Union Budget Expectations FY2024-25

Finance Minister Nirmala Sitharaman readies to unveil her 6th straight budget next month, mapping out fiscal plans as the current government's term winds down. With general elections looming, this budget takes the form of an interim budget. An interim budget allows spending continuity without major policy changes for the next few months. The full FY2024-25 budget awaits the new government. This pre-election budget will likely focus on voter-friendly measures like tax relief to spur consumer spending. 

Interim Budget 2024: What's the Logic

But don't let the interim tag fool you – this budget promises to be anything but bland. As elections approach, an interim budget, resembling a 'Vote on Account,' authorizes essential expenses without major policy announcements. This stopgap spending plan provides financial continuity for the incumbent government's remaining months in office. The newly elected regime then has the leeway to either retain or revise the projections as per their agenda. Unlike a full budget, a vote-on-account entails quick changes without prolonged debate on proposals. 

Reducing Fiscal Deficit

Despite elections, fiscal prudence remains vital. The upcoming interim budget should adhere to the post-pandemic fiscal consolidation roadmap - trimming the deficit to 4.5% of the GDP by 2025-26. Having peaked at 6.4% in 2022-23, the fiscal deficit was budgeted at 5.9% for 2023-24. No uncontrolled spending sprees here! But the government is not penny-pinching either. While quality spending and capital outlays will continue, government officials revealed that it is pragmatic to expect a slower pace of increase. Market confidence hinges on sustained deficit reduction efforts. 

Changes to the Tax Structure

Rumours are abound about new tax breaks and exemptions, especially for those sticking with the traditional old tax regime! The interim budget may introduce targeted tax reliefs exclusively for taxpayers under the old regime, reports suggest. Proposals include extending income tax exemption limits to provide some reprieve from mounting inflationary pressures. Additional measures like waiving taxes on overseas credit/debit card usage up to ₹7 lakh annually could offer flexibility for consumer spending. Such focused incentives that leave more disposable income in people's hands could provide an economic stimulus. 

Expectations for the Home Loan Segment

Housing sector expectations revolve around hiking the maximum tax deduction for home loan interest, currently capped at ₹2 Lakhs under Section 24. Industry bodies have lobbied for an increase to at least ₹5 Lakhs to encourage home ownership. Similarly, expectations include extending the 15% concessional rate under the new tax regime beyond March 2024 for affordable housing. Tweaks that maximise savings from home loans may drive growth in real estate. So, keep your fingers crossed for bigger savings on your dream home! 

Higher Budget for Food and Fertiliser Subsidies

India weighs allocating about ₹4 Lakh Crores for food and fertiliser subsidies in 2023-24, according to reports. This huge outlay, almost one-tenth of budget expenditure, indicates poll-driven welfare priorities. Currently, subsidies account for over ₹45 Lakh Crores in spending this fiscal year. Boosting such subsidies temporarily cushions people's living costs while aiding the farm economy. However, high global commodity prices pose fiscal challenges in balancing welfare and prudence. So don't expect a free-for-all – the government's still being cautious. 

Limited Spending to Align with Growth

Balancing economic stimulus with fiscal prudence remains tricky in an election year. The interim budget may limit overall spending growth to 10% over this year's estimates. Despite robust 7.3% GDP growth projected for 2023-24, the focus should shift towards consolidation as recovery gains steam. Keeping spending aligned with revenue trajectories while providing an investment boost sets the tone for the next government's fiscal policy. 

Further Incentivising Investment Deductions

With domestic savings rates declining, the budget could reverse course by hiking tax-deductible investment limits eroded by inflation over time. Spending might increase, but it'll be focused on smart investments that pay off in the long run. For instance, doubling the cap of ₹1.5 Lakhs on deductions for investments in stocks, mutual funds and insurance can incentivise long-term retail participation. Similarly, enhancing deductions for preventive health checkups and insurance beyond existing thresholds will encourage salaried taxpayers to secure personal finances. 

Providing Tailored Incentives for MSMEs

MSMEs are pivotal to India's economy but often lack resources for sustainability upgrades. The budget could offer some tasty incentives for MSMEs to go green and adopt sustainable practices. This might include the introduction of targeted incentives for small businesses to invest in clean production practices. Soft loans, production-linked incentives and skilling programs can catalyse widespread adoption of efficient manufacturing with a focus on energy and resources. Incentivising MSMEs’ green transition complements broader net zero targets while ensuring their competitiveness. 

Expected Changes in the GST Regime

The upcoming Interim Budget for 2024 is expected to prioritize the streamlining of Customs law compliance rather than GST law. Amendments to the Central GST Act may be made to align with certain GST Rules. The budget is anticipated to introduce a modified annual GST return form, a novel reverse charge-based mechanism to enhance GST compliance, and permission for taxpayers to rectify errors in the GSTR-9 form. Large taxpayers may be able to pay their GST dues directly to the government instead of to small businesses to ease the latter's compliance burden. 

While this year's budget takes the form of an interim budget, its focus remains balancing fiscal consolidation with measures to stimulate growth and ease the burden on taxpayers. Potential tax breaks, higher deductions, and increased spending on infrastructure and social welfare are key areas to watch. While details remain under wraps, the overall approach signals a commitment to responsible spending and long-term economic stability. Stay tuned for the full budget in February to discover the complete plan for India's economic journey ahead.