Budget 2023 expectations highlights: Change in tax slabs, interest sops for home buyers, and uniform tax structure for capital gains demanded

If you go by net direct taxes, comprising personal income tax and the tax levied on corporate earnings, this fiscal year has seen a record growth.
The expected lower nominal GDP growth in 2023-24 on the back of threats of a incoming recession could impact income tax collection it is feared.

The net direct tax collection grew 19.55 per cent to Rs 12.31 lakh crore till January 10. This is 86.68 per cent of the Budget estimates for current fiscal year.

The forthcoming Budget will have revised revenue estimates for current fiscal year as well as tax collection estimates for the next year.

If one goes by the tax collections, several experts don’t expect a hike in the LTCG tax in the February Budget. It is expected the FM will skip the move bringing relief to Dalal Street investors. A judicious tinkering will boost bourses and even if that does not happen, the Street won't be complaining.

As Budget 2023 nears, industry players expect announcements by Finance Minister Nirmala Sitharaman on the national carbon market, green hydrogen production, and energy storage technology.

It is time to set up a robust national carbon credit market, said Manish Dabkara, Chairman and Managing Director of EKI Energy, who expects an accelerated move towards its development to support a low-carbon future.

“Another important aspect that needs attention in this year's budget is a ‘carbon market stabilization fund’ to encourage industries to take up investments towards low emission technologies and processes,” Dabkara told Moneycontrol.

Since this is the final budget before the elections, we believe that the government is in a better position to take risks going forward. This is also supported by the fact that the Indian government has recorded mega tax collections in 2022. India’s direct tax collection stood at Rs 14.71 lakh crore as of January 10, 2023, which is +24.58 percent higher than the same time period of the last year, highlighting India's huge consumption capability.

Gaurav Verma of 21G Investment Advisers

Long-term capital gains (LTCG) from the sale of listed equity shares and units of equity-oriented mutual funds are taxable, if the gain exceeds Rs 1 lakh per annum.This provision was introduced through the 2018 Finance Act, to encourage investments in diversified assets beyond listed equity shares and equity-oriented mutual funds.This category of long-term assets have enjoyed total tax exemption since 2004, since these transactions were subject to Securities Transaction Tax (STT).

While the withdrawal of STT appears unlikely, the expectation from retail investors is that the non-taxable limit of Rs 1 lakh per year could be increased to at least Rs 2 lakh.

As against the current three categories of holding period, the expectation is that this will be simplified to at least two categories.

For instance, capital gain on listed shares is considered as long term, if the holding period is 12 months. REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) are categorised as long-term capital assets, if held for at least 36 months.

To bring parity into tax treatment, and for the computation of capital gains tax, the holding period for units of REITs and InvITs should be standardised at 12 months, instead of 36.

“We expect that spends for Railways and Jal Jeevan Mission will remain steady and considering the inflation factor, the allocation could even go up materially,” says Priyankar Biswas, Vice President and Equity Analyst at Nomura.In the Union Budget, railway forms about 15 percent of the capital expenditure by the Government, highlighted Amit Anwani, research analyst at Prabhudas Lilladher.

He believes that the upcoming Budget would include a 12-15 percent YoY rise in railway-related capex. And the broader focus of the government would be revamping rail network, rail electrification, station redevelopment, Vande Bharat trains among other things, he added.

Even urban infrastructure is expected to be in focus, market participants said.

The exemption allowed for long-term capital gains on equity investments need to be further enhanced to account for inflation, rising income levels and to encourage more investors into equity markets, say analysts.

“Many times, investors are seen dabbling in stocks and units of equity mutual funds under the pretext of booking profit just because they are held for one year and 10 percent rate is applicable on long-term capital gains beyond the exemption limit of Rs 1 lakh. However, there is a need to encourage real long-term investing with suitable tax soaps,” said Nitesh Buddhadev, a chartered accountant and founder of Nimit Consultancy.

For senior citizens (individuals over 60 years of age) raising the basic exemption threshold from Rs 3 lakh to Rs 5 lakh, at par with that of very senior citizens (those over the age of 80 years) is a key demand. This is the limit up to which income is not subject to tax. In addition, there are several other needs that financial planners feel the finance minister ought to address in this Budget

The Association of Mutual Funds of India (AMFI) has proposed that the Union Budget 2023-24 should allow fund houses to outsource their fund management activities to other market-linked instrument providers like insurance companies.