In the last 20 years, the budget allocation had been more focused on welfare & rural spending and infrastructure compared to defence. As government finds it very difficult to resist their spending, so as a result, they had to cut funding in a few sectors like cut on defence allocation has increased savings to pay for infrastructure and other welfare schemes.
And again, this year, the Union Budget 2023 is expected to put the economy on an accelerated growth path, especially after the adverse impacts caused by the pandemic. Some of the major agendas of the government as to the preparation of this budget are the amendments in the tax law to bring sustainable growth, infrastructure investment, focus on R&D spending, and encouraging incentives. Also, in order to boost the ease of doing business in India, the initiatives to be taken will be an ease in tax compliance and digitisation.
Experts believe that Finance Minister Nirmala Sitharaman is aiming to boost growth while relying on asset sales and avoiding subsidies to cover the deficits. So, from an optimistic view, let’s check out the important changes that will be brought by this budget in this article.
What is Union Budget 2023?
The first general budget was presented by India's first Finance Minister, Sir R.K. Shanmugham Chetty on November 26, 1947. In the beginning, much attention was given to the agricultural sector, but later, the focus shifted to other sectors, including the industrial, financial and other sectors.
Constitutional Provision for Union budget
The term budget is borrowed from the English word "Bowgette". A Union budget is an estimation of the revenue & expenditure of the Central Government over a period of time, that is one year. The Union Budget also referred to as the Annual Financial Statement is provided under Article 112 of the Indian Constitution, and is presented every year on the 1st of February by the Finance Minister of India in the Parliament.
Why is the Union Budget important every year?
There are two significant functions performed by the government every year when it comes to budget:
1. The GoI estimates the expected expenditures (expenses) for developmental works in several other sectors of the economy such as Manufacturing, Education, Health, Transport, etc.
2. To meet & take into consideration the expenditures for the coming financial year, so that the Government tries to work out the sources of revenue (earnings) such as by imposing new taxes or increasing or decreasing the previous rates of taxes, or by removing subsidies on any commodity, govt. Can balance its earnings to control expenditures.
Hence, the details of such income & expenditures statements are called ‘Budget’.
What we can expect from Budget 2023?
Changes in tax slabs of salaried employees
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Taxpayers are positive tax slabs will change for salaried employees hoping that the current basic exemption limit of Rs. 2.5 lakh will rise to Rs. 5 lakhs under both tax regimes as this limit of Rs 2.5 lakh remained unchanged since FY 2014-15.
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Nirmala Sitharaman may increase the limit for the highest tax slab from Rs 10 lakh for the 30% tax bracket to Rs 20 lakh.
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It is also expected that due to the slow growth in the housing sector, the exemption limit of Rs 2 lakh on home loan interest payment must be raised to Rs 3 lakhs.
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Also, two-fold benefits will be a relief to salaried voters in the next 16 months election season & also a push to the real estate sector which accounts for 8 per cent of GDP
Changes to Section 80C of the I- T Act
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It is expected that the 80C limit is supposed to increase. Section 80C of the Income Tax Act states tax deductions of individuals and HUF of up to Rs1.5 lakhs.
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A taxpayer under Section 80C can claim an exemption for the investments made and expenses incurred up to Rs 1.5 lakhs in a financial year as the investments & expenses in the financial year qualify for a deduction claim.
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So, given the drop in the gross national savings from 37% to 27%, it is said that the perimeter of Sec 80C needs to be expanded to RS 2.5 lakhs to improve savings.
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Section 80C contains provisions for tax deductions on tuition/education fees paid by a parent for their children. Taxpayers can avail deductions to a tune of Rs 1.5 lakh under Section 80C. This will also be revised.
Health & Child education allowance
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Section 80D permits an individual to claim a deduction for payment of medical insurance premiums of up to Rs. 25,000 and on the other hand, Rs. 50,000 in the case of senior citizens. Looking upon the demand for health expenditure due to the risk of the fourth Covid wave, Sec. 80D limit is set to increase wherein the government is expected to provide tax relief by revising the erstwhile limit of Rs 25,000/Rs 50,000 to Rs 50,000/Rs 1 lakh, respectively.
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Presently, the Child Education Allowance provides exemptions of Rs 100 and Rs 300 per child per month for education and hostel expenses, which has not been updated for nearly 20 years. So, with the increasing cost of education, it may seem reasonable to raise the limits to Rs 1,000 and Rs 3,000 per child per month (for up to two children). Child education allowance is paid to government employees in India for their children's schooling and hostel facilities.
Changes in the surcharge rate
Discussing the surcharge rate, surcharge is an additional charge or tax. So, individuals who fall in the highest tax bracket (earning >Rs. 5 crore p.a.) are charged an effective tax rate of 42.744%. This rate needs to be excused to ensure that there is higher disposable income in the hands of the taxpayer.