renewable Energy has also increased this year – by more than Rs 3,000 crore. It rose from a budget estimate of Rs 6,900 crore last year to Rs 10, 222 crore in the Union Budget 2023. Way to go.

We shall meet again with another round of hoopla and hubris next year this time.

Thank You

Venkat R Venkitachalam

Company Secretary